September 2011 Archives

Offshore IT management market at threat from artificial intelligence

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I have been meaning to write about a company called IPSoft for a while now, but have been waiting for a bit of a news hook.

I was at Gartner's annual outsourcing event this week and noticed that the company was mentioned in the keynote as a new player in the IT services market.

IPSoft is a company that offers remote infrastructure management which is carried out automatically by computers using artificial intelligence. It is on the Gartner radar for IT services and it seems that the big Indian suppliers that are offering remote infrastructure management with low cist labour will have to watch out. IPSoft hardly needs staff because of its core remote infrastructure management technology.

The global market for managing computer servers, desktops and communication networks is worth around $25 billion at present and expected to grow to $45 billion in the next four years, according to Gartner. This is where IPSoft will compete.

See this article about IPSoft.

I suppose outsourcing a job to a competitor is less controversial than sending work offshore.

The IT industry resembles life at the top in football and banking?

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HP has offloaded another CEO and $13m in the process.

The recently fired CEO Leo Apotheker pockets $7.2m in severance payment over the next 18 months. He will also receive $3.6m worth of stocks in the company, according to a Securities and Exchange Commission (SEC) filing.

It doesn't there. Despite being sacked because for not being up to the job, he will receive a $2.4m bonus under his separation agreement with HP, an additional pay-off not included in his original terms of employment. He will also receive up to $300,000 for any loss incurred by the sale of his California residence as a result of his departure.

This after HP said the board believes that the job of the HP CEO now requires additional attributes to successfully execute on its strategy. So basically it didn't think he was up to it.

So the business that was set up in a garage is hemerrageing millions on failed CEOs.
Apotheker's predecessor Mark Hurd was forced to resign after a sexual harassment investigation revealed dodgy expense claims, also walked away with a huge pay-out and straight into a new job at Oracle.

There are quite a few bankers that have been rewarded for failure recently. And then you have the frequent scenario in football management when a new manager is put into the job quickly, often an internal appointment, but is later sacked only to be rewarded a massive pay off.

But the difference between football and IT is football teams have loyal customers while banks have the support of the government. But how long can an IT company continue to support the retirement funds of executives with huge pay-outs?

NHS IT project is dead, but why do large IT projects fail? Part 5

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Following the  news that the NHS National Project for IT has been dropped I have been posting some of the views I have recently had provided to me for an unrelated feature I am working on. The feature, which will appear in two parts on soon, asks the question: Why do large IT projects fail?

I started with the comments made by Brian Randell. Randell is a professor of at the School of Computing Science at Newcastle University.

Then part two came from Anthony Finkelstein. He is professor of software systems engineering at University College London (UCL) and dean of UCL Engineering. Part three, was from Yann L'Huillier, group CIO at financial services giant Compagnie Financiere Tradition, who has also headed up IT at several of the world's t stock exchanges.

Part 4 was from James Martin, the former IT COO Europe at investment bank Lehman Brothers.

Today is part 5 from Philip Virgo is secretary general at the Information Society Alliance. He has nearly 40 years' experience of IT projects.

He says: "Large projects nearly always fail unless broken into components that can be delivered step by step by mixed teams of users and technicians who know what they have to achieve together, what their next job will be if they succeed - and that they cannot move onto it until they have delivered this one to the satisfaction of the business. That satisfaction may well be an evolving mix of specification, time and budget, because incremental implementation and market change leads to changing expectations and needs. My first major project was the merger and decimalisation of the sales ledgers for the companies that had come together to form ICL. My reward was two years at the London Business School, including a course on programme management led by one of the Polaris team. I have watched success and failures over nearly 40 years. The reasons have not changed. By far the IT biggest project in the UK was the transition of the payment clearing system, including the ATMs in every high street, to internet protocols and common card standards. It took nearly ten years to complete all the incremental changes. No one has ever heard of it because success is boring."

NHS IT project is dead, but why do large IT projects fail? Part 4

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Following the unsurprising news that the NHS National Project for IT has been dropped I thought it apt to blog some of the views I have recently had provided to me for an unrelated feature I am working on. The feature, which will appear in two parts on soon, asks the question: Why do large IT projects fail?

I started with the comments made by Brian Randell. Randell is a professor of at the School of Computing Science at Newcastle University. He was a member of the group of academics who became concerned about the UK National Health Service's National Programme for Information Technology (NPfIT).

Then part two came from Anthony Finkelstein. He is professor of software systems engineering at University College London (UCL) and dean of UCL Engineering. Active in industry consulting, he is a fellow of the Institution of Engineering and Technology (IET) and the British Computer Society (BCS).

Part three, was from Yann L'Huillier, group CIO at financial services giant Compagnie Financiere Tradition, who has also headed up IT at several of the world's t stock exchanges.

Today in Part 4, James Martin, the former IT COO Europe at investment bank Lehman Brothers, gives us his views.

James now managing director at start-up Firmrater. Over the past 17 years he has worked for several retail and investment banks, often in the IT COO role. He has been involved in hundreds of large IT projects including three global Year 2000 programmes.

He says: "In my experience the key reasons for IT project failure have been consistent across firms and around the world. My top 5 pitfalls are: Lack of robust business requirements at the outset, leading to unrealistic IT project budgets and timescales; business sponsorship and participation start off strong and then tail off, leaving the IT project drifting; red herring stakeholders' frustrating a project by raising numerous side issues and minor concerns; the world outside moving on, forces a project to be re-defined during its course so it never really ends, it just runs out of steam; and the administrative burden imposed on the IT team eats more resource than technical development work.

