October 2010 Archives

Will using pictures to specify software requirements open up more offshore destinations?

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Deloitte says that using requirement visualisation tools in software development will save billions. Basically this is using interactive images to create a pilot of how an application will look and feel to the user.

Rather than using text to explain you use pictures. Text is open to interpretation and ambiguous, using pictures and a system that can create prototypes will overcome communication problems, says Deloitte.

Will this open up software development to other offshore locations?

India is so successful serving the UK and US because English is a commonly spoken language. One of the question marks over locations like China and Brazil is, whether there is enough English spoken.

When specifying requirements it is vital that the code writer understands what the business wants.

So by doing it in pictures can support, for example, software development for UK businesses from China.

It also helps businesspeople understand what they actually want.

Disgraced former Satyam chief to head up prison BPO - we said it first

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Somebody sent me an article on yesterday's Times of India website. It reports how Satyam chief B Ramalinga Raju has had his bail cancelled and could now be kept inside to run a BPO operation in the prison.

Raju admitted to cooking the books at Satyam a year ago.

Back in May I wrote in this blog that IT firm Radiant Info Systems is working with authorities to turn hundreds of educated convicts into workers at in the BPO sector.

But not only that, I suggested in that blog (see link above) that a certain former head of a large Indian service provider, who is doing time in a Hyderabad jail, could run the BPO. Well that looks like they are going to do exactly that.

Here is the original announcement by the Indian company, Radiant Infosystems, behind the scheme.

Not only did this blog have the idea to put Raju in charge but it also has the perfect name for a prison BPO operation. Inside Outsourcing.

Romania, India and Swindon combine to support water to Anglians

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Capgemini's latest deal, with Anglian Water, caught my attention initially because it is the first customer they have made public that will use the company's new Merlin datacentre which is in Swindon. My colleague Jenny Williams and I visited it before it opened.

 

It uses a different model in that the building contains multiple standalone datacentre modules. It is also hailed as the most energy efficient data centre in the world.

 

Read more about it here.

 

See pictures of it here.

 

Anyway, Anglian Water has signed a five-year IT services contract with Capgemini for IT infrastructure and core business applications.

 

Capgemini's strategy to deliver customers services from a mixture of locations, known as Rightshore, is also key to this strategy.

 

So the infrastructure will be in Swindon, the application management in India and the UK and the help desk in Romania.

 

Offshoring to India in particular and Romania, increasingly, is common practice for businesses. I just hope that there are no difficulties with the Swindon accent.

IT staff to train computers to replace them

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I wrote an article and some blog posts recently about how UK workers were unhappy about the fact that they were training lower cost offshore IT workers to do their jobs, so they could replace them.

Well, those that survive could soon be develoing automation strategies so computers can replace them.

The latest research from Forrester suggests that the best individuals to implement the automation of tasks are the very people the automation will replace.

The Forrester report said: "Transform the automated into the automators." It sounds a bit like a George Orwell novel.

The report continues in to say: "One unavoidable fact about automation is that some positions will indeed be automated out of existence. Economic forces make this inexorable, so leaders need to understand how to manage displaced people who were once some of the most valuable people in the organisation. And although their former skills may no longer be needed, their aptitudes are a perfect foundation for automation. The ideal person to automate a function is the person being automated out of a job. Their experience will prove indispensible for developing the automation strategy, building out solutions, and continually improving them."

But the question is how many of the automated will be required to support the automation strategy.

Maybe the government should start making computers pay tax to make up for the loss of taxes from the automated.


 

Software engineer turned lawyer describes immediate future for Scottish public sector outsourcing

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I am constantly writing articles about how the cost cutting will hit IT in central government. But I have not really looked at the Scottish government.

Luckily an expert on the issue has painted a picture for us.

Douglas Mathie is a lawyer at Brodies in the Technology, Information and Outsourcing Group . Before becoming a lawyer he trained as a software engineer.

He has given Inside Outsourcing his views. He expects fewer large contracts and a period of quite.

Here is his post:

"With its own central government, 32 local authorities, large education sector and multiple quangos Scotland has many potential public sector buyers of ICT. However, as with the rest of the UK, budget pressures are forcing the Scottish public sector to re-think about how it should buy ICT in the future.

Before looking at what the future might hold there's one important legal point to note. Scottish public sector bodies will typically only contract under Scots law. While Scots law is very similar to English law, there are important differences, essential to know in detail if selling complex, or high value, ICT to the Scottish Public sector.

The current trend in Scotland is for centrally procured framework agreements for ICT (similar to the old Catalist Agreements in England). These are typically procured by Procurement Scotland (and there are a couple of ICT framework procurements in the pipeline). Once you are "on the framework" the Scottish public sector can buy from you directly.

In theory these frameworks deliver savings to the public sector. Whether that is true in practice (especially for non-commodity items) is a different matter. Also, from a supplier's perspective getting on the framework can be quite a lot of work, but with no guarantee of revenue.

A recent survey commissioned by Brodies indicated that many Scottish local authorities are looking to shared services and, to a lesser degree, outsourcing as a way of reducing costs, and improving delivery. Our survey suggested that the preferred model (85% of respondents) was a fairly conservative one where local authorities "club" together to purchase and provide services. Whether this will deliver the required level of savings is questionable. There was much less appetite in the sector for joint ventures with private entities, and even less for off-shoring.

The survey also revealed that the biggest perceived barrier to outsourcing was not resistance from unions, but rather worries about governance and accountability.

So what does this mean for suppliers?

Well due to budget, and to a degree central government pressure, I think there will be fewer Scottish Public Sector buyers doing stand-alone procurements. Rather they will either buy under a framework, or they will team up with another body. However, in my experience the teaming up process is rarely quick (largely because of arguments over who gets what) - and this may delay any resulting procurement exercise.

So all in all the future looks like fewer procurements (though each will be higher value due to shared services aggregation), a potential slow period of a year or so when the bodies team up, and more purchases under framework agreements."

Brodies survey report can be downloaded here

India's booming middle class chose what to study based on demand not curiosity

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Computer weekly correspondant Kathleen Hall is out in India visiting Indian IT services firm HCL. She sent me a blog post following an interview with an Indian academic.

Here is Kathleen's blog post:

The huge disparity of wealth in India is impossible not to notice. Whether it's a beggar knocking on the window of an expensive car, or people dwelling on the street below a billboard for diamond rings: the juxtaposition of haves and have-nots is always present.

It's little surprise then that 200 million of the population cannot read or write, yet the country produces 350,000 engineering students every year, approximately 15 times that of the US.

But it's a combination of India's brilliant technical know-how and low labour costs that has made it a world-leader in IT services. "The entire IT industry is built on fact that it's cheaper here," says Professor Ravi, Indian Institute of management.

And because the IT sector is booming, people are making choices about their education based on market demands.

"Usually a higher education in US is propelled by curiosity [about the subject]. In the Indian context it doesn't happen that way. Here, a higher education is seen as a passport to a good job - in companies such as HCL, TCS, Infosys, for example.

Employment is driving the entire education sector, he says. "In India there are about 80 people getting PhDs in computer science, in the US it's 700. That unbalance is unlikely to change because if people can get paid five times the compensation for working in the [IT] industry instead of becoming a teacher that is what they will do."

Innovation is in the country's makeup, believes professor Ravi. "There's a tremendous amount of entrepreneurship in India that has contributed to the success of this industry.

"If you are limited with resources you optimise. Innovation is very important when resources are scarce. It's not a luxury."

Wipro latest Indian supplier to declare its intent in UK government sector

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I have been blogging recently about what the Indian IT suppliers are planning in the UK government sector.

This is on the back of chancellor George Osborne's invitation to Indian IT firms to bid and then the point being reiterated by government CIO John Suffolk.

So far we have Cognizant retaining its private sector focus, Infosys trying to grow its private sector business further, while HCL and Mahindra Satyam are up for the challenge. TCS is already on the trail with a recent contract with the Personal Accounts Delivery Authority (PADA),  to administer the National Employment Savings Trust (Nest) pension scheme.

I bumped into Wipro's European head, Jeffrey Heenan Jalil, at the recent National Outsourcing awards, and asked him his government sector plans.

He said Wipro would be going for it.

"The Government sector is an integral part of Wipro's growth strategy in the U.K. as with other markets across the globe. Wipro brings tried and tested, efficient IT models that can help local and national governments deliver greater efficiency."

IT outsourcing Ménage à trois will support pay for results

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I have had many meetings recently about how IT outsourcing contracts will increasingly be structured in a way that the customer pays for results and passes the risk to others.

When you buy something from John Lewis for example and something is wrong you get your money back. If you are inconvenienced they might even give you something extra. But outsourcing contracts that go wrong always seem to cost the customer. Unless you are prepared to go to court like BskyB did to get money back from EDS.

Something always goes wrong between signing the contract and the project being completed. The risk should be shared between suppliers, consultants and the customer.

Even consultancies are changing. Bryan Cruickshank, partner at KPMG, told me that contracts need to be benefits driven and consultancies need to change as a result.

Burnt-Oak Partners was set up at the height of the recession by industry veterans in the form of Morgan Chambers founder Robert Morgan and former EDS global head off financial services Jean-Louis Bravard.

Perhaps the recessionary backdrop of when it was launched inspired its new sourcing consultancy model.

So the difference between Burnt-Oak Partners and many sourcing consultants is that it does not disappear once the deal has been singed. As only a Frenchman (Jean-Louis) could put it "we stay in the bedroom after the marriage to make sure it is consummated."

Burnt-Oak negates 40% of its fees if the targets are not met and gets a 20% bonus if they are.

So the consultant is absorbing significant risk.

The company is growing quickly. It already has 19 consultants and operates in three European regions. Benelux, Nordics and the UK.

Another good example of passing on the risk, this time to a supplier, is a deal between airline SAS and CSC.

Nigel Hughes, director at business and IT consultancy Compass Mangement Consulting, told me earlier this year that the deal segmented a business process. It saw the supplier run all the systems involved in putting passengers on board aircraft. CSC was paid a fixed price per passenger. "This left CSC to drive more efficiency," adds Hughes.

Yet another example I was recently given of payments for results, this time from KPMG, is for a contract the government's Work Programme. This is a programme that will help people back into work. The suppliers will be paid when people are put into sustainable work.

KPMG told me that the likes of Accenture, Atos Origin and Capgemini are bidding for this work so it shows being paid for results is attractive to suppliers.

KPMG says government should create a market for IT suppliers so they take the risk

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I had a conversation with two KPMG consultants recently about the government's ongoing IT strategy in the light of cost cutting.

Adam Stork and Iain Gravestock are both in KPMG's technology group. Amongst other things they told me that the government should create a market for suppliers that will encourage then to innovate and take risk.

Part of this will require the government to give the suppliers a fair crack of the whip when it comes to bidding for public sector work. Rather than signing a few large enterprise wide agreements with a small number of big suppliers.

KPMG gave me an example of a technology supplier today whose systems are used within the NHS widely. But it could have been so different if the supplier had not taken a huge risk.

The supplier is System C. It makes administration and clinical systems aimed at the healthcare industry.

When the NHS National Project for IT (NPfIT) was introduced it meant that NHS trusts had to buy the systems that were approved.

System C's systems were not included but the company took the brave step to step up its investment in its technology

Markus Bolton, founding director at the company, said this was a big investment decision to take at the time because there appeared to be no future because System C was not selected.

But the coalition government has since torn up the rules on the NHS IT and allowed NHS Trusts to make there own decisions. System C now has lots of orders in the pipeline.

