Cognizant Technology Solutions has acquired marketRx, a provider of analytics and related software services, for $135m in cash. Like Cognizant, marketRx is headquartered in the US, though with the majority of its staff based in India. MarketRx focuses on providing services to life science companies in the pharmaceutical, biotechnology and medical devices segments.

This is a good example of a major IT player trying to enter the ever-growing knowledge process outsourcing (KPO) sector, as Cognizant is a 49,000 strong technology company currently getting around half its revenue from financial services. MarketRx was only founded in 2000 and has just 430 employees, with 260 of those in India. Considering most of the value in an analytics company really does lie in the heads of those employed by the company it is interesting to observe that the company has been valued at over $300,000 per employee.

The revenue multiple used for this deal seems quite modest at 3.4, or perhaps it is just modest compared to some of the other hi-tech service companies in India, but I wonder how easy it is to value a KPO company? Should it be by revenue alone or is there some magic sauce that values the potential for knowledge to sell?

Nonetheless, it was a hotly contested auction with others companies from India bidding – including Infosys and Wipro, proving that every IT player sees a future in selling knowledge services.

You might remember Thomas Friedman’s book The World is Flat, published in 2005 and showered with praise ever since. When I wrote Global Services with Richard Sykes earlier this year it was with Friedman in mind – we focused on the practical application of his flat-world theories and how this applied to the IT industry.

Yet, Stephanie Overby has stuck a pin into the flat world bubble in her latest CIO blog by claiming that the world is not flat after all – it is in fact quite complex and we are making it even more so.

The basis of Overby’s argument is that instead of life becoming easier and simpler as the flat world encourages services to be traded across borders, we are actually making service delivery more complex.

I have to say I’ve got some sympathy with her views and here is an observation on why.

When is the last time you went to a conference in London or New York and were completely blown away by a conference presentation or the ideas coming from a non-local service company? We all know they can deliver, the "safe pair of hands" is essential for offshore delivery, but the ability to lead thoughts and ideas is something that’s not really possible without a deeper connection than that offered by a contract alone.

I’ve been in meetings and events recently where people from Capgemini, BT or IBM have said some really interesting things – thinking beyond what they do on a day-to-day basis and forward to what their clients might want next year. It’s still quite rare to find yourself in front of a presentation from an Indian or Chinese service provider that does not discard all the stuff about how much money they are making, how many people they employ, who their best customers are and so on. If it happens then do let me know.

It’s nice to see that the Indian tech company Patni has just signed a $200m deal with Carphone Warehouse to provide systems integration and technical support services. Patni was already one of Carphone Warehouse's IT suppliers with present functions including legacy systems and CRM, but this is quite a big vote of confidence.

Patni is a good company with capable people. It has hovered around the edge of the mega-suppliers in India for some time, up there with most of the rest, but not getting the general industry recognition of some who have played the branding game better. Let’s hope that the very public recognition that a deal of this size with a marque such as Carphone Warehouse means that a lot more people realise there are choices outside the Indian top three – and quite often they are very capable companies that are hungry for the work.

The other day I put on my tux and bow tie and headed off to the Brewery in the City for the annual National Outsourcing Association awards for best practice. I hate wearing a bow tie, so I have avoided many awards ceremonies in the past, but this year I have a surfeit of invitations to black tie events. Either I had to buy a new suit and tie or I would develop a new reputation for being about as sociable as a hermit crab.

I won’t list all the winners as you can see a list by clicking here. It was a fantastic evening and very well organised by the team at Buffalo Communications, especially Emma Pocock and Kam Perera who both worked really hard to make this event work well. The MC, comedian and radio presenter Fred Macaulay, controlled and humoured the corporate audience very well and the process of giving out the awards went on just long enough to give them the reverence they deserve, but not so long that everyone got bored of hearing yet another list of nominees.

I’d like to give a quick shout of congratulations to the people at the Philippines Embassy in London for winning the award for best offshoring destination. That’s one over on the Indians! Also, Stephen Page from the Sapphire Group and his project with Betbrokers (something I wrote about on this blog recently) won the award for being the best outsourcing project of the year – congratulations to everyone at Sapphire for beating off some larger competitors in that category.

