I received an email this week from a friend of mine that gives some eye-watering figures.

Just over a year ago Royal Bank of Scotland (RBS) paid $100bn for ABN Amro – 80 per cent in cash. For this amount, RBS could today buy:

• Citibank for $22.5bn;
• Morgan Stanley $10.5bn;
• Goldman Sachs $21.0bn;
• Merrill Lynch $12.3bn;
• Deutsche Bank $13.0bn;
• Barclays $12.7bn;
• And still have $8bn change

I haven’t checked these numbers, but the fact is that in the current climate it is entirely believable. It also reminds me of a recent message on the blog of US documentary-maker Michael Moore, hardly known as a friend to big business, but certainly an astute commentator.

The US auto-giants GM, Ford, and Chrysler are all haemorrhaging cash and now going cap-in-hand to the US government for a $34bn bailout. Moore pointed out that all common stock in GM could be purchased for around $3bn. So, we could save the government a load of money by just supporting earlier intervention and then supporting a massive wave of innovation in transport – a Marshall plan for the auto industry. Why bail them out with more cash when the current bosses will just deliver more of the same?

Joseph Schumpeter popularised the term “creative destruction” in which companies or industries would naturally die, to be replaced by the newer and stronger. It seems we are now witnessing Schumpeter’s vision on a daily basis.

I was chairing a panel discussion at Outsource World in New York yesterday. The focus was on whether offshoring was still viable in an environment where we are seeing rising costs, rising attrition, and rising currency risk. Joining me on the panel were Bill Bierce, a partner in law firm Bierce and Kenerson, and Amrita Joshi, president of consulting firm Ahilia.

It was a good discussion and well received by the audience. Strangely enough for these events, the audience was getting bigger as the talk went on – rather than the opposite, so it must have been of interest. It was just a shame that as Bill was entering into a great monologue about pricing issues, the conference organiser came and tugged my arm, asking me to wrap up. I was confused about how long we had to talk and it seems like we were running over time.

There was a guy from HCL who came up to ask questions. He made sure everyone knew he was from HCL - so don’t forget about what HCL is doing in remote infrastructure management. That’s the HCL from India, in case you don’t know them…

It was a good session. You know it has been a good discussion when time is running out and there is still more to discuss, but a few people came up to me after and said it was great how much we had managed to cover in a short period of time. That’s nice to hear. And we also managed to plug HCL during the talk thanks to our friend asking questions.

Something interesting happened at lunchtime that’s worth mentioning. I was sitting at a table chatting to Uldis Salenieks, the economic counsellor from the Latvian embassy in Washington DC, about my dog Matilda. Every business card I have is unique – they feature photos from my Flickr account so no two cards are the same. I’d just given a card to Uldis and it had a photo of my dog on it, so we were talking about her. Then, a guy who was on the other side of the table said: ‘Hey, you’re Mark aren’t you?’ It was David Kinnear, board member of the Global Sourcing Council – someone I have chatted to on Facebook, but have never met in real life.

What was really interesting was that we picked up straight away on some Facebook chats. When I explained to Uldis that I had never met David before he couldn’t believe it!

I also managed to connect with Chocko Valliappa from Vee Technologies thanks to me noticing that he would be at this conference in his Facebook status.

Who says social networking is all about wasting time and killing vampires?

It’s interesting to see that British Airways has just signed a three-year deal for the support and testing of business critical applications with NIIT Technologies. They have had a relationship for some time, but it’s clearly a vote of confidence for NIIT.

Though it is by no means the largest IT supplier out there, NIIT has been carving out a niche in the travel and transport area. The well-known Black Book of Outsourcing ranks the firm number one in the world for technical services to travel companies.

It’s good to see that BA is still making big purchasing decisions too. All the airlines are suffering right now, yet it does appear that BA is thinking very much into a future beyond the present pain.

I find myself commenting again on Tata Consultancy Services (TCS). It’s strange because I mentioned them in my own blog yesterday, and I noticed that the editor of Computing, Bryan Glick, also mentioned them. Yet I was shooting the breeze with someone who knows TCS well yesterday who confessed that things are “a bit quiet” over there.