The large projects which have been most successful tended to be externally visible to customers, regulators, the public and media. I've also seen 'best practice' lead to 'worst result' projects far too often and I believe that's the root cause of the problem: process has greater emphasis than outcome and that's not going to get a project over the line."

How BP got its IT suppliers to collaborate and perform after massive vendor consolidation

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Oil and Gas giant BP spent 65% of its $3bn annual IT budget with 3000 suppliers in 2008 but now it outsources to only seven and  has reduced its annual IT budget by $800m as a result.

Vital to the success of the new multi-supplier ecosystem was retaining supplier performance levels while getting them to work together.

BP is a massive consumer of outsourced services across its business and as a result the overheads associated with working with partners are massive. Taking IT in-house was not an option due to the company's size, global presence and confluence of diverse business functions.

BP Group CIO Dana Deasy told an audience at Gartner's annual outsourcing summit in London how the company managed to  cut hundreds of millions in costs in a couple of years while retaining a multi-vendor IT outsourcing environment. Most of the $800m savings on IT is the result of the company's sourcing transformation.

Deasy says the company wanted to reduce the cost and complexity of working with thousands of IT suppliers. It now has seven IT service providers in its multi-vendor environment and has shaken up its vendor management capabilities to ensure it gets the most out of them.

The seven suppliers in the ecosystem are: IBM; Tata Consultancy Services (TCS); Infosys; Accenture; Wipro; HP; and T-Systems.

Deasy says the challenges for BP were to ensure that the suppliers give their all and work together in a collaborative ecosystem. "We had to keep all the vendors on edge to get the best out of them. But we also have to create a collaborative environment," he said.

As well as boosting its internal supplier management resources with a dedicated team and taking up supplier management standard, BS11000, BP has focussed on getting its suppliers to perform in the face of less competition.

The seven suppliers all have a core role which BP expects them to stick to. At the same time the suppliers must collaborate as if they were one

BP introduced what it calls "The Captain's Table." This is a mandatory week-long event where the CEOs of its seven IT suppliers get together for group meetings and one on one's with BP. "You need to get the top of the house [supplier CEOs] aligned," says Deasy. "You need to get them together and set them joint targets." All supplier CEOs are expected to attend.

Deasy says it is important to make sure that the suppliers know that there is something in it for them when they attend these meeting, which are aimed at improving ecosystem collaboration. He says with more and more businesses multi-sourcing their IT services collaboration between suppliers will become increasingly important. "We need to tell the suppliers that there is a marketing opportunity for them. If they can demonstrate that they can work in a collaborative ecosystem they can use our relationship as a reference for new business."

He says it is surprising how little the senior executives at  IT suppliers in the same ecosystems interact. "Next time you see your suppliers ask them how many times they have communicated with another supplier in your ecosystem." He says there are huge behavioural changes to be instigated.

BP also had the challenge of getting its own large internal supplier management teams as well as its CIOs to move in the same direction. Deasy believes getting internal supplier relationship management to change how they work was perhaps the biggest challenge. "We underestimated the time it would take to explain this."

The company also recognised the business continuity risks associated with reducing its supplier portfolio. It carried out a hypothetical incident of losing an entire city in India where a lot of its IT and BPO services are delivered from. Known as City Down the test  it helped BP understand how suppliers could work together in a crisis.

Is a group of MPs focusing on outsourcing and shared services a waste of time?

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Following the article I recently wrote about the new all-party parliamentary group set up to will look at how the public sector can get more out of outsourcing and shared services I have had quite a bit of reaction.

Below is the opinion of Professor John Seddon who is managing director of Vanguard Consulting, believes the government is barking up the wrong. Vanguard Group tries to encourage organisations to move away from the traditional command and control methods of implementing big IT projects from above. It is interested in "systems thinking" where the project planners learn what the users need at a systems level.

Basically it is not in the interest of big suppliers to do this.

Here is an opinion piece from Professor John Seddon


"The new all-party group 'to help government save money through smarter outsourcing' is an astonishing development. The purpose of the group is: 'To raise awareness of the benefits and best practices of the outsourcing and shared services industries' and to 'promote dialogue and understanding between industry representatives and Members of Parliament.'  In other words, to believe everything the outsourcers and shared-services mongers tell them and persuade their parliamentary colleagues that it will work. But will it?

The 'evidence' is being collated and one would presume, filtered, by the National Outsourcing Association (NOA). Premier members of the NAO include the outsourcing giants, Computer Services Corporation, one of the main contractors of the now abandoned £12.7bn patient record system and ATOS Origin, the company investigated in July by the Commons work and pensions committee for its widely criticised assessments of disabled people for benefits.

This week, we learn  the delivery of Universal Credit, outsourced to IT providers via Intellect, the group representing the UK technology industry, has been moved to the top of George Osborne's warning list of projects that could fail.

Shared services has an equally shocking track record. IBM another premier member of the NAO, is the supplier to Southwest One, a shared services partnership that recorded a pre-tax loss over its three financial years, with the last reported at £16.5m. The venture is reported to have duplicate payments sitting at £772,000 and £12.9m in outstanding debts.

"Stupendous Incompetence" was the verdict of the Public Accounts Committee  on the Department for Transport's shared services programme that went from a planned saving of £57m to a cost of more than £170m.

According to the NOA, the all party group wants to 'look into projects that have not worked'. What do you suppose they will say? 'It's okay if you do it right". But where is the evidence?

