Xchanging update

(By Anthony Miller – Monday, 2nd March 2009 1:10pm). Although I (and most other analysts and investors) tend to compare Xchanging with Capita, it’s really important to understand that these are two quite different beasts roaming, in some cases, in quite different jungles. Capita is wholly focused on the UK market with a huge portfolio of services targeted pretty much equally at the private and public sectors. In this quest it has been outrageously successful and long may it continue to be so.

Xchanging has a much narrower range of services, targeted until very recently solely at the private sector (this changed with the Cambridge Solutions acquisition – see Xchanging looks to feast on Indian take-away) and – most importantly – is an emerging global player. It has also been exceedingly successful, and is arguably about to face its biggest test so far – conquering the US BPO market. Cambridge got 70% of its £159m revenues from the US last year, of which some two-thirds came from processing workers’ compensation claims. This side of the business is holding up well. The other third – processing payments for the likes of Amex and MasterCard – isn’t. Nonetheless, CEO David Andrews is confident that Xchanging’s proposition – built around its joint-venture-like Enterprise Partnerships – will work and work well.

Of course, Xchanging will see even more intensive competition from the likes of Accenture (Andrew’s ‘alma mater’ as Andersen Consulting,) and India-based but US headquartered Genpact, both of whom undoubtedly consider the US ‘their turf’ and think that all limeys should stick to their own side of the pond. It’s a bold move and it will take some considerable time to see how it pans out. With 60% of Cambridge’s headcount in India, at least Xchanging will be bidding blended prices in the US from day one, otherwise I just couldn’t see them getting past first base. It would be really great to see Xchanging make it big (or indeed any size) in the US, and I think if anyone can do it, Andrews would be the man.

Not that he’s eschewing the UK market, which at 70% of group revenues is still its largest by far. I spoke to Andrews after today’s investor briefing and he sees high opportunity in the retail insurance sector, especially in HR BPO. He is also targeting telcos and utilities for billing services – as are many others, of course. On the HR front, Xchanging recently partnered up with UK-based recruitment firm, Alexander Mann Solutions (AMS) in Xchanging’s flagship account, BAE Systems, where it was providing HR BPO services. This was a bit of a shotgun wedding as Xchanging had been struggling to provide the onsite resources that BAE Systems found it required and partnering with AMS seemed a pragmatic solution. Andrews was very coy when I asked whether Xchanging and AMS would go to market with a joint HR BPO offer, with AMS doing the onsite bit and Xchanging the heavy processing. Definitely a case of ‘watch this space’.