This is an extreme case of a supplier taking risk because there appeared to be no future for System C serving the NHS but it took a big risk. It probably thought it was worth the risk because a project the size of the NHS NPfIT was prone to changes and even some failures.

The potential work available in the public sector is massive for IT suppliers so they will be prepared to take risks. In the past all the risk has been taken by the government because it has signed contracts with big suppliers before the systems were developed.

Under these IT contracts there have been many failures that have been costly to the government. See here for 105 government IT contracts that went wrong and cost the earth.

How much did the India IT bosses earn last year?

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As I have blogged in the past about the huge pay packets of bosses at US IT firms, I thought it would be interesting to highlight something I read on the Times of India website. It shows how much the top brass at Indian IT firms earned in the latest financial year.

Just for a measure Mark Hurd, the recently ousted CEO at HP, had a total of $42,514,524 in benefits from HP in 2008. He was still forced out over a false expense claim. 

IBM CEO Sam Palmisano's package in 2009 was calculated at $24,313,795.

So here is what the big Indian bosses earned in dollar terms, according to the Times of India report. These are in no particular order, but I put Infosys co-founder N R Narayana Murthy first because he seems to earn much more than anyone else. Why is that? Or is it a mistake?

In general they seem quite frugal compared to the US despite the different cost of living.

How much the Indian IT bosses earned last year: 

1 - N R Narayana Murthy, Co-founder & Chairman, Infosys
Total calculated compensation: $6,425,000

2 - Ajai Chowdhry, Chairman, HCL Infosystems
Total calculated compensation: $753,682 (Rupees 33,488,000

3 - Vineet Nayar, CEO, HCL Technologies
Total calculated compensation: $956,550 (Rs 42,500,000)

4 - Pratik Kumar, Executive VP, HR, Wipro
Total calculated compensation: $290,201

5 - Girish S Paranjpe, Co-CEO of IT Business, Wipro
Total calculated compensation: $457,659 (Rs 20,331,683)

6 - Suresh C Senapty, executive director and CFO, Wipro
Total calculated compensation: $457,148 (Rs 20,308,846)

7 - Azim Hasham Premji, Chairman, Wipro
Total calculated compensation: $327,492 (Rs 14,548,851)

8 - Seturaman Mahalingam, CFO and ED, TCS
Total calculated compensation: $383,027 (Rs 17,016,000)

9 - N Chandrasekaran, CEO & MD, TCS
Total calculated compensation: $432,391 (Rs 19,209,000)

Outsourcing consultants in high demand

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I just got off the phone with Equaterra's UK head Lee Ayling. He told me that he was currently rushed off his feet trying to find good consultants.

 

He said demand is increasing fast and the company is hiring more people to meet this.

 

It would make sense for outsourcing to increase now as organisations attempt to get ready to position themselves for growth.

 

I had a meeting with Partners Robert Morgan director at consultancy Burnt-Oak on Friday and he said demand is highest in the Nordics, followed by the Benelux countries.

 

He says he says he might even have more consultants based in Scandanavia than the UK soon.

 

He says this is because Scandinavians are more open to trying new things out. Burnt-Oak is a bit different because it stays with the customer after a deal is signed and takes responsibility for ensuring the promised results are achieved.

Is Deloitte looking TPI over?

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I wrote a blog post in August about KPMG being in talks with sourcing consultancy Equaterra. As far as a source of mine is concerned this deal is still in the pipeline.

The Dutch press think it's a done deal. Here is an article in Dutch

The headline is "KPMG Advisory voert due diligence uit op EquaTerra"

The English translation is: "KPMG Advisory performs due diligence on Equaterra."

Now there is a lot of speculation that Deloitte is also going to buy a sourcing consultancy, in the form of TPI.

Yet again there is another article in the Dutch press, although as far as I can work out this is a denial from TPI of any knowledge of Deloitte's interest.

It would be interesting if the big business consultancies start clearing up the sourcing consultancy sector. Would it leave a gap for a new player or is it a sector that needs consolidating?

 

National Outsourcing Association chief plays with comedy fire by heckling Jack Whitehall

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I was at the National Outsourcing Association's annual awards on Thursday and I saw something I have never seen before.

The main comedy act was heckled by the person that introduced the awards, chairman of the NOA Martyn Hart, before he even took to the stage. And he got away with it.

There were people cringing in the audience.

The comedian who hosted the event was Jack Whitehall and he didn't respond to Hart's taunts. They included accusing him of being sad because he still lived at home.

I expected Hart to be savaged but it didn't happen. You are a brave man Martyn.

I was also talking to a service provider who didn't expect to win anything. I told them not to worry because awards are meaningless. But they won one and they didn't seem to agree.

If you want to see the winners of the awards read this article.

Outsourcing suppliers give cause to believe the economy is getting back on track

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Could it be that the world economy has turned a corner?

India's biggest IT service provider followed its rival Infosys in reporting strong growth for its latest financial quarter.

Infosys recently announced a 29.6% increase in revenues for its latest financial quarter compared to the same period last year. TCS has now announced a 30% increase. See details here.

Nobody is saying the economy is thriving but it's certainly better than the recent past.
 
TCS  said:

- It had an all time high sequential revenue growth of $210m
- All major markets grew in double digit terms with Europe leading the pack
- All industry verticals grew in double digits, highlighting the diversity of the business portfolio and holistic nature of business growth
- Highest ever employee addition with 19,293 professionals added

And here are some of the deals TCS has highlighted:


- One of Canada's large financial institutions selected TCS as a strategic partner to globally support IT, BPO and Infrastructure Services across all lines of business.
- A Fortune Top 50 healthcare company has selected TCS to be their transformation and technology partner.
- A US based large banking and financial services institution has selected TCS as a strategic partner to achieve best in class technology services across its global locations.
- The Phoenix Group has acknowledged TCS' success with the ongoing Diligenta transformation program by transferring 1.7 million policies managed by another third party in a multi-year contract worth over £250 million.
- A leading publishing and education services provider has chosen TCS to be their sole provider for supporting and maintaining their global technology platform.
- TCS entered into a multi-year strategic partnership with a leading grocery retailer to drive operational efficiencies and partner in their strategic initiatives through integration of IT, Infrastructure and Shared Services.
- TCS has been engaged by a leading general merchandise retailer based in North America to establish a large centralized assurance centre of excellence to standardize its testing processes and drive productivity across all its business units.
- A state government in India selected TCS to transform its food and civil supplies system.

How offshored software development and Linux put the London Stock Exchange ahead of its rivals

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The London Stock Exchange offshored the development of its core trading system when it acquired Sri Lanka based MillenniumIT. It also dumped .Net and moved to Linux in the process.

It yesterday announced that its Turquoise trading platform, which was first to migrate to the new system, has reached a major goal. At 126 microseconds on average to complete a trade, the Turquoise platform is apparently the fastest in the world.

The London Stock Exchange' primary market will migrate to the Linux based system next month.

Fast trading speeds are business critical in today's trading sector so to outsource let alone offshore development of systems is a big step. But that is the interesting part. The London Stock Exchange wanted to keep control of development so it acquired the software company.

The Sri Lanka based development resource of about 200 people will ensure the core trading platform remains competitive.

Through MillenniumIT the London Stock Exchange gets a software development process it calls "BID" (Business Innovation-Dynamically).

BID splits the development into three parts. The technology development in the form of hardware and operating systems, the application layer such as trading platforms, ERP and clearing systems and business controls sit on top.

This means it is faster and costs less to roll out a new software set-up. Stock exchanges regularly have to tweak systems to meet regulatory and business changes.

 "It lowers the cost of development which means we can do more upgrade and introduce new products and services easier," says a London Stock Exchange spokesman. "With the previous system we only did a couple of upgrades a year but with the new system we can do more."

Rik Turner, analyst at Ovum, told me that having one of the fastest trading systems is vital to an exchange with ambitions to be a top five global player. "It's a calling card when you want to do deals," he said.

He added that MillenniumIT was always a niche developer and not just a low cost development company. "It has the best of both worlds a specialist trading software developer in a low cost country."

Mahindra Satyam joins HCL on UK government contract trail

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I blogged earlier about the plans of some Indian IT suppliers in terms of bidding for UK government business. I wrote this because John Suffolk recently reiterated Chancellor George Osborne's call for Indian suppliers to bid for government contracts.

The government clearly wants as many companies to bid as possible to increase its chances of getting the technology it needs to cut costs. With budgets down it will also be looking for competitive pricing.

My earlier post told the story of how Cognizant and Infosys would not be rushing out to bid for public sector work and how HCL Technologies was going to focus on it. I also mentioned that TCS had recently been awarded a significant government contract.

Mahindra Satyam's European boss Vikram Nair returned my call later on and told me the company currently has bits and pieces of UK public sector work and is "very keen on the business."

It is a company which, having recovered from near collapse after an internal fraud, looks like it is ready to grow rapidly to make up for lost time.

Nair said Mahindra Satyam could get involved in building shared services capabilities for public sector organisations. He said this could be provided onshore from existing centres in Teeside and Belfast. This would overcome data protection and possible offshotring jobs fears.

Shared services seems the logical choice to me for government.

I suppose the strengths of software company Satyam and telecoms specialist Tech Mahindra would help in shared services. It will give Mahindra Satyam a strong position as a cloud supplier, which is vital when building shared services.

I also got a bit more from HCL later, about the public sector opportunity.

A statement from Bindi Bhullar, Director at HCL said: "With huge budget cuts and tough targets across the board, public sector CIOs need to engage in a radical rethink in IT delivery models to meet the challenges ahead. Clearly, sticking with traditional methods won't deliver the kinds of savings outlined in today's announcement. Public sector departments need to look to alternate providers that can deliver a fresh approach to management and offer accountability through outcome-based pricing models. The next four years will be extremely challenging for managers, but by outsourcing operational workloads, they can deliver much greater efficiencies to public services over the next four years."

HCL is currently growing rapidly.

I will chase up the other big players to see what they have to say. It will be interesting to see how many Indian options government CIOs will have.

How many of the 500,000 government job cuts will be in IT?

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Danny Alexander's accidental, or maybe deliberate gaffe, that revealed about £500,000 job cuts in the public sector must have sent shivers down the spine of people all over Britain.

The government CIO also reiterated a call, made by George Osborne, to Indian IT suppliers to bid for work, which would mean the offshoring of jobs.

Put these two things together, alongside the spending review, and you have to ask how many public sector IT jobs in the UK are about to be cut?

There are hundreds of thousands of public sector IT workers. There are even over 6000 that work in IT procurement at the MoD for example. The figure has come down in recent years because of outsourcing but it could be about to come down even more.

The government could outsource and offshore thousands of UK jobs without having to completely remove services.

If the public sector deficit crisis hits it as much as the finacial sector crisis hit banks, IT workers could bare the brunt of cuts and offshoring.

UK government wants Indian IT firms to compete for contracts but do they want to?

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As George Osborne's invitation to Indian IT companies in July was reiterated by government CIO this week I thought I would try and find out which Indian companies will actually try and win contracts.

 

With the spending review due today more light will be shed on the level of savings government departments will need to make.

 

Offshoring IT can knock 30% of the labour costs in one swing so the government is clearly keen to run the rule over it. It looks like it will be prepared to see in-house IT jobs go.

 

So I am asking Indian companies what they plan.

 

So far I have had these responses:

 

Cognizant: "[The UK government] never been a target vertical - always focused on the private sector.