When you study what is going wrong on in these service designs, you learn that it is industrialisation itself that is the flaw. What becomes immediately apparent is that the new shiny standardised IT-dominated factory processes fail to absorb the variety of customer demand; in other words it becomes hard for customers to get what they want. When customers can't get what they want they return, especially for public services about which they have no choice, until they do get what they want. I call this 'Failure Demand' (demand caused by a failure to do something or do something right for the customer). It represents a massive cost, failure demand can run as high as 80% of all customer demand in industrialised shared services projects, locking in costs for many years.

Desperate politicians looking for anything plausible that promises to reduce costs will learn nothing from the companies in whose interests it is to promulgate these IT dominated factory designs. The all party group will simply serve as a conduit for pecuniary interests. Until the group reframes its questions, breaks its ties with the NOA and broadens its appeal for evidence, it will remain blind to innovation and blind to genuine opportunities to improve public services and reduce costs."

Ten IT outsourcing game changers from Gartner

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I attended Gartner's annual get together for the outsourcing community today and thought  I would share with you the ten things or "game changers" in IT outsourcing, according to the analyst firm.

I will expand on this in an analysis but here are the ten "game changers."

1 - The economy

The economy has been so bad in recent years that outsourcing has seen major changes. These include suppliers sharing some of the pain that their customers are suffering and new delivery models emerged to help customers cut costs.

Gartner analyst Helen Huntley says, "IT would not have got to where it is today, with the application of new business models, without the tough economic environment."

2 - Generation Y
With people born between 1982 and 200, known as generation Y, now a significant portion of the workforce businesses need to have the right kind of technology in place to satisfy them. "We need to entice generation Ys with the right IT or they will go somewhere else.

3 - Globalisation
There are more choices of where to buy IT services but there are also new risks for CIOs to consider.

4 - Sustainability/Green IT
Businesses are expected to lower their carbon footprints.
Huntley gave a good example. Alaska Airlines replaced paper based manuals for pilots with iPads with manuals on them. This meant no need to carry 1000 sheets of paper in the cockpit. This is good for the environment because less paper is being used, less fuel on the aircraft because less weight is on the aircraft and it is much easier to use.

5 - Cloud Computing
Put quite simple by Huntley: "If you have not got a cloud strategy now get one immediately." She could have said the same thing last year. Probably the year before as well.

6 - Industrialised services
Within the next five years enterprise spending on industrialised services like software as a service and infrastructure as a service will reach $122bn.

7 - Asset lift
The more that businesses buy IT as a service the less the need for internal assets. By next year 20% of businesses will have no IT assets of their own.

8 - Consumerisation
Consumerisation of IT will not only change the technology used in offices around the world but the way businesses interact and serve customers.

9 - Unpredictability and risk
With the use of more and more suppliers and new relationships businesses must dedicate resources to asses the risks associated with working with suppliers.

10 - Externalisation
It will be increasingly a case of how the IT department get other companies to do things for you rather than how do you do it yourself. "It's not what you do but how you get things done."

Ok so that's Gartner's 10 game changers. Not really any surprises there.




NHS IT project is dead, but why do large IT projects fail? Part 3

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Following the unsurprising news that the NHS National Project for IT has been dropped I thought it apt to blog some of the views I have recently had provided to me for an unrelated feature I am working on. The feature, which will appear in two parts on soon, asks the question: Why do large IT projects fail?

So far I have blogged the answers to this question from two computer science academics.
I started  with the comments made by Brian Randell.

Randell is a professor of at the School of Computing Science at Newcastle University. He was a member of the group of academics who became concerned about the UK National Health Service's National Programme for Information Technology (NPfIT). He edited the dossier documenting the concerns. See it here.

Then part two came from Anthony Finkelstein. He is professor of software systems engineering at University College London (UCL) and dean of UCL Engineering. Active in industry consulting, he is a fellow of the Institution of Engineering and Technology (IET) and the British Computer Society (BCS).

Today, in part three, it's the view of Yann L'Huillier.

Thumbnail image for Yann L'huillier.jpgL'Huillier is group CIO at financial services giant Compagnie Financiere Tradition. Before his current role he was CIO at trading exchange Turquoise where, in eight months, he delivered the complete set of IT solutions, procedures, processes for the exchange to go live in August 2008. He was CIO at the Boston Stock Exchange (2003-2007) where he designed and launched the Boston Equities Exchange trading platform. He spent seven years at the Toronto Stock Exchange where he developed the new Equity Trading Systems.

He says: "Big projects can't be completed on budget or on time. But it's not only IT projects, usually some of the big architecture, engineering projects fail. You will find some common reasons to all; the first one is that even though most of the budgets are usually well done from the start, in order to get them approved, they must be scaled down, contingencies removed and to a level where they will receive the blessing of the deciders/payers. Once they are approved there is nothing left for the unexpected events (Murphy's law for example). The second reason is that between the time the decision is taken, the project starts and is completed, the situation will change several times. The economics, regulatory [environment], and competition don't freeze at the start and therefore big projects need a wider scope than the original one. One should plan for unknown changes and have enough buffer in financing and scheduling to account for anything that will go wrong. Lastly, when projects are delayed, the wrong solutions are often used, such as increasing the staffing instead of de-scoping or phasing the deployment. 'Design is a democracy but implementation is a dictatorship'".

The NHS IT project is dead, but why do large IT projects so often fail? Part 2.

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The £11bn NHS IT project looks has been scrapped.  

By coincidence I have been doing the rounds recently asking industry experts why they think large IT projects fail. This is for a feature I am putting together, which will appear on Computer Weekly soon. 

Now that it looks like the NHS National Project for IT is dead and buried it seems apt that I start to publish the views of some of the experts on why large IT projects fail.

I started yesterday with the comments made by Brian Randell. He is a professor of at the School of Computing Science at Newcastle University. 

