Business services is one of the fastest-growing industries in Europe, representing around 12 per cent of the EU economy. But a lack of understanding persists about the sector’s role and its contribution to both corporate success and economic growth. High-profile failures give the impression of poor performance and oversight but dig beneath the surface and there are numerous successful businesses helping to promote efficiency in sectors ranging from drug discovery to logistics.​

BUSINESS

In recent years, the business services sector seems to have attracted attention for all the wrong reasons. From the private to the public sector there are numerous examples of bungled operations, which have caused enormous disruption and intense reputational damage. 

Security operations have gone awry, catered meals have been reviled, care homes have been accused of neglect: the list is long, wide ranging and almost guaranteed to provoke consumer outrage.  Just a few months ago, Swedish prime minister Stefan Löfven faced calls for his resignation after a botched IT outsourcing deal allowed Eastern European computer experts unauthorised access to confidential information on all drivers and vehicles in Sweden, including military data. The scandal was billed the worst security leak since Swedish security officer Stig Bergling was recruited to become a double agent by the Soviet Union 40 years ago. And in the US, President Trump railed repeatedly against offshore business outsourcing during his presidential campaign, claiming that it acted as a drain on US jobs and investment.

Taken to task

So how did business services become the object of such derision, despite being such a large and critical part of modern industry?

Oliver Hemming, a strategy consulting partner at Deloitte, says that one of the challenges the business services sector faces is that it is a very broad sector with both good and bad examples. 

“Business services or outsourcing can mean different things to different people today. It could be the blue-collar outsourcing of cleaning or security services, that most people would recognise, or it could be higher margin, white-collar work such as business process outsourcing (BPO) where a business function, such as customer engagement or management of contracts, is handled by a third party. That range doesn’t really help when you are trying to describe business services to people or explain the value that it can provide,” he explains. 

Common thread

Emma Watford, head of business services at Bridgepoint, believes that even though the sector encompasses many areas, there is a common thread. “It is an exceptionally broad sector, but effectively it is about one company providing a service to another so that business can better focus on its core activity. Crucially too, it is about supplying a service in a way that adds more value to the company than if that business did the work itself,” she says. 

In today’s world, many business services companies are becoming increasingly sophisticated and highly skilled, providing outsourcing services that are both more efficient and more cost-effective than can be achieved in-house.   Element Materials Technology, which is majority owned by Bridgepoint, is highly skilled in testing a diverse range of materials, from metals to ceramics, used by manufacturers in the aircraft, oil and gas, defence and medical devices sectors, among others. 

Call the expert

Charles Noall, president and CEO of Element, says that the group’s services go far beyond mere testing of materials. In many cases, Element runs laboratories and staff at some of the world’s biggest manufacturers. It also has purpose-built facilities for quick testing of parts and has invested in the latest technology, such as computed radiography. As Noall explains: “About 75 per cent of our business is in the US and companies come to us because all our labs are independent and accredited and we have the scale and capacity to turn things around quickly.

“The work we do can reduce a company’s working capital. We also constantly keep on top of regulation and we have the knowledge and expertise that companies can’t really replicate themselves without a lot of time and investment,” he adds. 

Element recently acquired rival Exova in a deal that will dramatically increase its scale from 60 labs to 200 and from 2,000 employees to 6,000. Sales at the enlarged group are expected to leap from about $300 million to more than $750 million. Element’s greater scale in a highly regulated and fragmented market could be vital at a time when major aerospace companies, such as Boeing and Airbus, have launched new engine development programmes that will lead to a significant increase in testing requirements.

 

BUSINESS

Efficiency drive​

Efficiency drive

Business services is about providing a service so that a business can better focus on its core activity. Crucially too, it is about supplying a service in a way that adds more value to the company than if that business did the work itself”​

If you can think of any organisation that might need to implement or manage change, potentially at a huge cost, they will always be looking for a business services solution”​

In recent years, the business services sector seems to have attracted attention for all the wrong reasons. From the private to the public sector there are numerous examples of bungled operations, which have caused enormous disruption and intense reputational damage. 

