Tuesday, 11 November 2008

Harvey Nash wins its biggest outsourcing contract with Alcatel-Lucent

(By Anthony Miller) So you thought that recruitment firm Harvey Nash’s outsourcing and offshoring division was merely an interesting sideline? Well, today’s announcement (see here) of a €54m, 27-month deal with Alcatel-Lucent ought to put pay to that idea. The contract, which started on 1st October, has Harvey Nash assuming control of Alcatel-Lucent’s strategic R&D centre in Nuremberg and its 180 staff. As part of the arrangement, Harvey Nash is setting up a wireless communications development centre in Ho Chi Minh City, the hub of its Vietnam-based offshore services. Harvey Nash will migrate some of Alcatel-Lucent’s existing work to Vietnam, but will also use it as a base to win similar work from other clients, both inside and outside of the telecoms sector.

We spoke to Harvey Nash CEO, Albert Ellis, and it’s clear that this is a landmark deal for the company for several reasons. Firstly, it’s their largest IT services deal ever. Although Harvey Nash has yet to disclose revenues and profits for this division, we understand that the Alcatel-Lucent deal has the potential to double the contribution that outsourcing and offshoring makes at group level. This must now be material and we’re hopeful that management will be more transparent with the numbers in due course.

Secondly, the contract was won against stiff competition from two incumbent offshore players, Wipro and Aricent. To be honest, I’d never heard of Aricent before. It turns out they were the India-based telecoms software and services captive of contract manufacturer, Flextronics, spun out in 2006 and now majority owned by private equity firms KKR and Sequoia Capital. This is a heck of a result for Harvey Nash in a domain in which almost all the usual Indian suspects (and at least one unusual one!) could justifiably claim leadership. The Alcatel-Lucent deal is in some respects even bigger than TCS’ acquisition of Nokia Siemens Networks' Dusseldorf centre earlier this year (at least from a headcount perspective) where 90 employees were transferred.

But perhaps the key significance of the deal is that it cements ‘real’ IT services (as opposed to body-shopping) as a core component of Harvey Nash’s business proposition. We are usually extremely wary of players that don’t ‘stick to the knitting’, in Harvey Nash’s case, recruitment. Indeed, the track record of ITSAs (IT staff agencies) moving into project-based services, let alone outsourcing, makes uncomfortable reading. But I must say Harvey Nash seems to have struck on the right formula, delivering IT services from a low-cost, offshore location (Vietnam) and successfully cross-selling them to its client base. Indeed, over 80% of Harvey Nash’s outsourcing clients also use its recruitment services; Alcatel-Lucent had itself been a staffing client of Harvey Nash for some years.

So, hats off to Albert Ellis and his team for beating some really serious players at their own game.

I hope to bring you more about Harvey Nash’s Vietnamese centre in a later piece.

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