May 2012 Archives

North Americans not shy to splash billions as Logica is next target

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There have been rumours about Logica being acquired for years. I have been told on many occasions that the firm was going to be acquired.

Many contacts of mine felt it would be the perfect buy for a cash rich Indian Supplier, giving them a large European foothold as well as a sizeable UK public sector operation.

But its looks like consolidation in the IT services sector will continue to be driven in North America following news that Logica's board are recommending a £1.7bn offer from Canadian firm CGI to shareholders.

US based ISG acquired Compass last year and let's not forget that US IT giants HP and Dell have made significant contributions to sector consolidation with the purchases of EDS and Perot Systems respectively.

The North Americans are not shy to spend billions on IT services acquisitions.

In July shareholders will vote on the offer and a 75% vote in favour will see the deal go through.

It would surprise me if one of the Indian IT services giants acquired a company of the size of Logica. It wouldn't fit their business models, with large offshore delivery centres, rather than big onshore presences.

CGI clearly sees Logica as key to its global expansion. CEO Michael Roach said, "We believe we have found the right acquisition at the right price and at the right time to create one of the very few truly independent global end-to-end technology services providers.'

Logica believes the companies will not overlap due to CGI not having a European business.
But a 75% majority vote is not that easy. Usually a 51& will suffice but at Logica this is not the case.

Another interesting element of a potential deal is how CGI will integrate the strong Logica culture that exists, according to Robert Morgan, director at sourcing  broker Burnt-Oak Partners.

HP had trouble integrating the strong EDS culture

BT outsources hotspot provision to customers but doesn't tell them

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BT has been promoting how many Wi-Fi hotspots it will have in place in London in time for the Olympic Games which start in July.

A press release circulated by BT claimed it was close to achieving its goal of 500,000 public hotspots in London by the start of the Games, with more than 475,000 already available.

However a large proportion belong to existing businesses and home users. Using a feature called Fon, BT siphons off a portion of bandwidth from the wireless connections it provides to homes and offices in order to give the public as a pay as you surf Wi-Fi hotspot.

My colleague wrote an interesting stoy about it. See it here.

I am a BT customer and I don't have an issue with what it is doing in terms of sharing out broadband because I don't think there will be too much demand for mine, with the parking restrictions and all. Also apparently the private and public signals are kept seperate and customers get a shre of revenues. 

But others probably do have an issue with it, especially given the fact that you have to opt out of Fon, which is automatically enabled when you get a BT Broadband account.

But it is rather cheeky claiming that it has worked tirelessly to put all these hotspots in when they have been there for ages.

So it is in effect outsourcing its wireless hotspots to its customers. Genius. Shame it hasn't told the customers.


Fujitsu UK head on the way forward

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Duncan Tait took the helm at Fujitsu at the height of the economic slowdown and all the upheaval it triggered, but revenues and orders are on the rise again.

Fujitsu is the UK's and the world's third biggest IT Service provider after it overtook CSC in Gartner's rankings after a 10% increase in sales in 2011. Only IBM and HP sell more IT services than Fujitsu globally.

In the UK it has maintained its position on the desktop services top table, despite setbacks, and began to build a strong cloud business.

It has not all been plain sailing and Tait has had to oversee some challenges that have seen Fujitsu  make the news for the wrong reasons. Some doubted its ability to recover from some major setbacks.

Fujitsu had its £500m 10 year IT outsourcing deal with Thomson Reuters terminated last year after just four years when the customer decided to take the work in-house. 

It also had the misfortune of winning a big deal with the Department of Work & Pensions (DWP) from HP, which was cancelled before it did any work on it.

Fujitsu was also publicly criticised by councillors on the Highland Council for alleged failures to deliver parts of a £70m IT outsourcing deal that covered schools as well as the council's corporate services.

But under the guidance of Tait it has made steady progress in the UK. Highlights include taking over a desktop outsourcing deal at Centrica and in the process confirming itself as one of the few suppliers that can provide these highly commoditised services at the right price.

It recently won a mega-deal with the Post Office to act as service integrator on its telephone and broadband service. The deal worth an estimated £500m over five years sees Fujitsu oversee the entire migration process, both of the network and of the applications. TalkTalk provides the network service, Capita the customer services, and MDS the billing, with Fujitsu managing and completing the integration.

Tait says last year Fujitsu UK registered a 3.6% increase in revenue and a 40% increase in order volume. Tait is positive about the immediate future and says Tait says after three years of IT budget lock-down businesses are beginning to spend more.

He has been in his role as Fujitsu UK CEO for about 15 months and overseen a rebalancing of its business to move forward with more focus on the private sector and cloud computing.
He says the recent economic turmoil has changed business. Fujitsu is one of the government's biggest IT suppliers so when it started to cut costs Fujitsu was at risk of losing significant turnover.