Congratulations to everyone who was shortlisted and especially the winners – on to next year when I expect these awards will be even bigger and even better!

With the current economic volatility still ongoing some commentators have been mentioning that dreaded word - recession. In fact, there is probably someone out there counting how many times "recession" is mentioned on blogs like they used to do in newspapers back in the day, so here are six more notches for the recession blog-counter.

Is it possible to not be worried about any future recession? A new survey from EquaTerra indicates that while the recent turmoil in the financial services industry could slow some outsourcing efforts in the short-term, and continue to negatively impact some providers, the longer-term expectation is that outsourcing in this industry will grow as buyers seek to reduce operating costs, avoid investments into new systems and capabilities, shift focus to more strategic activities, and leverage their growing supply of skilled global resources.

Equaterra believes that this trend in financial services illustrates that outsourcing as an industry has become “recession-proof”, and that outsourcing is a tool buyers use in "up markets" to improve performance and in "down markets" to reduce costs and remain competitive.

EquaTerra expects this trend to be replicated in other industries that are negatively impacted by economic and demographic factors such as ageing workforces and weak local labour pools. These industries include consumer packaged goods, healthcare, public sector and retail.

This dual-benefit is something that has been long suspected, but it strikes me as a little bit disingenuous. After all, in good market conditions outsourcing is marketed as partnership, reaching out and buying-in expertise. To say it is all about slashing costs is anathema to most service buyers and providers. But perhaps, if the chips are down and a recession is on the way then are cost-reduction measures the only way to go? And if so, then is it really the only reason to outsource?

The conventional wisdom on outsourcing, at least for the past 10 or 15 years, has been that of the core competence theory. In general, stick to what your company does best and outsource the rest. This theory tends to favour keeping high-end activities such as research and development (R&D) local, but a new study just published by US research group Battelle indicates that the R&D market is changing fast.

In terms of effort, funding, and activity – however you measure it – R&D is shifting away from being a US-dominated activity. Even within a decade from now it is far more likely to be split into three geographic distributions; the US, the EU, and India+China (or that awful term Chindia some people insist on using).

Battelle highlights a number of significant reasons why this might be taking place, though one of the most interesting is market access. Companies from the West want to access China and India as markets, not just as sources of cheap labour. One way of doing this is to set up shop in the region and create high-value R&D jobs there, leading to a much more favourable environment when going on to the process of selling in that region.

In fact, it can even be observed that many Indian and Chinese companies are now wealthy enough to be commissioning R&D from the US, giving them credibility when they export their own products to those markets. So the hard and fast concept of national borders preventing the export of higher-value work such as R&D is rapidly disintegrating.

This challenges many of ideas on core competence and the idea that we in the West can continue outsourcing small well-defined parcels of work, while we keep all the R&D for ourselves. In fact, many of these views are linked to some of our general preconceptions about regions in Asia such as India or China. For an excellent factual view on some of these misconceptions, take a look at this video on YouTube of Professor Hans Rosling debunking some ‘third world’ myths. I just love it early on in the presentation when the professor notes that even chimpanzees could score better than his students.

Do you remember studying a language at school? I certainly remember having to study French and being forced to attempt to take oral tests of my linguistic ability by lining up with other students and having to converse with my teacher at a time that suited her. That’s pretty much the normal way oral tests are performed – there is always a bottleneck with many more students than teachers and a requirement to conduct the test at exactly the same time – with all the problems of keeping students who have completed the test away from those who are still waiting in line.

So I was interested to talk to Gavin Cooney, chief executive of Irish firm Learnosity, this week at the Assessment Tomorrow conference in Bangalore and learned that there is a completely new way that companies such as his can process oral tests that works far better for both student and teacher.

Learnosity uses a very innovative system that works using mobile phones and instant messaging (IM) tools such as Jabber. Kids can call a special number on the mobile phone and go through a security process to identify who they are before answering a series of questions, which are recorded and analysed. Similarly they can login to the IM system and chat on various topics, with moderators viewing the conversation and advising in real-time, to keep them in the target language. Though the system doesn’t use biometric security at present, that kind of voice recognition technology is in the pipeline.