 

1 - Infosys: "Not for now." Because a lot of room to grow in the private sector. It has 110 clients in Europe out of a potential basket of 500.

2 - HCL Technologies: "Will absolutely target government business and is one vertical it is investing in. It already has business through its Axon acquisition."

3 - TCS -  We know is keen on government business after it bid for and won the contract for the Personal Accounts Delivery Authority (PADA), which was created by the government to administer pension schemes.

I will continue to ask the question so watch this space.

Government CIO invites Indian IT suppliers to bid for contracts and inadvertently reveals disharmany

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There is no single voice declaring IT strategy for government departments, which needs to be addressed if IT is to play its role in cutting costs sfter today's spending review.

John Suffolk told one of my colleagues this week that Indian IT suppliers should bid for IT work. In fact so enthusiastic is he, in the face of budgets cuts to departments, he said "bid, bid, bid."

So the other week we had a senior IT executive at a central government department claiming that Indian suppliers didn't stand a chance of winning big government deals, because they lack skills associated with taking over a contract. Here is the full story.

And now we have the government CIO suggesting Indian firms bid. Confused? Well that's federated decision making for you.

I must admit most people I spoke to in the industry, about the IT executive that thought the Indian suppliers had no chance,  thought he was out of his mind.

One comentator said he was being disingenuous.

Another said the opinion that Indian suppliers have no chance of winning large government deals "is a typical example of an uninformed government buyer who are a dying breed."

But Suffolk has put it straight that Indian suppliers should bid for work, suggesting they do in fact have a chance.

But in the current system Suffolk is only an adviser and does not have the power to make departmental CIOs look hard at offshoring.

So the senior IT executive in a central government department will still not consider the Indian suppliers because he thinks they lack important skills.

This is one of the big problems with government IT. The CIO lacks teeth.

Unless an individual is given the job to drive change and the authority to enforce it, inefficiencies in the public sector will continue. Transformation across departments, unlike a departmental transformation, requires the co-operation of disparate power bases which have traditionally made their own decisions.

Maybe the spending review will give Suffolk the sharp teeth he needs to drive change. Maybe this will lead to Indian suppliers working in UK government contracts.

Let's face it IBM, HP and Capgemini, to name a few, have large workforces in India already that do a lot of the work on UK central government contracts.

How will the business consultancies cope as public sector gold mine closes?

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The government spending review and the cost cutting that follows will leave its mark on the business consultancy industry.

I have blogged at length about how the IT suppliers are reacting to the government's demands to cut costs. But what about the big consultancies?

Gone are the days of up to 100 consultants being embedded within a public sector organisation, a senior executive at one of the biggest consultancies told me.

He admitted the public sector has been a big for consultancies with hundreds of consultants charging the government day rates overseeing massive projects. But this cannot go on and small groups will replace the large groups and charging will be based on the benefit the customer gets.

The government will actually need consultants more than ever if it is to meet its cost cutting targets while retaining service levels. This is because there needs to be a reengineering of processes. This will include, for example, the introduction of shared services and could mean some offshoring. The government does not have the in-house resources required to push this type of programme through.

The current clampdown on consultancies being used within government might have to be lifted. Currently any expenditure over £20,000 needs ministerial sign off. This limits a lot of consultancy work.

"There was a lot wasted effort in the past but consultants will be needed to make the changes required," said the executive.

I wrote a blog post in July after a meeting with an IT consultant who said the government is currently benefiting from free consultancy because many suppliers do not want to lose momentum on projects.

Why does the Ministry of Defence have over 6000 IT procurement staff and its own version of Microsoft Windows?

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The build up to the government's comprehensive spending review has been a good reason to do some digging to find out some of the details about IT in different government departments.

 

Yesterday I spoke to two people with experience working with the Ministry of Defence (MoD) in the past. I was staggered when one of them told me there is 6000 IT procurement staff at the MoD. Then the other told me it has more like 7000, but he described them as IT management workers. He said they are all involved in procurement because the MoD outsources everything.

 

The point my first contact was making was that government departments usually have too many people involved in IT projects.

 

The MoD does have complex IT requirements but it sometimes makes it even more complex unnecessarily. Apparently it has its own version of Microsoft Windows and pays for the pleasure. 

 

According to one of my sources when it comes to IT there are some small areas that require high security but "Implementation is over complex to the actual need."


Here are some examples of when ICT procurement of management contributed to getting it wrong at the MoD.

 

Source: Cost overruns, delays and terminations: 105 outsourced public sector ICT projects by the European Services Strategy Unit.

 

1 - £32.1m - Trawlerman project signed with Data Sciences. This was a new computer system for Defence Intelligence Staff. It was never used and £40.7m written off. It was replaced in 1997 with off-the-shelf system.

 

2 - £10.2m - Common User Data System RAF project signed with GEC. Started 1989 but terminated 1997 after system proved unusable. Costs rose to £21m.

 

3 - £18.2m - Royal Navy Pay Replacement System 2.  It was abandoned in 1996 with £8.7m loss.

 

4 - £3.04bn - Defence Information Infrastructure for new IT at defence locations around the world (March 2005), signed with Atlas consortium led by EDS. Cost now estimated to be £5bn and 'major problems' at first site near Bristol. 16,000 terminals installed by October 2007 but missed target of 70,000 by mid 2007.

 

5 - £2.77bn - Skynet 5, Satellite Communications Services cost increase to £3,660 by spring 2007 (+32%).

 

6 - £237m - Joint Personnel Administration, cost increase to £257m (+8%) as a result of delay in roll out to Navy and Army

 

7 - £2.4bn - Bowman Combat Infrastructure Platform to replace the Clansman radio network, signed with General Dynamics. Project 'recast' to include an additional £121m, £51m write-off, £24m training cost plus £204m over 25 years. Projects delays.

 

8 - £2.57bn - Renegotiated submarine contract in 2003 increasing cost by £1bn - delays and failure of computer aided design. Contract with BAE Systems.

 

 

 

 

 

Is offshoring government work the only way to meet spending review targets?

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Analyst firm Ovum says the offshoring government IT and business processes will be an increasing trend as the government's spending review demands cost cuts of up to 40% in government departments.

The company says offshoring is the only way to meet the targets.

It also says that political hurdles to offshoring will be overcome in central government but local government will be different. The political hurdles to offshoring are the fact that the voting public are against jobs being sent overseas and also the high costs of transferring workers to service providers or making them redundant.

Sarah Burnett, Ovum senior analyst says, "The reality of the cuts is that government departments and suppliers will be left with little choice but to go for the cheapest options for service delivery and that will boost the push for off-shoring.

"Demand for off-shoring will grow firstly as a result of the government's negotiations with existing IT suppliers to deliver the same for less. Offshoring is one way for suppliers to deliver the requisite cuts in prices.

"Furthermore, the spectre of 25-40% reduction in spending will boost demand for business process outsourcing (BPO) among government departments.  When costs are the primary driver for change, BPO becomes an attractive proposition."

But Robert Morgan, director at consultancy Burnt-Oak Partners says that offshoring is "absolutely not the only way to meet the targets."

In fact he says it is one part and could contribute about 15% of the savings.

"The waste is within the old system and it can be consolidated.

"The removal of duplication across departments through shared services is an attractive option. You can take out 80% of costs if some back offices come together."

Another example of where massive savings could be made is in reducing the staffing levels within projects. "Departments always hire too many people up front for projects and often end up paying many for twiddling their thumbs," adds Morgan.

Morgan does however believe that infrastructure management could be carried out offshore remotely to save money.

He doubts applications can be offshored. "You cannot send applications to a country that does not have a solid data protection act."

Neither India or China have such acts.

Adam Rose, an outsourcing partner at law firm Berwin Leighton Paisner, says India has data protection laws but "not at the level of law equivalent to what we have in Europe."

He says this is a concern and you have to build in a set of contractual conditions.

But he says the problem can be overcome. "It puts more hurdles in the way but is not insurmountable."

105 facts about government IT contracts that send shudders down your spine

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With the government spending review due this week I thought a link sent to me by a reader could become a great reference document. Thanks for that Matt.

Click here for the link is to a report by the European Services Strategy Unit. It will make you realise why there is often so much anger amongst IT professionals when it comes to government IT.

Completed in 2007, it reports on 105 government ICT projects which cost more than they should, overran or were terminated. Or even all three. Take a look there is a list of all 105 and some explanation
.
The 105 projects were valued at £29.5bn cost almost £9bn more than the original value.

The contract values "did not include the cost of project planning, business case preparation or the cost of the procurement process. They also exclude the cost of management and technical, financial and legal consultants, which can run into millions of pounds," said the report. So add all this in and you have even bigger numbers because consultants don't come cheap.

There are some particularly scary revelations. A contract between EDS and the Inland Revenue went from costing just over £1bn to costing nearly £2.5bn (number 7 on the list in the link.)

A total of 60 programmes had cost overruns and on average cost about 30% more than they should have.

35 contracts were delayed and 31 cancelled.

Take a look where your tax money has gone. It is not just the banks.

HCL CEO says the fact that his teenage kids don't give a s**t about him, inspired company strategy

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I have blogged and written articles about HCL's strategy that puts employees first and customers second. The idea was created by Vineet Nayar, CEO at HCL.

This is where HCL empowers its workers so they can add value. The Employee First Customer Second strategy has been described in a book which has been published by Harvard Business Press.

Nayar said on radio 4's Today Programme that his life at home bringing up teenagers inspired the strategy.

"[My teenage children] told me very clearly that they do not give a shit about me and as long as I am not democratic in my house, the house is not going to work."

He said his household was run as a collaborative enterprise, with different opinions but converged actions, rather than the command and control in his parents' house.

Click here to download a podcast of the Today Programme  interview with Nayar on the Employee First Customer Second strategy.  His interview starts 4 minutes and 30 seconds into the podcast. Beware of colourful language.

BT now signs MOU with government

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BT has become the latest supplier to sign a MOU with the government.

In July government minister Francis Maude met the CEOs of the government's major IT suppliers to ask them to reduce the cost of services. The government said it was willing to listen to suppliers for ideas about how to cut costs.

I hope the government hasn't squeezed too hard. BT Global Services lost £1.2bn due to cost overruns on two big contracts in 2009. One of these contracts was with the NHS.


 

Could an Indian IT supplier be about to buy Logica?

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Just been talking to a contact of mine and he told me that one of the big Indian IT suppliers has tabled a bid to buy logica.

 

There has been talk over the last couple of years that an Indian IT giant would buy a big European supplier. Logica would be a great way for an Indian supplier to break into the UK public sector. There are currently no Indian suppliers in the government's top 19 suppliers. But Logica is there.

 

HCL acquired SAP service provider Axon for £441m in August 2008 but a takeover of Logica by an Indian supplier would be a much bigger deal. Last year Logica had about 40,000 employees and revenue of £3.7bn.

 

A senior Indian IT executive said that the likes of Logica, Steria and Capita as well as other similar companies have been targets for some time.

Indian IT giants aren't moaning about US visa clampdown, but are tackling it head on

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Whenever I write blog posts about how Indian suppliers are enabling UK employers to send jobs offshore I always think it's a bit unfair on the Indian companies themselves. After all they are businesses and will do what they can within the rules to profit. So governments can stop it by legislating if they want.

 

Although NASSCOM has had a buit of a moan on their behalves the Indian companies will take it on the chin and get on with working within the new rules.