It’s certainly true that most of the major suppliers seem to have reined in some of their more extravagant promotional techniques this summer – I never got a single invitation to any test cricket this summer for example!

Nevertheless, news just broke that TCS has signed a five-year deal with telecoms giant Ericsson, to supply applications development and maintenance (ADM) on a global basis.

Not only does this demonstrate that Ericsson is still thinking beyond the business meltdown engulfing us in London today, but also it shows a strong confidence in TCS and its ability to deliver solid, steady, and reliable internal IT. A lot of IT suppliers talk up their ability to innovate, but let’s face it, a lot of companies paying for ADM services just want it to work well – first time.

Rumours continue to swirl in the Indian press that BT Group is about to sell its 31 per cent stake in Tech Mahindra to Tata Consultancy Services. Neither company has confirmed anything yet, but it has been circulating on the blogs for a month or so and the national papers are now all reporting it as a likely deal.

There are a couple of interesting questions here. Tech Mahindra gets about two-thirds of its revenue from BT. So how might that change once they are cast adrift from each other? Second, is this one more step towards BT Global Services really taking on more of a role itself as a systems integrator/consulting firm, rather than being seen as a telecom-focused operator?

I was in Soho today chairing a webinar with Samad Masood, a principal analyst at Ovum. At the end of the webinar I took a moment to ask him a couple of quick questions about the problems we are witnessing in the financial services industry.

In a week where Lehman Brothers has filed for Chapter 11 bankruptcy protection and Merrill Lynch has been swallowed by Bank of America, I wanted to see what his views were on how this turbulence affects outsourcing suppliers.

Samad agreed there is a problem for most suppliers.

“Financial services is a significant proportion of all the large vendors’ business so the challenges we are having in financial services right now are going to affect the vendors’ business, and their approach to market,” he said.

“But we need to make it clear that not all financial services are suffering. Some sub-segments of the sector, such as insurance or regulatory and compliance – which will probably increase now – have been largely immune to these issues.

“Companies like Capgemini and Accenture are reporting growth in financial services projects, particularly where their consultants can advise on reducing cost.”

So is outsourcing a good idea now anyway? Some people in the market are telling me that companies are holding back on purchasing or strategic decisions, such as outsourcing programmes. Some suppliers are telling me they are busier than ever, with more and more enquiries about cost reduction measures. Is an economic slowdown a good or a bad thing for outsourcing suppliers?

Samad said: “It’s like any of these situations - there is never one answer for everybody. It really depends on the specific client. I don’t think all projects are going to be halted, but then I also don’t think that clients are going to suddenly invest in outsourcing either. It’s horses for courses whether the market is rising or falling.”

Samad added an interesting point about the way suppliers need to behave in a difficult business environment.

“The important thing to understand is that there is going to be more of a focus on partnership, relationships between clients and suppliers, and trust,” he said.

“That means a focus on understanding the issues of each particular client. Vendors should stop generalising across their clients and really invest in getting to know each client in more depth.”

Oh dear. The opening of Heathrow Terminal 5 (T5) has been a disaster. British Airways chief executive Willie Walsh must be in the running for understatement of the year for describing the mess as “not really our finest hour.” In this situation it might have been better to search for a quote from the Queen Mother, rather than alluding to Churchill – the poor passengers must have a touch of the Blitz spirit in T5 right now.

I’ve been talking to a number of IT companies about the T5 migration and they were all holding their breath. Both NIIT and TCS count BA as a major customer and even though it looks like the technology is not to blame, no IT supplier wants to see a good customer and business partner flailing around like a fish out of water.

I was a passenger on the first Eurostar service from St Pancras International station to Paris. Eurostar managed to operate services from Waterloo one day and to switch everything overnight to St Pancras without a hitch – apart from the fact that on opening day there were still no shops at St Pancras so it was impossible to even get a coffee, but the train service ran smoothly.

