September 2012 Archives

Nine ways to make bad outsourcing deals good

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It's Gartner's annual outsourcing conference in London next month so Gartner is getting itself ready with a few comments.

Below is one from William Maurer, vice president and research director at Gartner, talking about why outsourcing contracts fail and how the can be made better.

Given I have been working on a feature about renegotiating IT outsourcing contracts this week it comes at an appropriate time.

By William Mauer

"Many organisations, vendor and sourcing managers tell Gartner that they have substantial challenges with their outsourcing deals. A common theme is that the service levels are being met, but customer satisfaction is low and senior management is disgruntled. Other problems start as far back as the transition stage, when service providers begin delaying implementation of their services for various reasons -- resulting in frustrating delays for consumers.

Complaints about understaffed vendor and relationship management functions and inefficient governance processes by the client organisation are also frequently raised. Unsurprisingly, the service provider is then not aligned with the organisations' goals -- causing constant disruption to the deal. A further contributing factor is when organisations that have been in outsourcing deals for two years or more realise that pricing is no longer cost competitive, yet the service provider refuses to make price reductions. Additionally, organisations frequently state that service providers promise to bring innovative deals, but fail to even provide continuous improvement. Other challenges include poor communication, missed expectations and a lack of flexibility.

What many managers fail to grasp is that outsourcing deals are generally long-term relationships and that deals signed today may not be the deal that they require in the future. Like any relationship, the one between the organisation and the service provider needs to be managed, reviewed and evolved over time to ensure that all parties are 100 per cent engaged.

Nevertheless, even good outsourcing relationships can go bad, so Gartner has developed nine steps to assess and fix the deal issues that are in danger of wrecking these relationships:

1. Assess the Situation

It is essential to identify the impact of the deal, determining the investment required to fix the issues and prioritising the solutions by aligning them with business requirements. Key questions need to address the services, relationship, finance and commercial aspects of the engagement with the strategic vendor - as the foundation for achieving the nine steps in the this process.

2. Identify Goals for the Improvement Process

Take the answers to the previous questions and determine the goals: in terms of the business requirements supported by the deal; the financial requirements required to fix the problems; other necessary resource commitments necessary to fix the problems; the appropriate behaviour drivers and change processes necessary to change the governance; services to be delivered; scope of work; and relevant service levels and pricing mechanisms Once the goals are identified, a revised set of processes and relationship structures, and the terms and conditions necessary to achieve the objectives, are then defined.

3. Achieve Agreement on Critical Goals

Utilising the goals and a revised set of processes, relationship structures and terms and conditions, the organisation must next prioritise its goals. Priorities will change, so each party must understand the other's ability to identify priority changes -- as well as the means by which this reprioritisation must occur.

4. Escalation Plan

Utilising the prioritised goals, an escalation plan should then be developed by determining who should be involved in each goal. As part of the escalation process organisations must ensure that they seek approvals at the right level on both sides of the deal, because aiming too high often does not get the required action or support and aiming too low rarely gets the issue fixed at all.

5. Escalation Executive

It is essential that the plan is lead by a client executive who is assigned the responsibility of ensuring that the changes are implemented. This executive should be in place as early in the process as possible: ideally during the identification and prioritisation procedure, but certainly no later than prior to escalating and seeking approval of an investment in the plan by both parties' key stakeholders.

6. Review Meetings

The organisation and its provider must continuously review and change the plan. Meeting on a monthly basis with updated plans communicated to all stakeholders is the objective of the review process. New issues will arise and other issues will change. Changes often occur at random, so continuous review and change must be a long-term commitment from all stakeholders.

7. Issue List Update

Once the updated list has been approved it must be communicated to the appropriate stakeholders with the right level of detail and at the right time. Like the review meetings process, the updated list process is one that must take place regularly.

8. Implement Behaviour Drivers

Implementing the required changes must be founded on an ability to drive the provider's behaviour. While this can be a tough step, if the plan has been followed to this point the organisation and provider should have resolved any issues or differences along the way -- making it much more manageable.

9. Identify and Manage Risk

Organisations must understand the risks associated with all changes made to the relationship. This is achieved by defining and implementing a comprehensive risk management plan."

Also see a blog I wrote: Advice for companies that want to renegotiate outsourcing contracts



India's dominance as offshore IT location being diluted

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Effective alternatives to India for IT services are reducing its dominance as an offshore location for large businesses, according to Gartner.

But where are the alternatives and who is using them?

There are, according to Gartner, 30 leading global locations for offshore services as well as another 50  other options that "have either started initial activities to establish an environment attractive to companies considering investing in lower-cost countries, or become home to external service providers that are beginning to sell services abroad."