Students can then podcast their own response to how the test went so there is some immediate feedback from the student, followed by a rapid analysis of how they actually performed in the test. In Ireland, the system is used to test Irish language skills at school and students and teachers there report that the use of IT and mobile phone makes the whole process easier and with a far higher level of interaction – though in some cases Learnosity has found that the teachers need a bit of guidance on some of the technology! On an additional plus side for Learnosity, Gavin found that his own Irish has improved since he started delivering these tests for the Irish government.

Learnosity is running high-school exams in this way for several governments now in Ireland and other European countries and as I spoke to Gavin he was en route to Australia to work on a series of tests there. It’s a nice time of year to be going down under.

In Australia they offer online testing for many more subjects than just languages and the New South Wales schools board has a very interactive web site that allows students to practice and test themselves in advance of the real exams. More than four million students have tried the practice tests on this web site and Learnosity found that the experience of building the practice environment allowed them to build an even more robust infrastructure for the live testing environment.

One of the amusing aspects of this is that Gavin’s company can observe when and how students are practising for tests. It’s obvious that most students cram for hours the day before an exam and relax through the weekends immediately prior to exams. We all know this, because we did it ourselves, but it’s funny to see the hard data produced by the system.

This whole idea of outsourcing the assessment of students whether for languages or other subjects is certainly a growth area. Computer-based testing has moved a long way from the days of multiple choice tests and given the advantages of this style of testing such as reliability, equality, and transparency, most schools in Australia now prefer testing in this way.

Learnosity has clearly thought about the entire process of testing in great detail. They can cope with visually-impaired kids, physically-disabled kids, dyslexic kids, and even high-school kids who need to take a break from the test to breast-feed! Their environment is very impressive – Gavin claims that they designed it to work for “completely blind Linux lovers”, the aim being that if they can get their system working perfectly for such demanding users then able-bodied Windows users are easy to please. The issue of inclusiveness is a serious one though. All kids need access to the exams and so it is not possible to build a system that only caters for 95 per cent of users – it has to work for everyone.

Education and assessment is an area of strong growth in outsourcing and the normal issues of quality delivery are of far greater importance than in regular BPO. When a firm is delivering exams to kids it is absolutely critical that the service works every time – to fail could not only cause a problem for the child taking the exam, but it would probably blow up into a political issue as irate parents call radio talk shows to berate the government for saving a few dollars with online exams. It goes to show that outsourcing could become a political issue in many more ways that just the argument of ‘vanishing jobs’ alone.

I saw Professor Sadagopan of the International Institute of Information Technology at the Assessment Tomorrow conference in Bangalore giving a lecture today on the future of education and assessment of students in particular. I have known Sadagopan for a few years and I recall visiting the campus of his university on the day it opened. The building was modelled on Stanford in the US and sits directly across the road from the well-known Infosys campus in Bangalore.

It has often been commented on within the outsourcing community that although India has nearly three million graduates entering industry each year, perhaps only 500,000 are ready to be considered for multinational companies. That’s because of a combination of English language skills and other communication abilities, in addition to basic academic achievement – there are just a lot of graduates who are not really ready for work. Though this is a problem we also see in the UK, it’s on a far greater scale in India.

Professor Sadagopan highlighted some of the key problems faced by India, namely that faculty is leaving education for better-paid opportunities elsewhere just as more students are entering higher education. To say that the Indian education system is getting squeezed is somewhat of an understatement, but he had some interesting ideas on a resolution that doesn’t involve the normal government programmes for change.

Sadagopan suggested a much stronger link between the IT industry and  He pointed out that Indians are known across the world as teachers. From Alaska to Brazil to the UK, he said that Indians are often viewed as either teachers or IT professionals – so why not link the professions further? The education opportunities are enormous if assessment and testing using technology can move beyond just multi-choice questions and the opportunities for IT are also enormous – just look at the millions of students wanting a better way to engage in India alone.

This idea that education and assessment of students can be delivered remotely and online is one of the golden opportunities for outsourcing over the next decade or so and Professor Sadagopan has put his finger on a key point – India has such a dynamic IT industry and also millions of students. Will India become the global online education hub for the 21st century?