He was a member of the group of academics who became concerned about the UK National Health Service's National Programme for Information Technology (NPfIT). He edited the dossier documenting the concerns. See it here.

Today features Anthony Finkelstein. He is professor of software systems engineering at University College London (UCL) and dean of UCL Engineering. Active in industry consulting, he is a fellow of the Institution of Engineering and Technology (IET) and the British Computer Society (BCS).

So why do large IT projects fail?

Finkelstein says: "The Standish Group in its methodologically dubious but nonetheless useful, CHAOS reports cites reasons such as: inadequate user involvement, unclear business objectives, failure to control scope, poor architecture, requirements volatility, unsystematic development process, unreliable estimates. None of these would come as a surprise to any IT professional. The more interesting challenge is why therefore do we appear to be bound to repeat these same mistakes? I would argue that the problems are more fundamental and not essentially technical - they lie in governance. That is, in the structure of relations and incentives that bind together the business and IT functions of an organisation. An organisation with a flawed governance structure cannot articulate its requirements, charter a project, identify appropriately skilled staff, manage the concomitant change process, determine if the project has been successful or even deal with the consequences of failure. Governance is becoming more complex as we increasingly have organisations with federated and outsourced business structures. We will neither understand project failure nor be able to address the causes until we have addressed governance."

Could government centralised IT project decision making hold back progress?

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The government's stance on IT projects might be preventing good ideas from becoming reality.

The government, quite rightly, doesn't want to waste money on IT and is determined to ensure projects get approval from the top. As a result the Cabinet Office is being swamped.

I was talking to an IT consultant who works in government about this and he told me everything seems to have grinded to a halt in terms of new IT projects.

He said: "The biggest problem at the moment is that everything seems stuck in cabinet office."

"There are lots of good ideas and people are ready to do things but there are lots of delays," he added.

This could mean the government missing out on some IT that could reap massive rewards. But I suppose it is the results of the amount of money that hads been wasted in the past.

Is anyone seeing much activity in government IT?

The world's biggest civilian IT project finally looks to have failed but is the NHS IT failure a surprise?

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The £11bn NHS IT project looks set to be scrapped today.  

The Daily Mail broke the story here.

By coincidence I have been doing the rounds recently asking industry experts why they think large IT projects fail. This is for a feature I am putting together, which will appear on Computer Weekly soon.

Now that it looks like the NHS National Project for IT is dead and buried it seems apt that I start to publish the views of some of the experts on why large IT projects fail.

I would like to start with the comments made by Brian Randell.

Brian Randell.jpgBrian Randell, emeritus professor and senior research investigator at the School of Computing Science at Newcastle University, was a member of the group of academics who became concerned about the UK National Health Service's National Programme for Information Technology (NPfIT).

From April 2006 until September 2010 he edited the evolving dossier documenting concerns about the programme. See the dossier here.

In response to the Computer weekly question regarding why major IT projects fail he sent this from: A Computer Scientist's Reactions to NPfIT  Journal of Information Technology, Macmillan, 2007.

"The NHS's huge NPFIT project, intended to serve 40,000 GPs and 300 plus hospitals, was claimed to be the world's largest civil IT project. In fact its ill-fated intended central core, a nation-wide Electronic Health Record (EHR) facility, dramatically illustrates one of the most serious causes of large IT Project failures. The system of systems that was to provide EHRs was initially designed by a large central team, and intended as a complete "big-bang" replacement for the many and varied existing EHR systems. It would have been far better to employ evolutionary acquisition, i.e. to specify, implement, deploy and evaluate a sequence of ever more complete IT systems, in a process that was controlled by the stakeholders who were most directly involved, rather than by some distant central bureaucracy. Authority as well as responsibility should have been left from the outset with hospital and general practitioner trusts to acquire IT systems that suited their environments and priorities - subject to adherence to minimal interoperability constraints - and to use centralized services (e.g., for system support and back-up) as if and when they chose."

IT service providers are all over the cloud but lack of standard prices confuse customers

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Find an IT service provider today that doesn't at least have a cloud offering on the way and you must be on another planet. IT service providers are getting to sell themselves all over again as the cloud delivery model garners interest.

But I interviewed the head of IT at credit company International Personal Finance (IPF), Andrew Herd, yesterday and he told me how difficult it actually was to find a supplier that could provide what the company wanted. He also said there were huge differences in the prices applied to very specific requests for a cloud service.

The first thing IPF did when it decided it wanted to move to the cloud was to go to 20 suppliers to see what they offered. IPF realised it was going to be a challenge when less than half had anything resembling what they needed.

Read the full article I wrote here to find out just what IPF was looking for. IPF went forward to request more specific details from the suppliers who it thought had a cloud service that might fit its needs. It asked them for prices specific cloud services, such as storage-as-a-service. When it got the information back it found a lack of consistency which reflects that immaturity of many of these cloud offerings.

This makes it difficult to chose between suppliers and to understand how mush cloud services should cost.

Tier-two IT suppliers can differentiate

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There are lots of IT service providers out there. Whether they are onshore, offshore or nearshore they are options for any UK business. Tier ones are not the only answer, even for large corporates that need financially stable suppliers.

Businesses can be key customer of a smaller supplier rather than just another client at a big one.

I recently wrote an article about an outsourcing agreement signed between Eurostar and supplier NIIT Technologies. The long and short of it was that the rail firm wanted to build an IT infrastructure of its own, rather relying on that of SNCF which was previously joint owner of Eurostar.

NIIT is a tier-two Indian IT service provider and as such it was interesting to see how it competes in a tough market.