The company has moved from having about 70% of its sales in the public sector a few years ago to having 55% public and 45% private. He says the company aims further redress this balance.

"We are trying to ensure we are going forward with our private sector because in the past we were mainly public sector," says Tait.

He says Fujitsu is rebalancing through more business in existing private sector clients as well as new customers. All of these deals, says Tait, have a major cloud component. Fujitsu UK now makes 10% of its revenue from cloud services.

For example in 2011 security company G4S outsourced its IT infrastructure and services to Fujitsu for £32.9m over seven-years. Fujitsu's cloud-based infrastructure-as-a-service (IaaS) architecture will deliver applications, so workers will be migrated to Windows 7 and a Citrix desktop virtualisation. This will serve 3,500 desktops and laptops, and 10,500 e-mail clients.

Last year also saw home credit provider International Personal Finance is reduce costs and improving business agility by moving its IT infrastructure into a private cloud build by Fujitsu. The £10m three-year contract sees Fujitsu host IPF's applications and data and charge on a pay-per-use model.

In 2010 Fujitsu announced Fujitsu has announced its cloud strategy with the deployment of a globally standardised cloud platform. The global cloud platform offers customers standardised IT in the cloud across the world.

Tait says that companies don't just want services to reduce costs but also to grow their businesses.

A recent study commissioned by Fujitsu revealed that two thirds of executives don't believe their business can respond quickly to business changes such as customer demand and new competitive threats. The Fit for Change study revealed that almost 60% believe technology is the barrier to quick change.

IT outsourcing renewals lead to dissection of contracts

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It has seemed quiet in the IT outsourcing market for quite some time now with big deals seemingly few and far between.

Last week Fujitsu signed a big deal with the Post Office where it is acting as a service integrator. Fujitsu is managing TalkTalk, Capita and MDS in a five year deal. Anthony Miller, analyst at Techmarketview, believes the contract could be worth £500m.

I was talking to a contact of mine this morning and he told me there are more deals being done but that they are smaller. This, he says, is because a lot of deals are up for renewal and businesses are using this as an opportunity to break contracts up. This is to reduce risks and could be a trend that was fuelled by the government's strategy of reducing contract sizes.

In its latest report IT analyst firm Gartner firm revealed a 7.8% rise in spending on IT outsourcing services in 2011 compared to $228m 2010.

Bryan Britz, research director at Gartner said that deals are being shrunk as a result of the industrialisation of services and cloud services.  "Revenue cannibalisation resulting from client adoption of industrialised, and often cloud-based, services risks muting the growth opportunities for the ITO providers that are heavily weighted in infrastructure outsourcing."

I spoke to Fujitsu's UK head, Duncan Tait, today. I am going to write an interview piece but I also asked him about contracts being broken up.

He said it is a definite trend for taking larger deals and breaking them up. "This is both in the public and private sectors."

"This is a trend that will continue for some time," added Tait.

Perhaps it won't end until every major contract has been broken up. But as everything goes around in circles I am sure in a few years businesses will start bundling deals back together to cut costs.

Never mind the IT, the Jubilee line is my Olympic worry

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I went to visit IT supplier Atos at the Technical Operations Centre (TOC) for the London Olympics this summer. This was an opportunity to get an update and be reminded about how complicated and pressurised the IT environment supporting the Olympics is.

There will be 900 servers, 1,000 network and security devices and more than 10,000 computers deployed to support London 2012. There will have been over 200,000 hours of testing of systems before the first athlete begins their pursuit of gold. You get the picture? Pretty pressurised, but I have to say meticulously planned.

I live not far from the TOC in Canary Wharf and have to use London Underground's Jubilee line to get there. The same line that thousands and thousands of spectators will be using to get to Olympic venues in Stratford. If my journey that morning was anything to go by there could be real problems.

I had to let seven trains pass me before I could find room to squeeze into one. And this is on the average day with workers flocking to Canary Wharf. Now imaging the small matter of the Olympic Games thrown into the mix.

I asked the chief integrator at the Olympics, Atos' Michele Hyron, what would happen if the TOC staff, which monitor IT 24:7 get stuck on the train? Her answer was simple: "If the worker in the next shift does not arrive, you do not leave your desk."

So the IT will not be impacted by the failures of the Jubilee Line and the athletes won't because they will be staying near venues in the Olympic Village. I am sure VIPs will have the roads cleared for their cars.

So that just leaves the likes of us, the rank and file, to suffer the consequences of the dreaded Jubilee Line. Well that's if I had any tickets.