That bastion of corporate advice, Forbes, just published a great article titled Eight Signs You're Not Ready For Outsourcing. I think it’s a really good snapshot of some of the key issues in outsourcing today, and in particular some of the recurring problems I keep hearing over and over again.

Forbes mentions the problem of suppliers not being interested in smaller contracts – even though we know the theory of relationship building, all too often the idea of starting small with plans to grow just doesn’t work. The reality can be a supplier that is inflexible, unresponsive, and the account management faces changing all the time.

I’ve heard about this exact problem last week when someone came to me for advice on supplier selection. They wanted quality and first-class delivery, but the contract size was not going to be enough to interest any of the major IT service companies. The solution is generally to work with some of the second-tier Indian suppliers – they have an excellent quality ethic, but are still hungry for the work.

Forbes also mentions another couple of really important points that often get missed. Your own house needs to be in order before outsourcing and if you want to move fast then you might not want a supplier that is going to follow every single step on the CMM process.

A lot of the processes around quality have been designed using the production line paradigm – eliminating errors on the line to fix errors while it is still reasonable to do so. In rapid iteration agile environments, where you want to get to market quick through a process of trial and error, putting all these robust standards in place can put a block on progress.

I have to confess I don’t usually look at Forbes for their outsourcing coverage. In fact I have not read it much at all since I stopped working in the City, but this was an excellent feature with a very clear focus on some real problems in the market at present.

Macro-economic policy is not something that usually excites me. Though I write about globalisation I am personally more interested in the dynamics of work flowing across borders and people migrating more easily towards work, and especially in the way that my industry – IT – enables and contributes to this change. This concept of a network society is fascinating and truly exciting, it’s something that our industry is enabling for every other possible industry and something we should be proud of.

But globalisation – and outsourcing across borders is one component of that process – scares a lot of people. Not just the petrol-bomb wielding protestors who show up at every meeting of the World Trade Organisation (WTO), but normal people who are not as excited about the prospect of a global talent pool.

Firstly the change process means everything is different and less stable that it used to be - who considers they are getting a job for life these days? - and also there is a strong sense of how unfair it is to have to compete with low-cost workers in far-flung locations. We have seen offshoring demonised by many commentators, especially those with a ‘patriotic’ or local job protection agenda.

So it’s interesting to see a new report from the OECD that tries to look at the big picture of the UK economy in the light of how globalisation is changing our nation – including such topics as the real effect of offshoring.

I’m not going to detail the full report on this blog because you have a link here that lets you read it for yourself, but to quickly summarise some of the most important points raised by the report:

•    The United Kingdom’s welcoming approach to globalisation has contributed to a strong growth performance. GDP per capita is now the third highest in the G7, compared with the lowest 10 years earlier.
•    GDP growth has been close to its trend rate of around 2.75 per cent for a number of years, suggesting that the amplitude of the economic cycle is smaller now than in previous decades.
•    This strong performance is not only due to the willingness to embrace the opportunities offered by globalisation, but also to sound institutional arrangements for setting monetary and fiscal policy as well as a period of robust trading partner growth.
•    Despite offshoring, employment has grown steadily and unemployment is low.
•    But the labour market position of many low-skilled workers needs to be further improved. The participation rate of some groups is low and others suffer from poor incentives to progress in work.

The implications are clear to me, and I’m not a student of the dismal science. The economy itself is in reasonable shape, but there are implications for the workforce. People need to be more flexible about work to compete in a more global environment and this can be a particular problem at the lower end of the pay scale, where locals may well pass on low-paid jobs encouraging the migration of those who are prepared to do them. This can create structural unemployment where job vacancies exist, but they are in the wrong place or just no one wants the work on offer.

There is a complex picture emerging of a work environment that will be very different by the time I retire (if I ever can), and the next generation at school today will have no conceptual understanding of the old rules of corporate loyalty – entering a company after graduation and working your way up the ranks. Outsourcing is a process that is facilitating a lot of this change and as that change accelerates it is an exciting place to be involved and focused, but scary too as the sand shifts everyday in this industry – I don’t even know what I will be working on in 2008, liberating or terrifying?