I appreciate that T5 is on a far grander scale than a train station, but there is no denying that the Eurostar project was a huge overnight transition too – and it worked. BA and BAA need to come up with some answers about what went wrong soon and especially whether it was really just a lack of burly baggage handlers or some fundamental design problems in the new technology commissioned for the terminal.

I want to end this blog post by featuring a long quote, basically an entire email straight from the BlackBerry of friend of mine who is a very senior UK-based executive in a major IT services company - that shall remain nameless. I received this last night, so it’s an excellent view from the coalface of the T5 experience on opening day:

“Sadly the UK hasn't covered itself in glory today. I say the UK because that's how important the success of T5 is for the country.

“I’m currently on Eurostar to Paris, while my bag wanders round T5's state of the art baggage system lonely as a… well actually I expect it has quite a few disgruntled baggy friends this evening as it circumnavigates the underground rubber runways.

“T5 looks nice, nice artwork, high tech and you can see the concept the designers are aiming for, but today it had lots of teething problems, not just the kind of fundamental shortage of flying opportunities. Check-in luggage conveyers were working intermittently, security operations slow. Information provision via the IT systems slow - slower than BA's internet updates which at least confirmed my flight was cancelled, rather than the suggestion chez T5 to queue up and enquire (such a polite term – ‘I say, would you mind awfully telling me if my plane might leave today?’) Yes, please speak to a warm and fluffy human. Sadly the ratio of query-ers to query-ees was unmanageable.

“I guess they'll show the queues that BA staff had to cope with on the news. By now I'm expecting at least one murder to have occurred, mentally - not, one hopes, physically. Many were stoic - at least when I left. But it could get ugly. I predict a riot?

“Arrivals was fun. First you can't actually leave departures - by any means. So we had to queue again until security could escort us out. Then once you've managed to leave, so to speak, you have to arrive. ‘Do you have your landing card?’ ‘I haven’t taken off yet.’ ‘Oh!’

“I guess I’ll go through the ‘arrivals from the EU’’ channel at customs.

“As I looked through the glass back into check-in on my way out, the seething queues suggested even check-in was pushing up the daisies.

“Abandoning my bag after being told I could look for it online, rather than join the next one-hour queue at arrivals baggage claims customer services, I headed for St Pancras station.

“I did have a nice opportunity to share some views - and mine were very positive - with the very nice BAA customer service man I met on the Heathrow Express back. I know he's going to think about these.

“I hope Willie Walsh commends the fortitude of the BA staff for the sheer drain on their emotional skills today. They are the easiest to blame - because they are there - and I sometimes despair at the amount of vitriol fellow passengers are prepared to deploy. For BA and BAA this really is a nightmare, and I have to say that I sympathise. It’s all too easy now to be smug and suggest more testing or a phased approach. But it really will be a fantastic feat when it does come together (could I propose tomorrow night - when I return from Paris?). And I have to say even today; my T5 experience was a whole magnitude better than that received at Delhi airport last month – twice.

“The difference is that we don't expect this standard from the UK's flagship airport. And you're always leaving Delhi at about 3am.

“I feel a case study coming on.

“I missed the first Eurostar in favour of buying a toothbrush, hairbrush and a few other essentials at the station.  I ‘was’ a big fan of M&S's new railway station stores - until today when it dawned on me that ‘simply food’ really did sell what it says on the tin, to mix business straplines. So I couldn't rely on M&S in my time of greatest need. Thank you Accessorize.

“I now have a G&T in my hot and bothered hand, but sadly relaxation won't come. There's an unhappy child in the adjacent seat who'd like to share his frustration with us all. Carpets are stained and it’s looking jaded. I expected a sit-down buffet-car meal where some may have even dressed for dinner and with a sporting chance of a murder or a chase or a disappearance. The pasta forestiere eaten at my seat had no romance, but wasn't bad.  And it’s now turned peaceful across the aisle.

“Off to brush up on my business French. Hmmn, wonder if Nicolas Sarkozy and Carla Bruni are on board?