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Conversations with Indian IT changes from offshore to expertise

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We get used to reading articles about deals being won by big systems integrators. These companies either provide all the services in a deal or sub contract to a smaller firm, which hardly gets a mention.

It is these smaller companies which are interesting because they are highly specialised in niche areas. These agile companies can respond to market demand quickly and change their approaches in response.

I interviewed tier two Indian supplier MindTree a couple of years ago when it was first targeting UK customers. It came to market with the offer of high end consultancy skills combined with low cost delivery. Back then it had 80 UK-based staff. The company has been focussed on the mid-market.

I met the company's UK head Tridip Saha last week and was interested to see how the company is doing.

Last year it grew its revenues in Europe by 50%. It now has 130 UK based staff as well as 1500 dedicated UK support staff in India.

Tridip told me that there has been a big change in the conversations MindTree is having with UK customers has changed from being about offshoring to being about expertise.

When it comes to expertise MindTree says its "cross court backhand" is business intelligence and analysis. The main sectors where it is doing business are retail, financial services and travel and transportation.

Tridip says every big business has a wealth of data which can provide valuable insights about business opportunities.

MindTree's business intelligence (BI) engagements might include the company building a data warehouse or expanding an existing one followed and creating dashboards for the business users so they can use information effectively.

He says 70% of the company's UK customers originally approached it for BI services.
MindTree is also involved in the Indian ID project.

Outsourcers seen as money grabbers, but KPMG says reasons for outsourcing are changing

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The headline might appear underwhelming but claiming that outsourcing is not about cutting cost is a controversial one.

Most people in the outsourcing sector, outside the supplier community, say that lowering cost is always the driver for outsourcing. The rationale: if a company could do it at a lower cost in-house it would not outsource.

Research from the National Outsourcing association (NOA) also reveals that most of the general public (80%) don't think that outsourcing adds any value, while 65% believe it is only done to cut costs.

But KPMG think times are a changing.

Speaking at a conference Claudio Altini, director within KPMG's shared services and outsourcing advisory practice said the desire to reduce costs or shrink headcount is no longer the driving force behind business decisions to outsource key operations.

He also said the continued economic uncertainty has forced the outsourcing industry to mature.

"All the evidence suggests that organisations are expanding the services they outsource, but it is no longer accurate to say that they are turning to third-party suppliers just to reduce costs.   Today's challenge is much more about searching for the next level of value, which means ripping up the traditional outsourcing contract and replacing it with guarantees that assure value for money. 

"Too often, in the past, outsourcing relationships have broken down because of mixed messages around the three Rs - rates, results and responsibilities.  Now, however, businesses are no longer prepared to accept standard terms and conditions for outsourcing their core services.  They want proof that service delivery arrangements are flexible, can move with the strategic needs of an organisation and will meet the targets demanded by stakeholders. 

"Changing attitudes also mean that the old model of 'cheapest deal wins' is unsustainable.  The next level of value will see contracts where performance and price are more intrinsically linked and where governance comes to the fore so that there is no doubt where responsibilities lie.   The key to the future of the outsourcing industry now lies in simplifying agreements and innovation around charging models, not a pricing model where the cheapest deal wins the day."

The industry has its work cut out if you look at the NAO research. Here are some of the findings of a survey of public perceptions towards outsourcing.

-    80% don't think that outsourcing adds any value
-    65% believe it is only done to cut costs.
-    Only 27% recognised "a local computer company providing IT support as outsourcing
-    Only 14% know that using an accountancy firm is outsourcing
-    70% want evidence of how many UK jobs are created by outsourcing
-    69% want proof of how much outsourcing positively contributes to the UK economy
-    55% demand less wasting of taxpayers cash in public sector contracts.

Martyn Hart, chairman at the said: "The NOA is confident that we can prove to the public the value that outsourcing brings to businesses, and the nation as a whole. Outsourcing is not just about offshoring and job losses, although the public currently thinks that it is."

Has the government just re-invented privatisation and outsourcing?

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The government launched its first central government mutual today with the kick-off of MYCSP.

My Civil Service Pension (MYCSP), which launched today, has taken the civil service pension administration and split the ownership between the government (35%), the staff (25%) and a business service provider (40%). The private company is pension and HR service provider Equiniti.

The idea is that the private sector partner will make the service as efficient as possible and take away costs from the government, the workers will work much harder because they own it and the government will be able to cut taxes as a result. They call it the John Lewis model because it is based on the retailer's successful use of this type of regime.

As this is something new I am interested in getting people's views on it. Please fill in the questionnaire below if you want to give your views anonymously.

Here are some more articles I wrote about MYCSP:

Government outlines new ways of working with suppliers

Government mutual will be a beacon for IT procurement

UK government is rewriting the outsourcing rule book

Civil service pension mutual expects private bids

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