The big Indian companies seem to get bigger and bigger with more and more businesses choosing to offshore. Infosys, TSC and Wipro for example are household names, at least in IT households. These companies have built huge businesses by charging customer for time and materials.

But what about the second tier? NIIT is one of a large second tier of suppliers with an interesting story to tell.

NIIT can't compete on time and materials so they have to be a bit different. But how different are they? I am always interested to hear some of the household names that are using these suppliers who are not particularly well known. NIIT has worked with British Airways for over 10 years providing software systems.

I met up with Sunil Surya, who is European President at NIIT.

He says NIIT  focuses on specific verticals as well as Intellectual Property (IP).

The company focuses on three verticals with Banking, financial services and insurance (BFSI), Travel and Transportation and manufacturing making up about 55%, 35% and 10% of its business respectively.

In terms of IP NIIT develops software specific for particular sectors and leaves room for them to be customised to fit a specific need. Surya says the company will work closley with customers and share strategic plans to see where the company can support the customer in the future. Sharing strategies means the client is able to plan better in the knowledge of what partners can do and will get a faster response to a call for action. Meanwhile the partner will be better prepared and attracted by a strong and probably long relationship.

And NIIT seems to be having a bit of success. The company's travel and transportation business boasts customers such as Eurostar, Sita and has worked with BA for 15 years, while its financial services business, which includes insurance, has customers In the Lloyds of London insurance market using its highly bespoke core insurance system.

There are options out there that are tried and tested. Businesses should look beyond the usual suspects.

See also how Indian tier-two supplier MindTree differentiates.

How nearshore tier two suppliers can support your business.

NIIT fact-file:

7000 employees with over 80% of in India
Headquartered in Delhi,
Customers in 3 regions; North America, Europe and Asia.
15 Delivery Centres Worldwide
European presence in UK, Germany, Belgium, Holland and Spain.

Fujitsu averts big public sector strike in the eleventh hour, but still faces a strike today

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Fujitsu averts big public sector strike in the eleventh hour still faces a strike today
Fujitsu has forked out an inflation busting pay-rise to some staff working on government contracts across the UK in a move that has satisfied the PCS union, which has called off a strike that would have been held today.

But Unite faces action over alleged unfair treatment of union man. Members of the Unite union working for Fujitsu in Crewe and Manchester voted to take 24-hour strike action on 19 September, over allegations that ex-worker Alan Jenney was singled out for redundancy because of his union membership activity.

Over 1,000 IT workers in government departments were to strike for 24 hours today after the Unite and PCS unions have joined forces in protest at a pay offer from IT service provider Fujitsu. The staff work on contracts in government departments such as the DVLA, HM Revenue and Customs, Home Office and the Ministry of Defence. But a double inflation pay offer for some low paid staff has convinced the union to cancel the strike.

Fujitsu would have faced penalties from its government contracts had it m,issed targets as a result of the strikes.

Accenture gets stung for $63m in US

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Accenture has agreed to pay the US department of justice $63.68m to end a five-year lawsuit.
The allegation is that Accenture received benefits through agreements with technology suppliers, which were not properly disclosed or for that matter allowed on contracts with the US federal government.

Accenture denies any wrongdoing but settled the case to "avoid additional time, inconvenience and expense that would come with protracted litigation." The settlement will not affect Accenture's work with the US federal government.

Read the full Accenture announcement here.

Looks like suppliers will have to be careful. Mark Lewis, lawyer at Berwin Leighton Paisner, says: "There has been a trend over the past few years for clauses to be included in IT and outsourcing contracts prohibiting suppliers acting where there is a conflict of interest - in some cases, doing so will be a material breach, which would entitle the customer to end the contract. I am aware that many UK government contracts have these clauses.  It is never entirely clear what a conflict of interest is in the context of IT and outsourcing.  

This case reminds us, as well as the consequences of suppliers following practices that may be standard in the IT industry, but will be treated as conflicts of interest by their customers - with the results shown in the Accenture case," added Lewis.

The fact that the case won't affect Accenture's current work with the US federal government as well as future potential work reminded me of a conversation I recently had with a contact.

We were talking about UK public sector project failures (those that have cost and time over-runs) and the fact that failures are often the fault of the customer. Things like changing scope midway through a project.

I asked why suppliers always seem prepared to take the blame? You would think it could damage their reputation and lose then a lot of business.

He said the suppliers are more than happy to take the blame because these government contracts are worth so much to them. More often than not a project that over-runs in cost and time means more money for the supplier.

Latest UK banking report could force banks to restructure IT operations?

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The Independent Banking Commissions (IBC) final report of the banking sector reforms that are required to avoid the carnage that began in 2008 with the fall of Lehman Brothers, has some interesting points for IT suppliers to consider.

The report recommended ring fencing the retail divisions of the big banks to protect them from potential failures of investment units. When the credit crunch hit the banks with investment arms were hit hard and through no fault of their own retail customers faced massive losses had the UK government not stepped in to bail the banks out.

Ring fencing will not only mean systems will have to be separated but entire operations.
There is some very interesting points in  the full report that describe how the retail operations of banks need to have an operation that can fully function in the event of the rest of the group going under. 

The report said the "wider corporate group should be required to put in place agreements to ensure that the ring-fenced bank has continuous access to all of the operations, staff, data and services required to continue its activities, irrespective of the financial health of the rest of the group."

 It seems there will be three options, which all have a huge impact on IT.

1 - A full operation for the retail bank that is completely separate from the group.
2 - The creation a subsidiary to house operations.
3 - An independent agreement with a supplier to ensure service continuity even if the rest of the bank failed.