“Bonsoir et Bon Voyage. “

I was chatting to Egidio (Edge) Zarrella, global head of IT advisory for KPMG, at the Nasscom conference in Mumbai last week and he mentioned something to me that was a bit off the beaten track. We had been talking about the development of the international knowledge process outsourcing (KPO) market because he just published a new research report with some useful insights on the growth in this sector, but then he said that we were now going to start seeing the ‘core’ being outsourced.

The ‘core’ in this context is what we have spent years defining as the part of a company that can’t be outsourced. Everyone who has been to business school has spent ages trying to define what is the core of a company, and what are the services that can be purchased in from someone who can perform the service better.

Every academic with an interest in this area, from Charles Handy to Gary Hamel, has written reams on defining that boundary between the organisation and the hired help. Entire university courses look at defining the retained organisation, yet here is Edge saying that the structure of the company itself is about to be radically overhauled.

Edge gave me some examples, such as several companies he advises that have outsourced their own chief executive. They just buy in the best gunslinger that is available on the market. It was an off-the-cuff conversation, but based on some of the comments he had presented to the conference and I thought it was fascinating. Where does the core sit if you can even hire in the head of the company through an outsourcing deal?

Edge sponsored the Bollywood Dreams dinner at the Nasscom conference and he ended up getting hauled up on stage in front of a couple of thousand people for some Bollywood dance lessons. Given that performance though, he might have wanted to outsource the dancing to someone else in KPMG.

LogicaCMG have been continuing their research relationship with the London School of Economics and in particular Professor Leslie Willcocks. Willcocks is well known to all of us in the outsourcing business as he is a prolific author, with something like 25 books on sourcing strategy to his name and he still holds down a day job as professor of technology work and globalisation at the LSE.

‘Building Core Retained Capabilities’ is the title of the new research paper published this week. It investigates one of the key longer-term issues of outsourcing, what happens to your own company and the retained skills if you always buy in expertise from outside?

Willcocks believes that senior managers must identify and retain key skills and core competencies in their in-house teams if they are to truly benefit from the relationship with their outsourcing supplier. The research shows that organisations are currently prioritising short term cost reductions over an “invest to save” strategy, resulting in a number of outsourcing projects developing problems such as loss of control, inadequate service, and constant renegotiation due to a lack of strong internal leadership and project management.

As organisations outsource more and more to achieve strategic advantage [by 2012 about 58 per cent of the average corporation’s IT budget will be with outsourcing suppliers], it is crucial that they resource properly internally. The research identifies nine core capabilities that must be equally applied to ensure long-term business performance and strategic advantage from IT and business outsourcing. These capabilities include leadership, business systems thinking, relationship building, architectural planning and design and informed buying, which lean towards softer business skills.

It’s worth listening to voices such as this. When the benefits of outsourcing are only ever considered over the life of a business plan it ignores the longer-term effects on the organisation, but as Willcocks demonstrates with his research, the future can arrive a lot sooner than you expect if you don’t plan for it.

So after all the kerfuffle earlier this year when it became clear that some cost saving was essential, but it was not really defined where, UK insurance giant Prudential has now announced a major deal with Capita.

The aim is to initially hit some quite short-term cost reduction targets all focused around 2010 and it will involve the transfer of 3,000 people to Capita, with some of them working for the Pru in the UK and some in India. It’s not quite the disaster scenario we might expect the tabloids to write about.

First, Prudential has already got extensive operations offshore in Mumbai and so the processes are already shared between the UK and India, so the outsourcing process here will actually see staff in both countries shift to become employees of Capita.

The deal with Capita is worth £722m over a 15-year period and the carrot for the Pru is an immediate £60m a year saving, helping to deliver all the savings that had been promised back in March.

I’ve been to the Prudential centre in Mumbai and I was impressed by what I saw, so it’s clear that Capita have got themselves quite an asset from Prudential at a time when the Pru just wanted to restructure and start saving some cash. It seems interesting that with their own deep experience of offshoring processes to India and their own internal team, Prudential could not make their own operations work more effectively and now finds the need to outsource everything.

They appeared to be one of the insurance companies with good experience of delivering internal services from offshore, so are they just struggling to get someone to shake up the internal processes or are they just so out of control it’s easier to get a third party to take over?