Security operations have gone awry, catered meals have been reviled, care homes have been accused of neglect: the list is long, wide ranging and almost guaranteed to provoke consumer outrage.  Just a few months ago, Swedish prime minister Stefan Löfven faced calls for his resignation after a botched IT outsourcing deal allowed Eastern European computer experts unauthorised access to confidential information on all drivers and vehicles in Sweden, including military data. The scandal was billed the worst security leak since Swedish security officer Stig Bergling was recruited to become a double agent by the Soviet Union 40 years ago. And in the US, President Trump railed repeatedly against offshore business outsourcing during his presidential campaign, claiming that it acted as a drain on US jobs and investment.

Taken to task

So how did business services become the object of such derision, despite being such a large and critical part of modern industry?

Oliver Hemming, a strategy consulting partner at Deloitte, says that one of the challenges the business services sector faces is that it is a very broad sector with both good and bad examples. 

“Business services or outsourcing can mean different things to different people today. It could be the blue-collar outsourcing of cleaning or security services, that most people would recognise, or it could be higher margin, white-collar work such as business process outsourcing (BPO) where a business function, such as customer engagement or management of contracts, is handled by a third party. That range doesn’t really help when you are trying to describe business services to people or explain the value that it can provide,” he explains. 

Business services is one of the fastest-growing industries in Europe, representing around 12 per cent of the EU economy. But a lack of understanding persists about the sector’s role and its contribution to both corporate success and economic growth. High-profile failures give the impression of poor performance and oversight but dig beneath the surface and there are numerous successful businesses helping to promote efficiency in sectors ranging from drug discovery to logistics.​

Delivering value

Even in more traditional outsourcing areas, the delivery of business services has become far more effective over the past decade. Bridgepoint-backed Zenith, a UK car leasing and fleet management group, is nearly 30 years old and its services range from managing large fleets of heavy goods vehicles to providing one-day car hire. Tim Buchan, chief executive of Zenith, says: “What our company has done as an outsourcing business is to provide a cushion between an organisation’s management of the asset – the vehicle – and the individual who drives it. We will help a company choose their vehicles, decide what is the right policy, keep abreast of the regulations and manage the drivers.

“We have all the requisite systems to run a fleet of vehicles; we have the digital platforms, and we keep on top of changing demands. It is a business-critical need but not one that a company needs to do itself. Today most companies are looking to save costs and this is where we think we can deliver value and help optimise efficiencies,” he adds. 

Sidestepping pitfalls

While there are plenty of examples of where business services companies can provide an effective service to customers, there are clearly instances where the relationship can go wrong. 

Watford believes there are some clear pitfalls to avoid when companies consider using business services. First, they should understand which functions can and cannot be outsourced effectively. 

“Business services are most effective when the work in question can be done at scale, repeatedly and at a cost-effective price. If an outsourcing solution becomes too bespoke, it can quickly become too expensive,” she says.

Nonetheless, companies need to think carefully about which areas they can usefully outsource. “Most business services operators carry out relatively niche functions. People don’t outsource something that’s 25 per cent of their business,” Watford adds. 

Taking control

It is also important to maintain oversight and governance responsibility for outsourcing. In recent years, for example, banks have outsourced numerous IT and management functions to external companies, as they seek to cut costs and become more efficient. Late last year Ed Sibley, a senior Central Bank of Ireland official, heavily criticised Irish banks for “very serious failings” in their governance of outsourcing arrangements. Suggesting that banks should take ultimate responsibility for proper risk management associated with outsourcing arrangements, he said: “In practice, arrangements are too frequently being badly managed as a result of weak outsourcing frameworks, lack of oversight, poor risk information and a lack of engagement and challenge from boards on the robustness of these arrangements.” 

In some sectors, companies can find it difficult to ascertain which functions should be retained in-house or outsourced. Business services is a well-trodden path in the pharmaceutical sector, for example, and companies often outsource the management of patent applications and drug trials. But insurance companies often flip flop between carrying out claims processing work themselves and outsourcing it. This can create difficulties for business services companies operating in this space. As Watford explains: “Outsourcing works well when you are involved in an area of critical importance to your client. Compliance is a classic example. It is critical and hugely costly for a business but it is not a core function.” 

Automate the process

Deloitte’s Hemming points out that the business services sector has undergone enormous change in the past decade and is facing further evolution as new macro-trends emerge. “The use of data is not that pervasive yet, often because the organisations haven’t collected it yet.” 

