TCS stakes its claim in BPO with Diligenta

Samad Masood, Analyst

Earlier this month, leading Indian IT services company Tata Consultancy Services launched a new UK-based subsidiary called 'Diligenta'. The Peterborough-based company is built from the closed-book life & pensions operations that TCS acquired from Pearl Group, under a 12-year £486 million business process outsourcing (BPO) deal that the two struck in October 2005.

TCS chose to brand the FSA-regulated subsidiary under a new name to distinguish it from its own non-FSA regulated status. Diligenta will now be the brand under which TCS markets and delivers financial services BPO in the UK.

The TCS/Pearl deal is a landmark in both the UK BPO and offshore markets. Not only has TCS, a new entrant to L&P BPO, gained a closed book of 4 million policies - making it one of the largest L&P outsourcers in the UK - it has also made a clear commitment to the UK market by taking on close to 1,000 staff.

Diligenta has swallowed a big fish in the L&P market, and it won't be until it has been digested that the full impact on the industry will become clear. Nonetheless, the deal is a clear acknowledgement that large financial services BPO deals cannot be serviced entirely offshore. Some of the processes involved are simply too sensitive. And to emphasise this, TCS only managed to seal the deal when it was able to gain UK FSA-regulated status. Pearl also wanted an outsourcer that could provide staff with ongoing career opportunities and development in Peterborough -another reason for BPO players to have an onshore presence.

In the long run, TCS will look to move as many of its Pearl processes offshore as it can. That said, it still plans to maintain (if not grow) its Peterborough staff in order to support new BPO clients. Ultimately, we envisage that Peterborough will become a BPO holding pen where newly acquired clients' processes can be run while TCS does the back-office integration and splits up work between the UK and India.

In fact, this is exactly what is happening with the Pearl business. Core to the whole deal is Diligenta's migration of 11 separate Pearl policy systems onto TCS's IIMS system, which to date has not been deployed in the UK. This will be a large and complex project that is expected to take at least three years. Ninety percent of the IT work is to be delivered from TCS's Indian operations. But during this time there will be no offshoring of any of the BPO work. 'We'd be in danger of doing too many things at once if we offshored too quickly,' explains Diligenta CEO David Power.

To help with the all-important migration programme, TCS has hired an experienced team from within the industry. Diligenta's CEO David Power, CFO Ed Gardner, and John Berry - who will lead the transformation project - were all executives at Marlborough Stirling before it was acquired by Vertex. All three claim to have worked closely on the transformation of the underlying policy platform for Marlborough Stirling's key client Sun Life of Canada. TCS has a further advantage in that it has prior experience of Pearl's software systems, having provided application services for Pearl Group for more than ten years.

Overall, Diligenta is now a serious force in the L&P industry. But given the slow rate at which L&P deals are coming to market these days, we don't expect the company to be announcing any big new wins soon. In fact, Power admitted to us that for the coming year the business will be too focused on its integration and migration duties to worry too much about winning new bids. We agree with Power's priorities - particularly as digesting this deal will be half the challenge for Diligenta.

Samad Masood is an analyst in Ovum's UK software and IT services practice, and specialises in IT services, outsourcing and offshore services. Samad covers a range of outsourcing and services companies in the UK IT services market, as well as focusing on the leading Indian offshore providers. Samad is also responsible for maintaining Ovum's UK contract database service.