 

Infosys and HCL, for example, are tackling the US clampdown on Visas after accepting they can't change it.

 

Like with the UK's intra company transfer Indian workers make up a massive proportion of people taking visas to allow them to work for their employers in the US.

 

A meeting between staff and management at Indian IT supplier HCL has revealed major concerns over the US clampdown. CEO Vineet Nayar met with staff this week and was barraged with questions about the issue.

 

The US has cut the number of Visas being given to Indian suppliers to take their staff into US customer bases.

 

His response to worker concerns was to acknowledge the problem and suggest that Indian technology companies get on with working around something they cannot change.

 

In a DNAIndia.com article Nayar says it would be best for Indian tech companies to go for local hiring in the US.

 

He said some US states were offering subsidies that make it attractive to recruit local talent rather than send people from India.

 

30% of HCL's US based staff are US citizens. This has increased from 8% five years ago.

 

I asked Infosys European head, BG Srinivas about this also. About 60% of the companies business is in the US. He says the company is not yet feeling the effects of the clampdown but he says "we need to prepare for legislation that could reduce the number of visas we get."

 

Similarly top HCL the company is addressing the issue.

 

Srinivas said Infosys will do three things to counter the changes.

 

1 - Infosys will definitely increase skills and recruit locals in the US

2 - It will increases the amount of work that is actually carried out remotely from India

3 - The company will increase the amount of services delivered via the cloud

 

Infosys has 25% of its workers, which is over 122,000, are in the US. Only 1600 are locals. Not really a lot so there is a lot of scope to increase its use of US locals.

Infosys is back in the double digits but not ready to cry "recovery"

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I have just got off the phone with Infosys' European boss BG Srinivas. We were talking about the company's latest results which were pretty good.

When I described them as quite good he said: "you are always hard to please Karl." But to be honest I am not really a numbers man and sometimes can't even tell if financial results are good or bad.

This company's second quarter results could suggest a recovery is on the cards. Infosys reported a 10.2% increase in revenue compared to the previous quarter and 29.6% more than the same quarter last year.

Srinivas says the company now expects revenue growth for the full year 2010/11 to grow 24% to 25%. Pretty good when you consider that in its 2008/09 financial year, at the height of recession, it recorded an 11.7% drop in revenues compared to the previous year.

He was naturally cautious when I asked him whether the recovery had arrived. "It is too early to say whether the good times are back. However the client business environment is stable and they continue to spend," he told me.

Infosys added 27 new customers in the last few months and signed some large deals to transform customer businesses. It also added over 14,000 employees.

I blogged recently about how the outsourcing sector could actually benefit from the government cuts so I also asked BG whether Infosys would target any UK government business? He said not for now.

 He said the company has a lot of room to grow in the private sector. It has 110 clients in Europe out of a potential basket of 500, he says.


The second quarter numbers:

Revenue was $1,496m. 10.2% increase on previous quarter and 29.6% increase in the previous year's second quarter.
Profit was $374m which was a 14.7% increase on the last quarter and 18.0% year on year.

Was the biggest mistake of the NHS IT project the fact that the successes weren't talked about?

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The NHS National Programme for IT (NPfIT) is probably the most heavily criticised government IT project of all time?

A former colleague of mine, Tony Collins, did a brilliant job revealing disaster after disaster in the £13bn project. IT service providers, quite rightly have also been criticised.

I must point out he also wrote about success stories.

But I was with a director of an IT services company the other day and although he reckons the NPfIT was always likely to fail because it was just too big, he says one of the biggest mistakes made by Connecting for Health was not to talking enough about the success stories. This wouldn't happen in the private sector.

"A lot of the systems in the NPfIT have been implemented and are working."

He singled out PACS and Choose and Book for praise.

PACS is the picture archiving and communications system.

It allows x-rays to be stored and transported electronically. The benefits are obvious. For example a doctor in the US can look at a UK x-ray or a doctor can view it while travelling.

The other thing he praised was Choose and Book. This is an online Appointment booking system.

"I have used Choose and Book and I think it is brilliant," said my contact. "Connecting for Health has not talked about the successes."

Reddit takes debate, on Indian and Chinese companies recruiting in UK, global

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I did a blog post this week titled: "Don't worry about us sending jobs to India because companies there will come here and employ you."

It was all about a study carried out by IBM that suggested that in a few years companies in emerging economies such as India and China will become big employers in the US and Europe. IBM currently sends thousands of jobs in the opposite direction.

It has sparked up an interesting debate on news aggregation website Reddit.com. Because the comments do not appear on this blog I thought I would provide a link so people can see what IT workers across the world think of the issue.

See below an example of the comments and see the debate by clicking here.

 
Comment by Prateekmi2: "Globalization is not a one way road from developed nations to the developing ones. It is bound to help them some way or the other in future, but I don't see that happening for some time to come."

Comment by youcanteatbullets: "I don't get it. Isn't the point of sending jobs to India because it's cheaper? How is it cheaper if they employ people in the country that did the offshoring?"

You should have a look at Reddit.com. There are some great international discussions about outsourcing on there.


 

Lloyds Bank cuts offshore IT workforce but it's all bad news in the UK.

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Government owned Lloyds Banking Group has reduced the number of offshore workers by 1,750, but made 2,700 UK IT workers redundant at the same time.

 

The 4,500 cuts announced yesterday are related to the integration of the Lloyds TSB and HBOS IT operations.

 

According to the Telegraph, union Unite said the bank was moving hundreds of jobs abroad. If the case this would signal the end to Lloyds Banking Group's self imposed pause on offshoring. Back in July 2009 the bank said it would not offshore more roles.

Unite seems to think Lloyds Banking Group is going through another round of offshoring. But a Lloyds Banking Group spokesman told the Telegraph the bank commissioned "some" international workers but that there was no set plan by the company to switch UK jobs abroad.

 

I recently blogged about RBS, which is also state owned, and seems to be on an offshoring mission. 

 

An RBS IT worker told me on a certain day recently the internal technology jobs board had 67 jobs on it. But only 6 were in the UK while the rest were in India. 

What do you think about conventional wisdom on IT projects?

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Because the comments being posted to this blog are usually very well informed on all matters IT, I thought it would be good to offer readers the chance to be involved in a major study.

So if you have been involved in managing an IT project your feedback would be welcome. You will get a free copy of the report for your troubles.

Computer Weekly is inviting IT project managers to take part in a research study that promises to challenge conventional wisdom on IT project management.

The study by a renowned international team of researchers led by university of Oxford in conjunction with Computer Weekly aims to re-evaluate the way organisations manage and measure the success of IT projects.

The study is led by three internationally renowned professors, Dr Chris Sauer from the University of Oxford, and Dr Blaize Horner Reich and Dr Andrew Gemino from the Simon Fraser University in Vancouver, Canada, who have worked on studies into IT project management over the past 7 years.

We are inviting you to participate in our research by completing a short 10 - 15 minute survey. In return, we will send you a personal copy of the preliminary report. To fill out the survey please click here.

 

Outsourcing sector recruitment will increase when government wields the axe

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The outsourcing sector could be an opportunity for IT professionals as public sector jobs look set to go as part of the spending cuts.

According to the latest research by PricewaterhouseCoopers almost a million jobs will be lost by government public sector spending cuts. But the company says there will be jobs created in the outsourcing sector.

"A sector likely to see growth opportunities from spending cuts is outsourcing, and not only in back office services. Government and public sector organisations will look to reduce their non-core and fixed cost operations by increasing the use of private and voluntary sector organisations for the delivery of front-line services."

We have already seen some movement in that direction. Ruth Ormsby, a leading light of the NHS Shared Business Service, is joining Capgemini as Public sector BPO head. This is a high level switch aimed to help Capgemini's shared services in the public sector push.

We also saw workers at Cleveland Police transfer to Steria to work in its shared services centre targeted at police forces.

But will there be opportunities for public sector IT experts as the government outsources more roles? Or will there just be an initial opportunity, which will disappear quickly as suppliers reach their recruitment targets quickly?

And if the public sector roles are transferred to the private sector how long will it before they are offshored to lower cost locations?

Back to PWC's point about outsourcing increasing Martyn Hart, chairman of the National Outsourcing Association (NOA), agrees.

 

He says it is not just about cost but actually involves gaining access to skills in the private sector that can help make huge transformational projects work.

 

"There are a number of reasons why outsourcing has been primed as one of the sectors to benefit from the public sector cuts, and although it's true that we could see new jobs created in the private sector, it's important to recognise that not all of them are linked to cost.  For example, it's worth remembering that by outsourcing services, the public sector will be able to call on much greater resources.  Organisations in the private sector are structured to be able to deliver some of the larger supply chain requests necessary when dealing with a large, national contract, and can turn them around quickly and easily."

 

He also warned the public sector over outsourcing just to save money. "Perhaps the biggest danger is that public sector departments could look to outsource cheaply, at the cost of improved service.  After all, it's clear that any project initiated on cost alone, is more likely to end in failure.  If performed correctly, however, and for the right reasons, it's clear that outsourcing can achieve real results for the public sector, and provide lasting employment for private sector workers - not just as a short-term solution."

Don't worry about us sending jobs to India because companies there will come here and employ you

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This blog often reports on the controversial subject of offshoring IT work. Although the blog is about IT outsourcing, I sometimes think it is dedicated to the debate about how offshoring is changing the UK workforce.

Many of the posts I do might reflect badly on suppliers from India. But this is not deliberate but rather the fact that India is so big in IT outsourcing. Also the big US and European suppliers are just as responsible for UK jobs being sent overseas after all.

But I thought I should point out the research I read about last night.

The research has been carried out by IBM, which has been criticised for sending US jobs overseas, and is titled: "Working Beyond Borders."

It found that companies in growth markets such as India and China are increasingly recruiting people from countries with mature Markets such as the US and those in Europe.

For example over half of the India companies surveyed said they plan to increase their workforce in North America as do a third of Chinese companies.

This is what IBM said: "The silver lining of globalization is that shift toward expansion will require companies to redirect their work force to locations that provide the greatest opportunities, not just the lowest costs, and at the same time re-imagine their management strategies to reflect an increasingly dynamic workforce."

IBM probably wants the Indian companies to take some of its own staff in Europe and the US because it is cutting them left right and centre. As are other suppliers such as HP.

Indian IT supplier HEROtsc, recently announced that it is creating 200 jobs in Scottish call centres . It already has 1,600 workers in 7 Scottish call centres.

Horror stories of government waste, MIPS , KIPS and MOPS.

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The government spending review is almost upon us so it is time to talk about government waste.

Sir Philip Green has already highlighted the amount of cash being wasted by the government and he singled IT contracts out for special attention.

But here are a couple of stories that will bring home some of the challenges facing anyone that wants to change how government buys.

The stories come from a source of mine.

Here is the first.

A central government department was rolling out training to its staff. After a year of the contract, which was worth hundreds of millions a year, the supplier offered the department a 30% discount in return for changing the contract a bit.

The supplier said if you selected only the people that required the training for their job and career development you cut reduce the cost by £60m a year. Not everyone needed the training.

But, and it is a big BUT, the civil servant in charge said no because the department is "an equal opportunities employer."

Here is the second story.

Government departments that use mainframes pay for services on a per MIPS. I am not technical myself and for the purpose of this story describe MIPS as a way of pricing storage processing on mainframes. I could have used some other noun, but I thought readers might be au fait with MIPS. You might even know about kIPS and MOPS too.