Many facilities management service providers maintain dozens of buildings, for example. Strategic analysis of data – from a building’s material to effective use of desk space and servicing costs – could improve customer service. “There is a basic level of data aggregation currently but with more facilities managers could better help businesses,” says Hemming. “For example, predictive maintenance would help companies to become much smarter in the way they deploy resources.”

Automation may change the industry too, according to Blue Prism, a software corporation which is helping to pioneer the development of robotic process automation (RPA). The software provides “a virtual workforce of software robots that emulate humans”, as Dave Moss, chief technology officer, explains. “RPA could reduce the number of mundane jobs, as technology has always done. It would take the repetitive, programmable tasks off people’s desks and free them up to do more of the creative, problem-solving, value-add parts of their jobs that can get lost in the shuffle now.” RPA has already been adopted by a number of companies but its use is likely to become increasingly widespread over time. 

Contractual arrangements

Third-party contract management across Europe could also become a major growth area in the wake of Brexit. Many companies, such as financial services and insurance businesses, have contracts that will need to be changed once the UK has left the EU. “Managing the changing of these contracts will be difficult and time consuming so asking someone else to do it makes sense,” says Hemming.  Deloitte and Allen & Overy recently teamed up to provide a legally sound and cost-effective service to update derivative contracts, following various regulatory changes. It has since been adopted by all the major banks. Taking this sort of proactive approach is the key to success in the world of business services, according to Hemming: “If you can think of any organisation that might need to implement or manage change, potentially at a huge cost, they will always be looking for a business services solution,” he says 

Back to articles

We can reduce a company’s working capital. We also constantly keep on top of regulation and we have the knowledge and expertise that companies can’t really replicate themselves without a lot of time and investment”​

Business services is about providing a service so that a business can better focus on its core activity. Crucially too, it is about supplying a service in a way that adds more value to the company than if that business did the work itself”​

Common thread

Emma Watford, head of business services at Bridgepoint, believes that even though the sector encompasses many areas, there is a common thread. “It is an exceptionally broad sector, but effectively it is about one company providing a service to another so that business can better focus on its core activity. Crucially too, it is about supplying a service in a way that adds more value to the company than if that business did the work itself,” she says. 

In today’s world, many business services companies are becoming increasingly sophisticated and highly skilled, providing outsourcing services that are both more efficient and more cost-effective than can be achieved in-house.   Element Materials Technology, which is majority owned by Bridgepoint, is highly skilled in testing a diverse range of materials, from metals to ceramics, used by manufacturers in the aircraft, oil and gas, defence and medical devices sectors, among others. 

Call the expert

Charles Noall, president and CEO of Element, says that the group’s services go far beyond mere testing of materials. In many cases, Element runs laboratories and staff at some of the world’s biggest manufacturers. It also has purpose-built facilities for quick testing of parts and has invested in the latest technology, such as computed radiography. As Noall explains: “About 75 per cent of our business is in the US and companies come to us because all our labs are independent and accredited and we have the scale and capacity to turn things around quickly.

“The work we do can reduce a company’s working capital. We also constantly keep on top of regulation and we have the knowledge and expertise that companies can’t really replicate themselves without a lot of time and investment,” he adds. 

Element recently acquired rival Exova in a deal that will dramatically increase its scale from 60 labs to 200 and from 2,000 employees to 6,000. Sales at the enlarged group are expected to leap from about $300 million to more than $750 million. Element’s greater scale in a highly regulated and fragmented market could be vital at a time when major aerospace companies, such as Boeing and Airbus, have launched new engine development programmes that will lead to a significant increase in testing requirements.

Delivering value

Even in more traditional outsourcing areas, the delivery of business services has become far more effective over the past decade. Bridgepoint-backed Zenith, a UK car leasing and fleet management group, is nearly 30 years old and its services range from managing large fleets of heavy goods vehicles to providing one-day car hire. Tim Buchan, chief executive of Zenith, says: “What our company has done as an outsourcing business is to provide a cushion between an organisation’s management of the asset – the vehicle – and the individual who drives it. We will help a company choose their vehicles, decide what is the right policy, keep abreast of the regulations and manage the drivers.

