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IT next as Rio looks for savings

Ben Woodhead (AFR) | Dec. 12, 2008
Indian software services firm Infosys Technologies may benefit.

Mining giant Rio Tinto said it would step up its information technology outsourcing program as part of its ambitious drive to eliminate $10 billion in debt and cut capital expenditure in half.

The move comes barely two months after Rio made its first foray into sending computer systems work overseas and means that IT staff are almost certain to feature among the 14,000 employees it plans to lay off.

Details of the revised outsourcing plan remain scant, but Indian software services firm Infosys Technologies would appear well placed.

A Rio Tinto spokesman did not return calls seeking additional information on the outsourcing push, which was disclosed briefly in a statement the miner issued to the Australian Securities Exchange late on Wednesday.

"Measures to reduce costs include . . . rapid acceleration in 2009 of outsourcing and offshoring of IT and procurement," Rio said.

Rio is a relative newcomer to the offshoring of information technology services and awarded its first contract that endorsed the practice to Infosys in September under a deal worth $50 million over several years.

The Infosys agreement covers maintenance and support of some software systems but is also understood to include trials of business process outsourcing (BPO), where operations such as human resources and accounts receivable are handed over to a third party.

BPO is not yet as popular in Australia as IT outsourcing, but a number of groups, including the National Australia Bank, have embraced the practice, at least on a small scale.

Companies such as Infosys have argued that businesses can reap substantial cost savings through the outsourcing or offshoring of business processes.

Other businesses that could benefit from a strengthened outsourcing push at Rio Tinto include Accenture, which the miner has already vetted as part of the tender process that led to the signing of the Infosys agreement.

Multinational computer services companies CSC and IBM would also be keen to pick up any new Rio outsourcing contracts. However, the success of any of the companies in picking up business could depend on how fast Rio wants to move.

Also under a cloud is the miner's investment in autonomous vehicles - including trains and trucks - for its Pilbara iron ore operations.

The plan, unveiled with much fanfare at the beginning of the year, was originally designed to protect Rio from skills shortages as it ramped up iron ore production. The same technology could be turned to creating efficiency to fuel the cost-cutting drive, although Rio has stressed that introduction of robots was not aimed at eliminating jobs. - AFR, Australia

 

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