So when a department signs an IT contract it often agrees a cost per MIPS for a fixed period. It also generally agrees to a minimum threshold of MIPS because it does not expect demand to increase.

For the first year the supplier might take a hit and it will be a good deal, but in the remaining years of the contract probably not.

The other problem occurs when two departments want to integrate storage processing to gain huge synergies. Guess what they both have long contracts based on MIPS and both have a minimum MIPS threshold.

Rubbish government IT contract could have been one of many

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Sir Philip Green's report about government waste not unsurprisingly focussed quite a lot on IT.

With the government spending review around the corner the report outlined one particularly wasteful IT contract.

Here, in bold, is what he said about it:

"Six years remaining on a long term IT contract of more than £100m per annum

This is a contract for provision of hardware and software development. The principal contractor subcontracts the majority of work to another major supplier. Therefore there are two profit margins.

Work is charged for at a rate of more than £1,000 per person per day, which is well in excess of market rates.

It is a poor quality contract with no provision in the contract to reduce the annual amount payable should the development work not be required.

This contract includes services that are no longer required. There should have been an optional element written into the contract."

I was trying to find out which contract he is referring to. But the response I have been given by all my contacts so far is that "this could be one of many."

Anyone got any ideas or even a list of contracts that fit this description?

Microsoft is latest to sign MOU with government, but what is in it?

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Microsoft has now joined the likes of Atos Origin and Capgemini after signing a Memorandum of Understanding (MOU) with the government as part of the Cabinet Office's drive to cut IT costs.

 

In July government minister Francis Maude met the CEOs of the government's major IT suppliers to ask them to reduce the cost of services. The government said it was willing to listen to suppliers for ideas about how to cut costs.

 

The MOUs are following one by one.

 

A contact of mine said it would be interesting to see the technique being used to create these MOUs, which could be highly bespoke. I must admit I have tried to find out the details of the MOUs signed and had no luck. Has anybody got a copy they can send?

C#, SQL, .NET and Javascript skills could be in short supply in the UK for a long time

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The Recruitment & Employment Confederation's (REC)  latest report found there to be software development skills shortages in the UK.

 

It indicated that employer demand for ICT staff continues to grow with high demand for system developers, senior systems developers, senior test analysts, senior business analysts and more general skills in C#, SQL, .NET and Javascript.

 

I spoke to Jeff Brooks, the chairman of RECs technology group. He says there is a problem in the UK and that for years and years fewer people have been doing computer science degrees in the UK. He contrasts this with India where he says a lot of these skills have been developed. "We are not bringing through people that are ready for IT."

 

He says there is a problem with how IT is perceived. The REC is currently doing research on this and is likely to publish the results next year.

 

He says there are a lot of project management and analyst skills likely to available soon as the public sector cuts jobs but skills in modern programming languages will remain in short supply.

 

Indian suppliers will pick up software skills slack if approached.

 

"Businesses will have to go offshore if they cannot get the skills in the UK," says Brooks.

 

I wrote a blog post back in July, about an REC/KPMG study which said there was a shortage of .Net skills. I posted the blog on a LinkedIn group about offshoring to India and had a phenomenal response. If the UK can't close these skills gaps offshore locations will.

 

 

 

HP got the most IT money from the DWP last year and continues to increase DWP workload

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This is an interesting top 100 list. It is the top 100 suppliers to the Department for Work and Pensions in 2009/2010 in terms of the amount of money spent with them.

HP tops the list for IT suppliers and is actually the second most paid supplier of all. This is ironic because HP has recently been contributing to the DWP's workload with thousands of UK job cuts.

The Original article was on Kable.co.uk, where you can see the full list

Here is an article on Kable.co.uk about this.

As the spending review creeps closer it is interesting to see how much is spent by the DWP with IT suppliers. You can see why HP was keen for its staff at the DWP to stop striking.

But here are some of the IT suppliers in the top 100, where they were ranked, and how much they were paid.


Company                                     DWP revenue


2 - HP Enterprise Services            £657m
4 - BT                                         £233m
7 - Atos Origin                             £151m
9 - Accenture                               £87m
11 - Capita                                  £69m
14 - Xerox UK                               £61m
15 - Computacenter                      £53m
33 - Fujitsu Services                     £16m
40 - Capgemini                             £13.5m
41 - TCS                                       £13m
47 - Steria                                    £11m
51 - IBM                                        £10m


I look forward to seeing how different this list looks after the MOUs are signed by suppliers and the government spending review hits home.

David Cameron described some of the Labour government's spending, including IT, as crazy.

 

Indian IT workers are suffering as much as the UK staff they replace

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I found the union Unite's reaction to the latest HP job cuts interesting. Not just because of the HP cuts themselves, but more to do with something going on in India.

 

If you think that Indian IT workers have it easy think again.

 

It seems Indian IT workers, who are taken on because they cost less than workers in the West, are already having their pay and benefits squeezed.

 

Unite's sister union in India, Unites of India, has told Unite of a campaign of Indian IT workers for "decency at work" after pay and benefits have been cut. Workers in India at large multinationals are suffering from stress which is the result of pressure to meet unreasonable targets.

 

Peter Skyte, national officer at Unite, says companies like HP are squeezing their staff everywhere.

 

Also customers of these companies will probably not be best pleased if they knew how low morale is amongst workers supporting them.

 

The Unites of India union has this to say about the plight of workers: "Even as the IT and Call Center/ BPO  has made people wealthy in some sections of the middle-class around India and we have progressed economically, the employees are oppressed and extracted. Employees have over the years suffered a major setback in their quest for economic development, social status and real independence. There has also been a significant and steady erosion of a large portion of the employee base that have either quit in disgust or frustration that managements have bought on them. This trend is taking firmer root as the globalization process accelerates and becomes all-pervasive."

HP's EDS integration complete but job cuts continue

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Just when we thought the integration of EDS to HP and the savage job cuts associated with it were over, another 1300 cuts in the UK bring home the extent of HP's plan to restructure.

Union Unite is unhappy to say the least. Peter Skyte, Unite national officer, said they haven't even finalised the programme of 900 job cuts announced in June.

It can't be good for staff morale.

Back in June HP announced that the integration of EDS was largely complete it could now focus on growth.

Unfortunately this growth involves a reduction in 9000 jobs globally.

At the time HP said it is consolidating Enterprise Services' commercial datacentres, management platforms, networks, tools and applications. "As a result of productivity gains and automation, HP expects to eliminate roughly 9,000 positions over a multi-year period to reinvest for further growth and to increase shareholder value."

European Commission could open the UK's door to Indian IT workers

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A planned free trade agreement between the EU and India will give skilled Indian IT workers easy entry into the UK in return for European companies being given access to the massive Indian domestic market.

Just when we were waiting to see if Intra Company Transfers (ICTs) are to be included in the immigration cap the boundaries look set to be moved.

A report in the Telegraph says the deal has split the coalition government. Those in favour of the deal are hoping the UK can benefit from millions of pounds of business in India, while those against are eager to stick to the Tory pre-election commitment to bring down immigration.

More trade with India sounds a good idea. It has a fast growing population and will offer massive exporting opportunities for the UK. Well if India needs anything from the UK and other EU states that is.

Apparently the cabinet will start talking about it this week and the European Commission wants comments by the end of October.

A contact of mine said: "India has only one big request - greater access for its workers to work in the EU.

"So it all hinges on how much the EU will concede on that but the EU negotiators have said that they cannot concede much as it is determined by the national policy of individual states."

Indian IT workers make up a massive proportion of immigrant workers in the UK. See the facts and figures in this blog post.

Seven out of ten of the top importers of IT workers to the UK are Indian companies.

I wonder how this would go down in countries such as Holland and Germany? IT workers have told me they have relocated to these countries because opportunities in the UK are dwindling as a result of immigration. See this blog post I did about it.

Who knows China could be next. Trade with India and China would be lucrative I am sure. But the IT profession in the UK will suffer.

 


IBM criticised heavily as US website attacks corporates that offshore jobs

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I read an article in the New York Times at the weekend. It was about a new website created to name and shame US corporate that have offshored work, amongst other things. The AFL-CIO which is a federation of unions has created a website which contains a job tracker.

You put in a post code and it tells you about the outsourcing of jobs at companies within a specified area. Here is the site.

The AFL-CIO has also done a major report about some of the damage being done by offshoring to US workers and economy. It criticises IBM in the report (see below).

Here is the "Sending Jobs Overseas: The Cost to America's Economy and Working Families" report as it is titled if you want to read it.


I will go through the report and blog about it but just for a taste of its tone, here is the first paragraph:

"Outsourcing of jobs to foreign countries is one of the great hidden economic issues of recent years. It is big business, with multinational corporations actively shifting jobs out of the United States and around the globe in search of the cheapest possible labor. But, following popular outcry against the practice in 2004, corporations have done their best to hide the details even as they expand their offshoring activities. As a result, outsourcing has by and large fallen out of the headlines."

This is what the report says about IBM:

"IBM: Outsourcing Out of Sight

IBM has been a global leader in technology for decades. More recently, it has become a leader in the twin practices of outsourcing jobs and of hiding that activity. In 2005, IBM and its wholly owned subsidiaries reported 329,000 employees worldwide. Almost 134,000 of those workers--more than 40 percent--were located in the United States. At the end of 2009, though IBM's workforce had expanded to include almost 400,000 employees worldwide, only 105,000--just over a quarter of its entire workforce--were located in the United States. IBM is reported to now be the second largest employer in India, with 120,000 to 130,000 workers.

The movement of IBM jobs overseas is difficult to track due to the corporation's focus on secrecy in this area. Though IBM's domestic operations have shed a net total of nearly 30,000 employees since 2005, the company simply reports its nationwide total cuts, trimming smaller numbers from scattered sites to avoid triggering mass-layoff notification laws. The company no longer reports its employment numbers in geographical terms, making it difficult to discover where the company is hiring or where U.S. jobs go when taken offshore.

IBM workers whose jobs have stayed in the country have seen reduced benefits and lower pay--new facilities opening in the U.S. are paying up to $20,000 a year less than older centers paid. Meanwhile, CEO Sam Palmisano made over $21m in 2009 while cutting 10,000 U.S. jobs during the deepest recession since the Great Depression."

I blogged earlier about the fact that IBM might cut its permanent staff numbers by three quarters and contract work out. I did a more in depth article about it here if you are interested.

They could do a UK equivalent of this website. But there might be a section about how US companies are replacing UK workers with offshore resources.
 

Government IT cost cutting in five big bites

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The government spending review is on October 20 it is guaranteed to lead to nserious cost cutting . For the first time, almost everyone of voting age is not only aware of it, but interested.

 

In the IT profession it is particularly relevant because spending cuts often mean IT cuts. But should it be this way? IT should be seen as a way to help cut costs across the business.

 

A detailed plan comes from Compass Management Consulting. I met one of its directors, Steve Tuppen, recently to discuss government cost cutting and he gave me a detailed plan.

 

It breaks the changes into four focus areas. These are: IT Costs, Governance, Programme Delivery, Contracts and Retained Organisation

 

Here is a summary of five focus areas.

 

 

1 - IT Costs

 

Current position      - The amount spent on IT in government is unknown. Estimates are between £13bn and £20bn per year

 

Future                         - The government needs to know exactly how much it spends and then reduce it by 40%

 

Enablers                     - League tables are required based on true value for money assessments to drive change.

 

 

2 - Governance

 

Current position      - The government has federated committee based decision making which is slow and can cause obstacles to change.