“We have all the requisite systems to run a fleet of vehicles; we have the digital platforms, and we keep on top of changing demands. It is a business-critical need but not one that a company needs to do itself. Today most companies are looking to save costs and this is where we think we can deliver value and help optimise efficiencies,” he adds. 

Sidestepping pitfalls

While there are plenty of examples of where business services companies can provide an effective service to customers, there are clearly instances where the relationship can go wrong. 

Watford believes there are some clear pitfalls to avoid when companies consider using business services. First, they should understand which functions can and cannot be outsourced effectively. 

“Business services are most effective when the work in question can be done at scale, repeatedly and at a cost-effective price. If an outsourcing solution becomes too bespoke, it can quickly become too expensive,” she says.

Nonetheless, companies need to think carefully about which areas they can usefully outsource. “Most business services operators carry out relatively niche functions. People don’t outsource something that’s 25 per cent of their business,” Watford adds. 

Taking control

It is also important to maintain oversight and governance responsibility for outsourcing. In recent years, for example, banks have outsourced numerous IT and management functions to external companies, as they seek to cut costs and become more efficient. Late last year Ed Sibley, a senior Central Bank of Ireland official, heavily criticised Irish banks for “very serious failings” in their governance of outsourcing arrangements. Suggesting that banks should take ultimate responsibility for proper risk management associated with outsourcing arrangements, he said: “In practice, arrangements are too frequently being badly managed as a result of weak outsourcing frameworks, lack of oversight, poor risk information and a lack of engagement and challenge from boards on the robustness of these arrangements.” 

In some sectors, companies can find it difficult to ascertain which functions should be retained in-house or outsourced. Business services is a well-trodden path in the pharmaceutical sector, for example, and companies often outsource the management of patent applications and drug trials. But insurance companies often flip flop between carrying out claims processing work themselves and outsourcing it. This can create difficulties for business services companies operating in this space. As Watford explains: “Outsourcing works well when you are involved in an area of critical importance to your client. Compliance is a classic example. It is critical and hugely costly for a business but it is not a core function.” 

If you can think of any organisation that might need to implement or manage change, potentially at a huge cost, they will always be looking for a business services solution”​

Automate the process

Deloitte’s Hemming points out that the business services sector has undergone enormous change in the past decade and is facing further evolution as new macro-trends emerge. “The use of data is not that pervasive yet, often because the organisations haven’t collected it yet.” 

Many facilities management service providers maintain dozens of buildings, for example. Strategic analysis of data – from a building’s material to effective use of desk space and servicing costs – could improve customer service. “There is a basic level of data aggregation currently but with more facilities managers could better help businesses,” says Hemming. “For example, predictive maintenance would help companies to become much smarter in the way they deploy resources.”

Automation may change the industry too, according to Blue Prism, a software corporation which is helping to pioneer the development of robotic process automation (RPA). The software provides “a virtual workforce of software robots that emulate humans”, as Dave Moss, chief technology officer, explains. “RPA could reduce the number of mundane jobs, as technology has always done. It would take the repetitive, programmable tasks off people’s desks and free them up to do more of the creative, problem-solving, value-add parts of their jobs that can get lost in the shuffle now.” RPA has already been adopted by a number of companies but its use is likely to become increasingly widespread over time. 

Contractual arrangements

Third-party contract management across Europe could also become a major growth area in the wake of Brexit. Many companies, such as financial services and insurance businesses, have contracts that will need to be changed once the UK has left the EU. “Managing the changing of these contracts will be difficult and time consuming so asking someone else to do it makes sense,” says Hemming.  Deloitte and Allen & Overy recently teamed up to provide a legally sound and cost-effective service to update derivative contracts, following various regulatory changes. It has since been adopted by all the major banks. Taking this sort of proactive approach is the key to success in the world of business services, according to Hemming: “If you can think of any organisation that might need to implement or manage change, potentially at a huge cost, they will always be looking for a business services solution,” he says 

Back to articles

We can reduce a company’s working capital. We also constantly keep on top of regulation and we have the knowledge and expertise that companies can’t really replicate themselves without a lot of time and investment”​

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Bridgepoint  |  The Point  |  November 2017  |  Issue 32