Businesses are trying to create global delivery so are buying services from across the globe.
According to Gartner Currently 63% of global buyers of IT services use Latin American locations, 63% use locations in Asia/Pacific and 55% use locations in EMEA.

In Latin America Mexico servers 50.2% of businesses offshoring IT to the region, while Brazil has 46.8% and Argentina 22.1%.

The EMEA's biggest offshore service provider is Poland with 25.3% of businesses using the region buying from Poland. Russia has 19.2% and South Africa 16.6%.

In Asia/Pacifc 48.5% of IT services buyers get services from India with China close behind with 45.9% and Malaysia 13.9%.

Western European buyers predominantly use India (35%), Poland (21%), Brazil (18%) and China (16%). The UK is probably even more dominated by India because of the language advantage.

Ian Marriott, research vice president at Gartner says IT suppliers are spreading their resources to meet customer desires to globalise. "Providers are beginning to de-focus further investments in India and will aim to create critical mass across a number of these centers."
"This will allow them to establish a global delivery network through a combination of common methodologies, tools, processes and procedures, to provide seamless and consistent delivery capabilities to their customers, wherever they are located."

Here are articles I have written about some of the regions mentioned:

Brazil will be a massive location to source IT, but challenges remain

IT operations in Malaysia could offer the near China experience 

Chinese IT services providers can be a gateway to Chinese economy for big business 

Is India becoming too expensive for offshoring your IT? 

South Africa is a low cost call centre option with investment funds on offer 

Are nearshore suppliers the best low cost option for agile software development? 

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IT budgets are being controlled by marketing teams

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I did a story back in August about how KPMG research showed that IT budgets are increasingly controlled by marketing executives as customer relationship management (CRM) software becomes critical to customer retention. Here is the article.

Now it seems that IT service providers see marketing people as the point of contact for many technology services. One senior employee at a big  supplier said that it is the marketing people they are engaging with for technologies such as social media, mobile apps for customers and website work.

With businesses spending money on things like social, mobile and  analytics it would seem to make some sense that the departments that are sedt to use the technologioes will influence the buying decision. But surely the CIO will retain the power to give the final go ahead?

These technologies bring with them risks and challenges that the CIO and IT team must address.

What do you think about marketing becoming the point of contact for IT suppliers?

And what about the CFO?

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Advice for companies that want to renegotiate outsourcing contracts

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IT outsourcing contract renegotiations are on the up. Businesses are finding themselves in agreements that are no longer efficient or effective as a result of economic changes, while others want to harness new technologies as part of agreements.

I am working on a feature about the subject and have already run some blogs about it. See the previous blog  here.

I also asked experts what advice they would give to businesses wishing to renegotiate. Below are some of the recommendations.

What advice would you give to a company currently considering renegotiating an IT outsourcing contract?

"Be prepared to concede certain aspects (increasing the term, adding to the scope, simplifying measurement criteria, etc) in order to secure a more flexible, agile, accountable contract. Absolutely check out the financial stability of your supplier before signing anything - two major names could go before year end. Get expert legal and sourcing advice as to the real auditability and step in-rights that you have."

"Be very clear on what the reasons for the renegotiation are and what the objectives from it will be; try to do a once and for all re-baselining taking into account all issues, rather than death by a thousand cuts. Think laterally about what changes could be made."

"The most important thing for a company considering renegotiations is to have a clear understanding of their objectives, and what they want to get out of the restructured IT outsourcing contract. A successful renegotiation also relies on creating financial leverage, a willingness to execute viable alternatives and a strong commercial relationship with the supplier.  Another significant factor is time. Whether mid-term or end-term, companies must ensure that they allow enough time to analyse and understand all factors, which might impact the new contract and to fully engage their internal stakeholders to ensure the best possible outcome."
 
"It is easy to get caught up in the renegotiations process, but it should be remembered that not everything is negotiable - a company must decide on its priorities and negotiate to build a workable solution and sourcing relationship, not to win a battle."

"Build a deeper, more forward-looking, and business-relevant understanding of the points of difference and parity between IT services firms; demand more flexibility and pro-activeness from IT services vendors; direct more attention toward productivity improvements,  not just cost reduction; seek and leverage more aggressively operating and business model innovations; collaborate with IT services vendors to co-create new capabilities in areas that matter; and demand constant improvement and global best practices."

"Plan properly for the re-negotiation, and understand what you want to get out of the process; have the right people (ie: key subject matter experts as well as stakeholders and management) involved in the negotiations; accept some give and take in the process; allow enough time to properly discuss the issues - don't leave this until a month before the contract is due to end; and read the contract thoroughly to ensure that you are capturing all the consequential changes that might need to be made."

If you have any advice feel free to leave a comment.
 