 

Future                         - The government needs strong regulation and control of a single set of standards. A single Services Framework to ensure consistency of service definition is fundamental.

 

Enablers                    - The government should create an IT regulation model to provide the required level of central control. It should publish clear standards and give someone the teeth to ensure buyers adhere to them.

 

 

3 - Programme Delivery

 

Current position       - There are lots of large scale and high cost programme failures.

 

Future                         - Smaller programmes which have a lower risk. These should align to government policy.

 

Enablers                     - Evaluate major programmes against new policies, Strengthen governance against funding allocation.

 

 

4 - Contracts

 

Current position       - Dominated by large contracts with a small group of major suppliers. This is delivering poor value and is heavily constrained.

 

Future                         -  Multi-supplier models. Open marketplace. Smaller contracts with increased innovation. Leverage utility style pricing and delivery.

 

Enablers                    - Realigned mid-term contracts, Standardised services framework, new SME supplier framework, build an App Store

 

 

5 - Retained Organisation

 

 

Current position         - There is duplication between in-house staff and suppliers and a lack of trust of suppliers exists.

 

Future                         - Smaller, leaner and higher skilled in-house staff. In-house staff focussed on demand management.

 

Enablers                     - Enforcement of standards. Programmes to up-skill in house staff. In the short-term external support will be needed to support a significant change in culture and IT delivery practices.

Could the Government sell off government back-office functions to close deficit?

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Channel 4 news last night mentioned that George Osborne had a back up plan to help close the budget deficit if the spending review falls short. This involves selling off government assets.

 

They could make money and improve future efficiency by selling off back office functions to service providers who would then build shared services.

 

Channel 4 journalist Cathy Newman blogged about this yesterday.

 

Here is a cut of what she blogged: "I've been told the minister for the Cabinet Office Francis Maude has been asked to lead the drive to sell off the family silver. The Cabinet Office has confirmed he and the Commercial Secretary, Lord Sassoon, are to chair a committee to "consider issues related to the sale of government assets". Others on the committee include Chief Secretary to the Treasury, Danny Alexander, minister for government policy Oliver Letwin, Postal Services Minister Ed Davey and the Energy Minister Lord Marland."

 

Here is the blog post in full.

 

So could government back office functions be sold off? There were already plans being drawn up on the previous government's behalf by former civil servant Gerry Grimstone.

 

In December last year, courtesy of the FT, I wrote the story that Grimstone had been asked to find ways of making money out of government resources. Grimstone had the idea of creating large companies that specialise in providing business process services to public sector organisations. The plan is to sell these companies to private investors.

 

Grimstone told the FT that there are lots of things in the public sector that are akin to business activity. "We are just embarking on what could turn out to be a radical piece of work on identifying business activities within government and corporatising them."

 

Gordon Brown gave more details in a speech in March.

It all seems highly logical to me. What is the point having separate IT supporting identical back office functions? Shared services are believed by many to be the way to save money in government.

If you include central government, local government and even quangos the savings and possible earnings are massive.

This could be devastating for companies that currently make their money providing these very services. Unless they buy them of course.

Will Intra Company Transfer abuse have long-term damage on UK economy?

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Channel 4 news last night featured a report on how the immigration cap is damaging science in the UK. A talented scientist from outside the EU was interviewed about his rejected visa application. He is heading for the US and it is the UK's loss.

Nobel Prize winner Professor Sir Martin Evans of Cardiff University writes in the Guardian that the "draconian" policy puts Britain's future at risk.

Read it here and see the Channel 4 report.

This could also damage computer science in the UK. Or mabye just change it.

But I can't help thinking that parts of the IT sector are to blame. ICT workers from overseas, many of which are low skilled, are in the UK in their thousands and this scenario has contributed to public opinion  being against immigration full stop.

As a result of this the Tories introduced a cap on non EU workers coming to the UK. Electioneering at its best or is that worst?

I look forward to seeing what the migration advisory committee recommends for the permanent cap that will replace the current temporary cap.

Immigration is always a hot topic. Only last week 5 Live featured a broadcast about ICTs and their detrimental afferct on UK workers. You can find a podcast of the 26 September broadcast here.


 

Has government IT leadership got its teeth?

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I wrote back in August about the fact that government IT leadership lacks the teeth required  to drive major change in the way departments use technology. 


Things like shared services, which are fundamental to cost cutting, are often ignored by individual departmental CIOs.

 

John Suffolk as CIO has done much to promote the use of shared services but does not have the authority to ensure government ideas are taken on board by departments.

 

The appointment of former government CIO and Accenture managing director Ian Watmore to the role of chief operating officer of the Efficiency and Reform group was seen as an appointment that might provide the enforcement muscle.

 

But a contact told me today that former Home Office commercial director John Collington, who has just become head of procurement of the Efficiency and Reform group, could be the most likely executive to push change. 

 

Although his job sounds like one to get the best price out of suppliers my contact reckons he could be the teeth.

Government spending review should be starting pistol for reform through IT

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KPMG has created a microsite dedicated to the government's spending review. The fearfully awaited review is due on the 20th October and guarantees cost cuts across government departments.

Whatever happens IT services are set to play a key role in transforming government.

The business consultancy will be sharing its insights and giving its views before and after the spending review is announced.

Here is KPMG's microsite if you want to keep up to date.

KPMG's public sector boss, Alan Downey, says most public sector organisations are not really prepared for what is about to hit them. See this videocast by him about the spending review. 

He describes the review as the " firing of a starting gun on the deepest and most prolonged period of public expenditure cuts any of us have ever experienced."

He says its a once in a lifetime opportunity to change how things are done in government.

Sounds like an opportunity for innovative IT service providers to me.

He says the easy way to meet the challenges of the spending review is for each government department to cut services across the board. But the other option, which is preferred, is looking at ways of transforming how the public sector delivers services. The latter might actually require some IT spending up front, but will deliver savings in the long term.

Here is what KPMG's head of global IT advisory, Bryan Cruickshank, had to say to me about cutting government costs. Note how important technology is in delivering this.

 

 

Metro bank outsources everything

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The new bank that recently hit UK high streets has taken the pioneering step and outsourced everything, according to reports.

Niu Solutions is going to manage all IT operations and run them from a datacentre.

Terminals and security will be the only services run in-house. Here is a story about it.

Banks are big outsourcers and as they attempt to cut costs further following the financial system crash they are outsourcing even more. But they are often hampered by legacy systems that are as much as 40 years old.

Metro Bank has an advantage in that it is brand new.

Christian Ball, who works in the banking division at Capgemini, says this is an appropriate decision by a bank of Metro's size. Obviously it is still very small and costs per transaction would be very high.

It will be interesting to see if it takes more services in-house as it grows. I doubt it.

Service provider's Linux system, which dethroned .Net, has its big test at the weekend

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The Linux based core trading system which persuaded the London Stock Exchange to take over a software company will have a dress rehearsal this weekend.

The London stock exchange liked the MillenniumIT trading platform so much it bought the company for £18m.

The core trading system replaced Tradelect, which was .Net based. MillenniumIT, which is Sri Lanka based, continues to sell to other companies and is a revenue generator in its own right.

The £18m acquisition seems a steal when you consider the stock exchange was paying Accenture £20m a year to maintain .Net based Tradelect.

Do you have to buy suppliers to get the best software? After all suppliers keep the best stuff for themselves.

300 Sri Lanka based developers are now part of the London Stock Exchange group.

It is interesting because it is an example of a business wanting something from a supplier but wanted to retain control. The first post I did in this blog was about this.

Mark Lewis, a prominent lawyer in the outsourcing sector had this to say at the time: "This is an interesting development: it is the reverse of the trend where companies that have created captives sell them off to suppliers. So the LSE has bought in an offshore captive, and will turn it into the 'insource/outsource' model. This was fashionable about 20 years ago. For example, Barclays Bank had a company called Barclays Computer Operations. It supplied IT and services to the Barclays group, but was also tasked with providing services to third parties. I suppose what the LSE/MilleniumIT deal shows is that IT is absolutely critical to exchanges: in other words, it is core business. So you don't outsource it, you have it in-house. Is this the start of a trend? Could be very interesting for M&A in the sector!"

I met the man who formed MillenniumIT, Tony Weeresinghe, in May. Here is a blog post that followed that meeting.

Government IT executive disingenuous about India IT role, but offshoring should not be default choice

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I blogged the other day about a senior IT executive within a government department claiming Indian IT firms don't have a chance of winning large government projects.

The executive claimed that Indian companies lacked the skills required to take over projects. "A lot of the work we do requires suppliers to work very closely with the customer and the problem is, [Indian suppliers] do not have the capability onshore to meet these demands," the source said.

I mentioned this to Bryan Cruickshank who is the partner in charge of its IT advisory business, when I met him yesterday. He said the person that said this is being "disingenuous" because the government already uses Indian capability on big contracts." He was referring to the fact that large incumbents in government contracts, such as IBM and Accenture, offshore a lot of the work.

He said that it is a "no brainer" today for large organisations to have some sort of capability in India. "I say India because there are volumes of excellence there," he said.

But he warned that offshoring should not be the default choice for any organisation and in particular the government. He said organisations need to take a holistic view to ensure they have the right balance.

He said the government needs to take a holistic view when deciding where to have work done and think about "how it wants the UK labour market to look in ten years time years." He says a lot does go offshore by default when organisations want to cut costs.

"The higher value-add jobs should stay onshore."

Could the government use a mix of onshore and offshore that can cut costs without damaging long term job prospects for IT professionals?

KPMG blueprint for cutting government costs

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With the government spending review approaching I thought I would kick off the debate about how departments can operate with smaller budgets.

One thing is for certain. Departments will have less money to spend. IT could be a way of enabling savings across the board within government but it might require some initial spending.

I will start with KPMG's partner in charge of IT advisory, Bryan Cruickshank, because I have just met him. KPMG provides full business advisory with IT as one part of this.

KPMG will be attempting to have conversations with government about how it can change, says Cruickshank. He also believes that the consultants have to change too.

He says consultancies that have grown fat off public sector work will have to change, and the days of having 50 to 100 consultants onsite at a government department are over. He believes charges will move towards being more benefits driven.

The government has already asked its IT suppliers to cut costs and has clamped down on the use of consultants.

KPMG has public sector clients including the Home Office, MOD, Foreign Office and Department of Health to name some.

BLUEPRINT FOR CUTTING GOVERNMENT COSTS

Cruickshank says it is no different in the public sector to the way the private sector does it.

- He says like any large organisation a government department has to rationalise the products and services it offers to just what it needs to. For example in the public sector there are services that might only be used a couple of times a year.

- Then shared services must be implemented. He says UK government is like a group of subsidiaries but they do not share IT. See more on shared services in government here.

- G-cloud or something like it should be applied. He says the US government is ahead of the UK on this through a deal with Google although "not conceptually but in its execution." The UK G-cloud is still being piloted. See more about the G-cloud here.

Why do IT suppliers write better software for themselves than their government customers?

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I blogged back last month about research from software testing firm. The research, known as the appmarq report,  that in the UK government applications were the least changeable of all UK sectors.

The less changeable the software  the more expensive and costly it is to replace.

Funny thing is the IT consultancy sector had the most changeable software in the study. And even funnier is the fact that 75% of government applications are developed by suppliers.
So IT consultancies are giving the government less changeable software than they use themselves.

Is this to tie customers in?

The appmarq report carried out analysis of 288 applications at 75 organisations across the UK.