Point three could be done by an outsourcing service provider or providers. "All of the relevant infrastructure could be supplied independently of the ring-fenced bank - either from a third party, or from the rest of the group, with appropriate service level agreements in place," said the report.

Gartner outlines 10 steps to successful outsourcing strategies

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Businesses must invest in people, processes and tools to get the initial strategy phase of their outsourcing right or they could face problems with suppliers, the contract and its management further down the line.

Gartner, which is this month holding its US and European outsourcing summits, has outlined 10 steps that businesses must take when embark on their outsourcing journeys.

"[Organisations] that fail to master this initial phase in the sourcing life cycle are subsequently less likely to select appropriate providers, negotiate a sound contract and effectively manage the deal," warns Gartner outsourcing analyst Claudio Da Rold.

Gartner's 10 key steps to first phase of a sourcing strategy:

1-Set context and objectives

"Define the business's overall approach to sourcing, the priorities as well as rules and principles that will drive the sourcing strategy and every subsequent sourcing decision and activity. Define specific business, service and technical goals for sourcing initiatives and relevant measures of success."

2. Assess service delivery 'as is'

"Assess the organisation's current internal and external capabilities. Look at the cost, service performance of the internal and external sourcing and service contracts that are in place already. Take a critical look at the enterprise architecture and determine if it is adequate to support the service delivery evolution required to achieve objectives."

3. Assess service and multisourcing management capability

"Determine the level, position and maturity of the  multisourcing competencies within the organisation to determine current and required capabilities. Evaluate knowledge and skills for managing service delivery on business, application and infrastructure processes."

4. Evaluate constraints and opportunities

"Consider all types of constraints and opportunities, including business forces, overall economic cycles, disruptive technologies, regulatory environment and compliance requirements and internal organisational issues. Build sourcing risk profiles and apply a risk management framework."
5. Analyse gaps

"Within the scope of a sourcing decision, define the set of needs and objectives, measure those as much as possible, and compare these with the 'as is' situation. Start determining what alternative approaches/scenarios the organisation could use to fill the gaps. Start a first comparison of scenarios against drivers, goals and risks."

6. Analyse external market

"Evaluate the IT services market dynamic, changing vendor landscape and adoption patterns of competitors. Consider the availability, maturity, quality versus cost, and stability of service offerings. Leverage the market analysis to decide what type of services to adopt and when. Refine the alternative sourcing scenario to drive business value and stay ahead of competitors."

7. Conduct scenario planning

"Compare the risk and potential value of different sourcing scenarios or models in terms of the organisation's requirements and potential direction. Assess 'softer' issues, such as the fit of the sourcing solution to business objectives and company culture, the gap analysis, the impact on critical skills and retained competencies. In particular, leverage the type of sourcing models, deals and relationships that best fit the company's objectives, risk profile and current multi-sourcing capabilities and use this data to determine the best combination of providers and sourcing models."

8. Analyse risks

"Analyse the risks associated with a specific scenario. This analysis should identify and understand the most common sourcing and vendor risks using a detailed risk-reward analysis for selected scenarios, use tools and guidelines to assess and manage vendor risk, tailor risk evaluation criteria to the types of vendors and products, and optimise the vendor risk management programme for execution across the whole sourcing cycle."

9. Develop business case

"Analyse the total cost of sourcing (TCS) for the sourcing scenarios under consideration, the financial implications and the business and more qualitative issues. A TCS analysis should look at the costs of the internal IT sourcing team, selection and negotiation projects, the transition, transfer and transformation, while considering how workloads and service requirements are likely to evolve. Then determine the financial implication of the plan in net present value and return on investment."

10. Construct action plan

"Develop the future view of the multisourcing business services blueprint. Define the deals and the expected time frame for completion. Define changes to sourcing governance, the sourcing management organisation and the relationship organisation. Define the communication and change management plan and develop the programme and action plan to implement the strategy."


How to write a contract to protect you against out of control IT projects?

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I recently wrote about research from Oxford University's Said Business which described how major IT projects are much more likely to fail than other projects. Because many major projects are outsourced businesses need contracts which protect them in the event of projects running out of control

John Worthy, partner in the Technology and Outsourcing Law Group at Field Fisher Waterhouse describes how businesses should create contracts with suppliers to protect themselves when IT projects run out of control.

Safeguarding against failure in major IT projects: coping with "black swan events"

By John Worthy

"Major IT projects are twenty times more likely to fail than other projects, according to the recent major study by Oxford University's Said Business School, especially when they are affected by unpredictable "black swan" events. This research not only highlights the challenges of major IT projects, but also flags up the need to be prepared.  This is important for companies when negotiating the project contract, so that it provides a robust legal framework for managing both the project and the relationship.

The uncertainty about "black swan events" should not undermine the value of being prepared to deal with them. Even though the precise nature of the "black swan" events cannot be easily predicted, companies are increasingly aware that having a contract in place which addresses how to manage contingencies will significantly help in achieving a successful result. So what does this entail?

As a starting point, the specifications for the project should be set out clearly and built in as part of the contract.  Unfortunately many projects fall short of expectations because this foundation is missing.

In addition, the contract should spell out a clear procedure for managing any changes - evaluating and agreeing the effect on the specifications, timelines and budgets.  The high frequency of cost overruns in bespoke software projects found by the Oxford University research suggests that those projects were not backed by effective change management procedures in the contract.