The findings put into perspective the challenge facing the government's cost cutting plans. New suppliers will need to change systems to support cost cutting.

The report also revealed the most expensive programming languages to fix.

KPMG tight lipped on Equaterra acquisition but double Dutch tells a story

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I was tipped off back in August that KPMG was in talks with sourcing consultancy Equaterra about a possible acquisition.

 

I was with KPMG's partner in charge of technology today so I asked him 'when a deal was likely?'

kpmg.JPG 

He said nothing apart from he had heard the speculation.

 

A contact of mine told me yesterday that a deal is close.

 

And look at this headline in a Dutch paper.

 

"KPMG Advisory voert due diligence uit op EquaTerra"

The English translation is: "KPMG Advisory perform due diligence on Equaterra."

Here is the full article if you can read Dutch.

KPMG has about 500 sourcing consultants globally. With the increased use of outsourcing it would not surprise me if it bolstered this through acquisition. 

Is Capgemini taking top Civil Servants for public sector push?

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I have just been told that one of the leading lights of the NHS shared business (SBS) services, Ruth Ormsby, is joining Capgemini as Public sector BPO head.

 

SBS is seen by many as one of the few successful examples of shared services in the public sector.

 

This could be a valuable recruit as shared services look like the way forward for government department's to cut costs. An executive with experience within a major government department will help Capgemini get its shared services message across and might help it overcome the cultural barriers often associated with introducing these services to the public sector.

 

Ormsby has also been a senior consultant at Ernst & Young.

 

See Ormsby's LinkedIn profile here.

 

SBS is one of the biggest shared services operations in the world, providing finance, accounting and payroll functions to more than 100 NHS organisations.

It began in 2003 as an in-house project run by the Department of Health, but the decision was quickly reached to move to a joint-venture structure with the private sector.

Suppliers are increasingly building their shared services capabilities.

Small supplier provides 28 years of service to world's third biggest employer

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I met an IT supplier the other day who has worked with the NHS on computing projects for getting on for 30 years.

 

I met sales director Steve Nicholls recently.

 

The two main things I got out of the meeting I feel are both worth blogging about.

 

Firstly CSA Waverley worked with the NHS when it got the GP Payment and Administration  System. The Exeter System as it is now known was in effect the first ever national computer system. It holds demograpohoic information about every patient and links it to screening information. It also pays all GPs.The software was written by a group of developers and CSA Waverly put in the infrastructure which was build on DEC systems.

 

There are 96 system in different locations and guess what? It still works.

 

This brings me on to the second point. This is a company with only 26 staff and a turnover of £9m last year. So a small supplier has successfully implemented and supported a national computer system for the NHS for 28 years. It also works with hundreds of local authorities and serves private sector customers.

 

It is now a preferred supplier on the government's Buying Solutions so it is approved to sell to thousands of public sector organisations.

 

The government has ha set its stall to place about 25% of government external expenditure with SME suppliers.

 

The Policy Challenge Report published by City University London's Centre for Information Leadership offers seven practical proposals that government could adopt to achieve the policy objective of increasing SME take-up while being compliant with EU legislative requirements. Read a preview and download it free here.

 


 

Rogue trader must be hoping wages in IT services increase fast

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Jerome Kerviel, the man behind the rogue trades that cost French bank Societie General billions, has been sentenced to five years in prison and ordered to repay £4.1bn.

The former IT worker used his knowledge of computer systems to hide his crime.

Kerviel is currently working for an IT service provider and earns less than 30,000 Euros a year. So unless outsourcing picks up.

 

Will BT selling Tech Mahindra shares affect Satyam vision?

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I noticed a few headlines about BT considering selling its  30.9% stake in Tech Mahindra.

Tech Mahindra is part of the Mahindra Tech group, which is the company that rescued Satyam, now Mahindra Satyam, after the billion dollar fraud committed by its chairman. They are both part of the Mahindra Tech group and were expected to merge when Mahindra Satyam announces its next results, which are expected to see it return to growth.

I met Mahindra Satyam's European boss, Vikram Nair, last week and he was really positive about the company going forward following almost breaking even after a £1.2bn loss the previous year as a result of the fraud.

The reason I think there might be an impact on Mahindra Satyam is because Nair said there were plans for the telecoms strength of Tech Mahindra to be combined with the software expertise if Mahindra Satyam. A true global ICT player he said, with a good story in cloud computing.

But if BT wants to sell its stake does this mean the substantial business it does with Tech Mahindra will end? It relies on BT for a lot of its business.

Do Indian IT suppliers stand a chance in large government deals?

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A colleague of mine was talking to a senior IT executive in a government department and he said Indian suppliers don't stand a chance of winning big government deals because they lack skills associated with taking over a contract.

According to the source the biggest concern around working with Indian companies is the skills transfer between the incumbent supplier and the new partner. "A lot of the work we do requires suppliers to work very closely with the customer and the problem is, [Indian suppliers] do not have the capability onshore to meet these demands," the source said.

Here is the full story.

But didn't George Osborne open the door for Indian suppliers? He said it was "an opportunity for Indian IT contractors to get involved" an offer their services to the UK government.  

Osborne, along with senior UK government and business figures including the PM, was in India trying to promote Britain to the expanding middle class in India.

Lee Ayling, managing director at sourcing consultant Equaterra, said the opinion that Indian suppliers have no chance of winning large government deals "is a typical example of an uninformed government buyer who are a dying breed."

He said the Indian players do have capability and are already involved in deals where they have to transfer capability and knowledge.

He said some of the Indian palyer will be more and more willing to take UK staff on as part of the deal. "The government needs to make use of some global delivery."

Analysts including Ovum have suggest that now that the government has the drive to cut costs jobs will most probably be offshored to lower cost regions.

I wrote an article back in June 2009 about the All Party Parliamentary Group focussed on improving trade between the UK and India. The feeling was then that the UK public sector could do a lot worse than outsource more to Indian IT firms.

No Indian supplier is in the list of top 19 suppliers to government. In an earlier blog post I asked the question: how long will no Indian suppliers be in top government suppliers list? 

Robert Morgan, director at sourcing consultancy Burnt-Oak Partners, says the Indian suppliers do have capability but it depends on whether the government is willing to use a mixture of delivery from onshore and offshore.

"If the government wants the service to be delivered fully onshore the Indian firms cannot compete because their engines [that make them competitive] are offshore."

Could HP appointments mean less focus on services?

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Following Robert Morgan's contribution to this blog this morning I thought I would do something on the Oracle/HP job swapping. Sorry I can't compete with Robert, or the "Bard" should I call him.

Here goes:

HP has replaced Mark Hurd with former SAP head Léo Apotheker  and its new chairman Ray Lane is a former Oracle senior executive.

Mark Hurd was credited with making HP's acquisition of EDS a success and taking the IT giant well into the services space.

The services space is obviously attractive to the big US IT hardware firms.

HP acquired EDS.

Dell bought its way into services with the acquisition of Perot Systems.

Then Xerox took over ACS.

And these companies have a lot of room to grow. If you look at the top 15 IT service providers to the European market you will see that only HP is there.

But Oracle and SAP are software companies. A colleague of mine spoke to an analyst who believed this is a sign that HP will refocus on its product sales.

And what about Oracle. Under Hurd's guidance now could be the time for it to buy a service provider. A colleague of mine reckons next year it might be able to afford to buy Accenture.

Here are some other possibilities.

Will small businesses be a step too far for industrialised IT services?

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In my meeting with Computacenter's managing director, Simon Walsh, last week he told me that the small of SME was not worth supplying. He described these as companies with less than 750 staff.

He said he could not find a business model to serve them.

So strongly did he believe in this he stopped serving them completely.

The SME sector is very fragmented and service provider overheads rack up trying to service lots of customers with vastly different requirements. No one size fits all.

But 750 users seems a bit high to give up on. Surely if you can build an industrialised service in the cloud you could make good revenue and profit from it. If industrialised services are going to account for 30% of the market by 2015 I would have thought some sub 750 employee companies would take them up.

Some service providers are actively targeting the SME. Although when they say SME they could mean anything from a one man band to a large household name.

Today Computacenter, which reported revenue of about £2.5bn in Europe last year, has a model that goes like this:

1 - Small businesses are not targeted at all.

"If you are a small company you probably have a couple of jack of all trade IT staff and you do not want to get rid of them." So the savings on staff costs are non existent.

2 - Medium sized businesses are offered full service outsourcing.

Large service providers are moving into the mid sized business sector because the massive full service outsourcing contracts are drying up. But he says companies like Computacenter have an advantage here. "The big suppliers are credible in this space but if you talk to any customer they say they are a small fish in a big pool when working with big suppliers."

3 - Large enterprises are offered individual services or point products within a multi-sourced environment

With the reduction of mega deals and the increasing use of multi-sourcing this makes sense.

Oracle and HP Bed Hopping - A Modern Tragedy

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Outsourcing industry expert Robert Morgan, from consultancy Burnt-Oak Partners likens the changing of the guard at Oracle and HP to a Shakespeare tragedy.

I will say no more. Apart from, enjoy.

IT Industry Bed Hopping - A Modern Tragedy


By Robert Morgan


Prologue


Two households, both alike in dignity,
In fair California, where we lay our scene,
From ancient grudge break to new mutiny,
Where civil actions makes civil names unclean.
From forth the fatal loins of these two foes
A pair of star-cross'd lovers may just take their life


Scenes One and Two


We are all witnessing an unfolding Shakespearean tragedy of epic proportions and yet few see it so clearly. At risk the crown of arguably the number one outsourcer and the number one software provider. The parallels between these "two star-cross'd lovers" is every bit as comparable as Romeo and Juliet.


The announcement that HP has appointed Leo Apotheker to be its new CEO disappointed the market and the shares dropped immediately by 4%. Not fair as Leo inspired SAP's dramatic growth for years? Well as CEO, a position held for less than 12 months, he also presided over an almost 30% drop in revenues and was ousted without too much ceremony. Mark Hurd led his company to new heights and was the darling of Wall Street. Expenses wrongly incurred and he too dumped as yesterday's man.


"But soft! What light through yonder window breaks? It is the east, and Larry is the Sun-microsystems guy" seducing Mark to come hither and join Oracle.

 
"But soft! What light through another window breaks? Why 'tis fair Leo" beckoning to Ray Lane to come join as non-executive chairman of HP. "Arise, fair son, and kill the envious Ellismoon"


Mark knoweth the HP strategy, particularly regarding the software push and maybe acquisitions too. "but hark, sweet Ray doth also know what strategy Oracle doth have on new services to be made" having been uncle Larry's co-President all these days. Oracle has also just raised $5bn to add to its acquisition war-chest. What knowest Ray of such things?


So these two star cross'd lovers still have the final act to play out. Book your seats for the 2011 - 2012 season. Will one or both demise? Only a wise man or a fool would guess what likely path young Will's rewritten prose will take. Which competitors are likely for a friendly overture and will they be told "How stands your disposition to be married?" Who will say "It is an honour that I dream not of..." and who will say "O' happy dagger here is thy sheath."


Potential Market Epilogue


"O, They doth teach the torches to burn bright!
It seems they hang upon the cheek of night
Like a rich jewel in the IT industry's ear;
Beauty too rich for use, for earth too dear!
For never was a story of more woe
Than this of Juliet and her Romeo

The government might have the excuse it needs to bottle its immigration cap promise?

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This month sees the Migration Advisory Committee publish its much anticipated report on the proposed immigration cap in the UK, which could influence the government's decision on the permanent cap that will replace the current temporary one.

 

We should get the debate going in anticipation of the MAC report and the government decision that follows it.

 

I thought the big debate is whether intra company transfers (ICTs) will be included in the permanent cap or not. They do after all account for a massive number of non EU IT workers in the UK.

 

But the real debate could be whether the government gets rid of the cap or raises it to allow more immigrant workers into the UK.

 

Maybe the government has an opportunity to pull out of its pre-election commitment. Mark Lewis, a lawyer specialising in outsourcing at Berwin Leighton Paisner, said reaction to the cap from big business has been negative and could influence the government's decision. Or the government might just raise the cap significantly.

 

This is what Mark Lewis said:

 

"Having announced that they would introduce a quota of highly skilled workers from outside the EU, the government introduced a seemingly low interim quota. It is now facing a backlash from UK industry.

 

"They could use the backlash and say they have listened to concerns and either remove the cap or increase it.

 

"This could be a way out for the government. It could be a clever way of getting out of a pre-election commitment to the quota."

 

I must say the promised cap did scream of electioneering. Labour was against the cap as were the Liberals and the whole idea of the cap seems very un-Torylike to me. 

 

 There has been a lot in the news recently about the immigration cap. We have had government minister Vince Cable come out and say it is a mistake. And then you have a Sunday Express opinion poll revealing that 51% of people believe that controlling immigration is the most important issue facing the country after the economy. Lots of Tory voters in that sample.

 

There was also a 5 Live broadcast about ICTs last week.

 

The issue is particularly relevant in the IT sector because thousands of workers come to the UK every year to work on IT projects.

 

See this article for the facts and figures about immigrant labour in the UK.

 

Another contact of mines thinks the government might fudge the whole issue.

 

"The easiest fudge to the figures is to make ICT visas last 364 days. They would then disappear off the Long Term International Migration figures.
One of the loopholes in the current cap is that 'in country transfers' to tier 1 general visas are not capped. This loophole is likely to be closed in some way.
Neither of these are likely to be particularly helpful for UK IT workers, but they will help achieve the government's target."


 

What IT offshoring offers other than cost savings?

Karl Flinders | 7 Comments
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I wrote a blog post last week following a reply from an IT manager to a previous post I did about RBS offshoring work. The IT manager had analysed the costs of offshoring and concluded that it is not that much lower than doing work onshore.

He said he was concerned that CIOs that were offshoring just to save money might actually be making a mistake.

And there are clearly many reasons other than cost to offshore work, but the person making the decision needs to know what these are.

For example I blogged about Morrison utility's decision to offshore software development. Cost was an important factor but so too were the ability to flex up and down the number of developers it uses at any one time and access to skills - because its in-house team did not have the cloud and mobile development skills it required.
 
I posed this question to some LinkedIn groups with members for the offshoring industry: If offshoring IT is not that much lower in terms of cost why bother?

Here are some of answers I immediately received. This is a debate worth having so please contribute.

Reply 1

a. Managing spikes in your business -resource demand
b.You manage your core business and outsource not so important functions so that your "smart" people can be used for more strategic projects
c. Broader skill set you get, which you may not have internally
d. Access to skills from a different geography helps - let's face it some geographies have smart people in a particular domain- A Japanese may be good mechanic, an Indian a better coder OR an American more creative!
e. You get the flavour of different cultures - which helps in making your people more "global", understanding what a NO from a Japanese or an Indian or a Chinese means!
f. COST is just the icing on the cake!

Reply 2
 
a. Limitation on talented resources.
b. Certain industries need round the clock support so a different time zone is complementary

Reply 3
 
Experience of the offshored destination. If the cost is the same, but the quality and overall offering is better, then perfect. Although, in practicality, what IT offshoring destination does not provide is cost savings.

Reply 4
 
The first thing to note is that the emphasis in offshoring has shifted from pure cost savings to value. So while you may not make significant savings for high-end software, for example, you can expect to obtain a more scalable solution from a good outsourcing provider than your own team can provide -- or even one that solves two or three problems at a stroke, thanks to the ingenuity of offshore developers.

Reply 5

|n reality it truly is much lower when you factor in all associated onshore costs of maintaining a qualified IT resource. The recruitment and logistics costs alone, due to lack of certified staff compared to other global outsourcing regions, are just a few examples of many cost justifications that large scale IT employers factor over and over everyday.....and still...offshoring continues to grow annually at a double digit pace.

Reply 6

One of the major reasons for offshoring is research & development and newproduct development of innovative products.

Have an idea,  concept which you want to get developed, test and see it working?

Get it done by outsourcing - offshoring !






Lawyer explains how industrialised IT will change "sloppy and lazy" industry

Karl Flinders | No Comments
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When I was at the recent Gartner IT outsourcing Summit, I was bombarded with talk of industrialised IT outsourcing. Services from suppliers to multiple customers that can in theory be turned on and off at the flick of a switch. Easy on easy off it was described as.

But I also heared that suppliers would somehow "re-invent lock in." In other words finding ways to make sure it is not easy on easy off.

I asked Mark Lewis (pictured), a top lawyer in the outsourcing industry who heads up the outsourcing division Berwin Leighton Paisner, for his thoughts.

Thumbnail image for Mark-Lewis 39.5 x 32.06mm (300dpi).jpg

He put together this great opinion piece to explain.

"Karl set me a challenge recently: if Gartner's theory is right, that by 2015 30% of IT services will be industrialised how will IT suppliers lock in their customers?

Asked a little more diplomatically: what should suppliers do to create customer loyalty?

Cloud or utility computing is often said to be at the heart of industrialised services. So the theory goes: customers move away from current computing models to the cloud, and they can switch to someone else's cloud whenever they like.  But is that likely?

First, there are cloud implementations and cloud implementations. Some are bigger and more complex than others: think of a multinational company moving its enterprise-wide email from Outlook to Gmail. Experience shows that this is not an easy project to implement and that it takes longer than cloud spotters would have us believe.

So how easy will it be to move enterprise-wide email from Gmail to another cloud messaging service?  My point is that there will be an inertia in the cloud as well, which will keep customers locked in.  Even for smaller, less complex, cloud migrations, there is not yet enough experience to show how easy it will be for customers to move from one cloud or utility service to another: just think about how long it took OFTEL to get mobile phone service providers to allow portability of phone numbers and how, therefore, many customers stayed with sub-optimal providers because it was too hard to move away.  How and when do you get your data back when you move from one cloud supplier to another?

In a more positive light, those "industrialised" providers who are genuinely innovative and who find efficiencies where their competitors can't or won't, and who are able to keep bringing costs down - they will be the winners in the battle for stickiness and lock-in. Margins may be lower, but the game will be market share.

I always think of a story told to me by one of the UK's (then) top management consultants. An Oxford graduate with a bright future ahead of him, he joined the consulting arm of one of the (then) "Big Five" accounting firms, practising top end strategy consulting and process re-engineering. His projects were big, complex and reassuringly expensive for his clients.

Then, one day, he was called in by one of the leaders of the firm's consulting arm, who explained that, in future, the consulting money actually lay in ERP implementations. Of course, they were typically smaller, less complex and less expensive than his bespoke projects. They were replicable projects, based on established methodologies, not one-offs. He admitted that, at first, he baulked at the idea that a highly qualified and skilled "rocket scientist" should be reduced to selling and managing ERP implementations. But this was a command-and-control accounting practice: if you wanted to stay, you didn't argue.

After a few months, he began to find the challenges in these ERP implementations interesting: how could his teams deliver them more efficiently, so that they could deliver even more? How could he increase his firm's margins in each implementation?  How could he compete with other suppliers in a fast growing market? He actually learned to enjoy ERP roll-outs.

The moral of the story is that there can be real opportunity and reward in finding the answers to these questions. The IT supply industry in the developed markets has become bloated, sloppy and lazy: it has depended for too long on customer inertia, complex and bespoke IT solutions from which there is no easy exit, and locked-in changes that allow it to claw back its margin (and then some) Industrialised IT will change that."



Does offshoring IT work really cut costs that much?

Karl Flinders | No Comments
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As I have said before the real value of a blog like this one is often in the comments. Real life IT professionals reacting to stories.

I wrote a blog post last week about RBS's increasing offshoring to cut costs. I have had a comment made in the blog that questions the actual savings that can be made through offshoring in the long run.

In this comment, a senior IT manager at a large company known as David, explains some of the findings of his own analysis into the true cost of offshoring. From his findings he fears that CIOs don't look beyond the day rate when offshoring.

Here it if missed it:

By senior IT manager David,

"I fear that many CIOs don't look much beyond day rates when deciding to offshore work and don't really understand how offshored IT projects work in reality.

As a senior IT manager at a large UK company, I have tried to better estimate what offshore resource is actually costing us. I obviously won't be posting the official document I produced but I have included some figures to give you an idea of my findings.

Average onshore consultancy day rate £800

Average offshore consultancy day rate £225

Average freelancer day rate including agency fee £500

Average onshore day rate considering the contractor/consultancy resource mix £670

So from the starting point the offshore rate looks quite attractive.

For handovers and training, an offshore resource will work onshore at least 3 weeks a year at onshore rates plus expenses. This pushes their average rate over the year up to about £300.

The overheads to make the offshore module work, KT, communication, hand-holding, double checking the work done offshore etc, has been estimated to be at least 15% of onshore/offshore time. So £670+£225*0.15 = £134. I believe this to be a conservative estimate and these overheads might actually be higher.

So we are already up to £434, still competitive with onshore consultancy rates but now closer to the contractor rate
.
If we consider other inefficiencies such as language difficulties, having to rely on emails and telephone for communication, time zone differences, cultural differences, quality issues, and rework then we are probably not saving any money at all."

Accenture is latest IT supplier to agree to government cost cutting

Karl Flinders | No Comments
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Accenture has become the latest supplier to sign a Memorandum of Understanding with the government to support cost cutting.

The government's top 19 suppliers were invited to meetings with Cabinet Minister Francis Maude to discuss cost cutting.

Capgemini and Atos Origin have already signed up. Atos Origin was the first to sign such an agreement.

In July government minister Francis Maude met the CEOs of the government's major IT suppliers to ask them to reduce the cost of services. The government said it was willing to listen to suppliers for ideas about how to cut costs.

It is quite interesting to see which companies take the longest to agree. Is it directly related to the amount of government business they have?

Cloud computing tag dumped by IT services firm because it's confusing

Karl Flinders | 1 Comment
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It's official Computacenter has dumped the cloud computing label.

Cloud computing is currently being hyped beyond belief. But what it means is not actually that clear.

A few years ago I was writing about the application service provider (ASP) model. This is when a supplier hosts your applications and you access them via the internet. But not cloud computing?

Real cloud computing is about having the ability to access the most appropriate online service at the click of a tab, according to purists, but this means allowing workers unfettered access to internet services that are not approved at a corporate level. Tool much for many.

As a result private clouds have developed. This is where workers access applications via a link rather than sitting on the desktop. But they are being hosted on a private cloud so it is not that much different to the ASP model.

I had a meeting with Computacenter's managing director, Simon Walsh, today and amongst other things he said the company has dispensed with the cloud computing tag. It might come as a surprise that a company that relies on selling technology would do such a thing but Walsh says it confuses customers.

The company prefers to refer to everything as virtual.

As Wipro CTO, I Vijay Kumar, told me in an earlier interview cloud computing in its native form is after all known by techies as virtualisation.

What is cloud computing to you?

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