Well-crafted contracts will also contain mechanisms to provide practical solutions to possible contingencies, including "black swan events".  For some difficulties, such as a delay in the project, agreed liquidated damages may provide an effective remedy.  However, finding a commercial solution to more deep seated problems may depend on whether the contract provides for a suitable range of practical options.  These would focus on how the project can be brought back on track, if this is achievable, with the least possible disruption.

Aside from damages, contract solutions could include enhanced project management, step-in mechanisms (where a new contractor is appointed to complete the work), and termination procedures, at least as a last resort.  Again, clarity here is vital. Where a contract does not specify how the termination process is worked out in practice, this makes it more difficult for both the supplier and the customer to resolve how to wind down a project smoothly, if this is the best approach.

And throughout the resolution process, companies often find that one of the most helpful features is to include an escalation procedure linked to mediation or alternative dispute resolution mechanism.  This allows both parties to maximise the prospects of an effective solution without the need for litigation.

Adopting these precautions will not avoid a problem arising, but it will provide a solid framework for covering potential contingencies, including black swan events".

Contact John by email.

Scottish council rejects ambitious shared service offer

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I spend quite a lot of my time at the moment writing about shared services in one form or another.

There is a lot of activity in the public sector about shared services as a result of the need for public sector organisations to cut costs. Many are either moving to shared services to cut costs or being advised to.

In recent weeks tenders have been put out by Surrey County Council for a shared managed network service  and by four London boroughs that are looking for a systems integrator to support their plan to share a single instance of Oracle's latest ERP software.

There was also news of seven Scottish councils joining up services in a move that is expected to save around £30m a year.

The participating councils include Glasgow, Inverclyde, East Renfrewshire, Renfrewshire, East Dunbartonshire, West Dunbartonshire, and North Lanarkshire. Staff numbers under the new shared services model are expected to decrease by around 25% over time, which could see more than 100 IT roles go. IT is the most expensive function across the councils with a total cost of £58m per year. 

But it turns out that West Dunbartonshire will not be taking part as councillors voted against the plans.

Council leader Ronnie McColl is reported to have said: "I would like to acknowledge the detailed work undertaken across the Clyde Valley Partnership on the four proposed shared services workstreams. However, as councillors our first priority is always to do what is right for West Dunbartonshire, and regrettably these proposals were not in the best interests of this council or the local area.

"We believe there is far more potential in seeking local, bespoke partnership solutions for service delivery that can protect the quality of service, while providing better value for money for the taxpayers of West Dunbartonshire."

So is the evidence of shared services success flawed. Read this from someone that thinks so.

Don't forget police authorities are currently being encouraged to take the shared service plunge.

Outsourcing body calls for multi-sourcing to defeat industrial action.

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Last week Fujitsu workers at several government departments voted in favour of industrial action in relation to a pay dispute.

The HMRC, the Office of National Statistics and the DVLA are some of the government departments that could be hit as a ballot of 720 PCS union members at Fujitsu results in a vote to strike. 

This means that all these government departments might struggle to provide services while strikes are on.

But National Outsourcing Association chairman Martyn Hart is suggesting that businesses and public sector organisations should multi-source to overcome potential problems that arise when a supplier's workers are unhappy through no fault of their own. 

He said: "It seems the current austerity measures may be leading to a period of discontent.  Some organisations deploying outsourcing or shared services may be concerned about industrial action within their suppliers.  One way to avoid interruptions in supply is to utilise multi-sourcing. This strategy involves splitting work between various companies. It helps mitigate the risks involved with interruptions in supply, including potential industrial action."

"Multi-sourcing allows for more robust continuity of service than relying purely on one supplier. The companies chosen can be large or small - a joint contract between a group of SMEs can be an effective way to spread risk thinly. Diversifying location is also beneficial."

Should outsourcing be used as a way of quashing a citizen's right to conduct industrial action?

Here is one of the Fujitsu workers' grievances:  Fujitsu has met or exceeded performance targets and senior managers are enjoying bonuses in excess of £14,000 in some cases. But Fujitsu it is only offering staff rises of between just 1.5% and 2.5%, well below the rate of inflation. The lowest paid staff earn just £13,500 a year.

Why the cloud is forcing IT service providers to spent money on uncertain returns?

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IT service providers have to invest in developing new delivery models such as cloud computing despite customer caution.

Cloud computing is a hype beyond hypes which includes lots of sub hypes within its bubble. Well that's what an analyst firm might say anyway.

The suppliers are currently putting investments in delivery models such as the cloud, utility computing and as a service even though they realise that take up will not necessarily be fast. In fact they believe that in the next couple of years will very conservative in terms of cloud take up.

Gartner says suppliers believe the average percentage of deals expected to include cloud services and utility services or as a service delivery models will be 18% for data centre deals in 2011 and 24% in 2012.

Gartner believes supplliers basically have no choice but to invest or risk being left behind. I suppose when cloud computing is the norm there will be less in-house IT. I don't see many enterprises building their own clouds either. Therefore if you are a supplier you have to make sure you are leading the way in terms of cloud developments.

The challenge for businesses is buying into the right cloud.

Here are a couple of examples:

Royal Mail has signed a six-year deal with Capgemini to introduce cloud computing technology to its IT infrastructure and enable it to cut costs through a pay-as-you-go IT model and make it easier to introduce new online services. Through Capgemini's Infostructure Transformation Services (ITS) the Post Office will have a single point of contact for all cloud services. Costs come down because the Royal Mail will only pay for the raw computing power it uses when delivering a service. It also makes it easy to introduce new services because additional computing resources can be taken on demand without the long and expensive process of buying hardware and booking other IT resources.

Everything Everywhere is outsourcing its IT to T-Systems in a seven-year deal said to be worth £700m. The deal triggered a move into the cloud. "The contract sets out a path for migrating 40% of Everything Everywhere's IT estate onto T-Systems' Dynamic platform within three years," said the T-Systems statement.

Sage has introduced a cloud-based customer relationship management (CRM) system on the Amazon EC2 cloud. The Sage SalesLogix Cloud uses a private cloud service for mid-market organisations, which operates both on the desktop and on mobile devices.

And here are some articles I have written in the past about suppliers and their cloud strategies.

Capgemini talks conceptually about the cloud

Wipro's bold cloud strategy

What is Infosys doing in the cloud, apart from using buckets?

Fujitsu has a globally standardised cloud platform.

Steria offers businesses access to computing power on demand  with Cisco.

Government IT workers set to strike

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HMRC, the Office of National Statistics and the DVLA are some of the government departments that could be hit as a ballot of 720 PCS union members at Fujitsu results in a vote to strike. I blogged last month about the ballot, which asked the workers whether they wanted take industrial action over a pay dispute.

The PCS union says because Fujitsu has met or exceeded performance targets senior managers are enjoying bonuses in excess of £14,000 in some cases it is only offering staff rises of between just 1.5% and 2.5%, well below the rate of inflation. The lowest paid staff earn just £13,500 a year.

A total of 65% voted for a strike and 85% for other forms of industrial action. There was a 63% turnout. Strikes could now happen in September and October.

PCS general secretary Mark Serwotka said: "With some staff paid less in a year than executives can pick up as a bonus, Fujitsu's pay offer is insultingly low.

If Fujitsu fails to hit service level agreements with the government as a result of industrial action it will be penalised.

Is it time for massive IT services consolidation as falling sales puts industry on its knees?

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Just when you thought it was safe to go back in the water Ovum drops a bombshell.

I was getting more positive vibes about IT services spending, which was great news after the collapse of recent years.

The Indian outsourcing bellwethers have all been posting big increases in revenues and profits and there have been some significant investments made in new technologies including cloud computing capabilities.

But Ovum says the combination of the death of the mega deal in the private sector and a drying up of spending in the public sector has meant that global IT services sales in the second quarter of this year were 40% lower than the same period last year. That sort of figures would put any industry on its knees.

Sales were pretty low last year but I would have expected sales to increase. Perhaps there will be a huge rebound when governments start outsourcing IT to cut costs en masse. But we all know that government are trying to avoid this for as long as possible to avoid public opinion backlashes.

But the figures cry out for consolidation. Could we be on the verge of a massive round of mergers and acquisitions in the IT services sector?

This could be the perfect storm for the BPO and ITO industries to become fully integrated.

I was talking to Genpact Asia CEO Charles Hunting last week. We discussed the BPO giant's acquisition of IT services firm Headstrong. Genpact was an internal shared services operation at General Electric (GE) before it was spun off in 1997. Genpact is traditionally very strong in the financial services with HR and finance and accounting BPO. In fact it is one of the world's biggest.

He believes it is a certainty that BPO and IT suppliers will consolidate and he expects acquisition activity.

Indian IT supplier's responses to question over hacking scandal

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When the phone hacking scandal was all over the news, just before the shock news that News of the World had been closed, there was a lot of talk of emails being delated.

I must admit the whole thing was so shocking I hardly even though of the outsourcing angle.
Recently however a couple of people have asked me what happened in regards to the emails and the Indian IT supplier who provides IT services to News International.

News International's supplier HCL was asked questions by the Home Office select committee and has been helping the Metropolitan police with its investigations since May 11th this year.

HCL Technologies said in a statement: "HCL continues to co-operate with the Metropolitan Police and the Home Affairs Select Committee in their investigations and has responded to all requests for information and clarification received to date."

Click this link for the responses to the three questions that the MPs asked HCL regarding News International's emails.



Genpact IT strategy signals BPO and IT services consolidation

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I have just interviewed Charles Hunting, the Asia CEO of Genpact.

Genpact, which is one of the biggest BPO suppliers in the world, recently acquired an IT services company Headstrong.

This immediately gave Genpact IT capabilities on top of its vast BPO business. Genpact was an internal shared services operation at General Electric (GE) before it was spun off in 1997.

Genpact is traditionally very strong in the financial services with HR and finance and accounting BPO making up a lot of its business. GE is still its biggest customer.

Hunting says the Headstrong acquisition is the company's most significant of a raft of acquisitions in the last 12 months. He said Genpact started doing IT services on top of BPO about 8 years ago but only on a small scale.

The company now plans to step up its IT services. It has capability in designing, building and running ERP systems such as SAP and Oracle. It also provides a range of services including IT service desks, remote support and datacentre services. It offshore services capability is massive with thousands of staff in India and China.

Hunting believes it is a certainty that BPO and IT suppliers will consolidate and he expects acquisition activity.

Anthony Miller at TechMarketView says Genpact lost its way with IT services but he believes BPOs will have to move up the value chain by offering IT services on top of BPO services.

He says the BPO/IT services market is going to look different in the coming years. "The BPOs will have to offer services like business process design, software platforms as well as deliver services if they are to participate."

He says IT service providers might acquire software companies to help them develop platform based solutions.

Commenting on Capita's recent acquisition of contact centre business Ventura for £65m Peter Brudenal, lawyer at Lawrence Graham, said the deal is part and parcel of consolidation. He said this could be a trend and large service providers attempt to become "more like Accenture."

IT service providers and BPO suppliers could increasingly come together as large companies target areas to grow post-recession. "This could be a sign of how service providers are trying to get a bit more creative about what they are doing."

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