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Shared serve row sparks no confidence vote at Cornwall Council

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IT and business process outsourcing is controversial. The process of transferring internal work to a third party leads to redundancies and if it goes wrong CEOs often lose their jobs.
 
Senior political figures are aware of this and tread carefully around the subject.

A story on www.thisiscornwall.co.uk this week has revealed that the leader of Cornwall Council faces a no confidence vote in relation to a proposed shared services deal, with either BT or CSC to provide services such as libraries, benefits, payroll and IT services.

A petition for the removal of the council leader has been signed by 41 councillors who believe "such a fundamental change should be decided by the full council and not just ten members of the cabinet."

Earlier this week I blogged about trouble at another local government outsourcing arrangement, when the "shambolic accounting" of the Southwest One shared service was revealed by CW contributor Mark Ballard.

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Outsourcer Xchanging to re-launch its insurance software business

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Xchanging is a name that crops up regularly in my conversations about outsourcing but I have never written about it before. It is a big business process outsourcing firm, with a large customer base in the insurance sector.

For example has a big outsourcing contract with the Lloyds of London insurance market. It's software is used by companies like AXA and Allianz Insurance.

The company has a number of software platforms to run client business processes and also sells its own software to insurance companies and brokers. It is basically an ERP system for insurance firms. Users are largely commercial insurance and reinsurance firms.

I met Xchanging yesterday to find out more.

The company is updating its software with the introduction of a modular .Net based system. The suite of .Net components can be used to help these insurance firms, which often have monolithic IT systems become quicker to react to market changes with new products.

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IT outsourcing contracts failing to deliver 28% of what is expected

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In continuation of my recent theme of blogging about IT outsourcing contract renegotiations here is another bit of info my interviews with experts has revealed.

As I work on the feature and receive more answers to my questions the plot somewhat thickens. Steve Tuppen, who is a director at ISG in the UK, gave me his views.

It is important to first note ISG's figures on contract renegotiations. Steve told me that renegotiations across all types of outsourcing contracts are on the rise - as a proportion of total outsourcing contracts awarded, they are at a ten year high with 33% with Q1 2012 revealing an even higher figure of 44%.

One of the reasons, which I found interesting is that contracts are simply not delivering what they promise. Steve said: "A recent ISG survey found that on average companies report that they only receive 72% of the value from an outsourcing contract that they anticipated."

If you pay for a £100 worth of sugar you expect £100 worth of sugar not £72 worth. Obviously IT services are not commodities at the moment but they are increasingly becoming so. In the future with pay as you go models buying IT services might be like buying sugar.

As I am receiving lots of feedback for my feature from contacts I thought I would open it up, or crowdsource it you might say, and put the same 5 questions I asked them in the blog.
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Are SME IT suppliers credible bidders against system integrators in public sector?

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The government set itself the challenge of reducing the public sector's dependence on a small number of large IT suppliers for its services.

Ending the oligopoly of system integrators and at the same time increasing the government's use of SME suppliers was always going to be a challenge.

The government embarked on a strategy to break contracts up and is now pushing on with a plan to increase the number of SMEs that supply IT to government.

In an article written by one of my colleagues after attending an event last week Liam Maxwell, deputy government CIO, said the next step is to have a much wider range of SMEs engaging with government, with the publication of pipelines a key strategy to get to that point.

"In the IT strategy refresh we will have commitments on pipeline," said Maxwell.

If SMEs can see pre-tender government requirements, they will be in a better position to build the appropriate skills, he said. "At that point, the SME becomes a credible bidder against a big systems integrator [SI]."

I was hoping to get some feedback from small IT suppliers to see just what business they are winning in government.

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Mid-sized businesses are the big outsourcers today, but will they repeat the mistakes of the pioneers?

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I interviewed a partner at US firm ISG yesterday. ISG is the company that owns sourcing broker TPI and IT benchmarker Compass Management Consultancy.

As a result it has a great view of the global IT outsourcing sector and I did a short story on my interview with ISG partner Deborah Card yesterday.

ISG has found that the fastest growing part of the Forbes G2000 group of businesses , in terms of IT outsourcing and BPO, is the companies that are mid sized.

There has been a 124% increase over the past five years in the number of business process and IT outsourcing contracts with a value of between $10m and $25m, signed by midsized companies. This compared with a 72% increase in the number of contracts worth over $25m during the same period, signed by big companies.

ISG also said only between 25% and 30% of the mid-sized companies outsourced before 2008. Now they are attracted by standardisation through cloud services because they do not want to have to complete major customisation. As a result Infrastructure as a Service (IaaS), Software as a Service (SaaS) and Business Process as a Service (BPaaS) are outsourcing services with significant take-up.

One of the interesting points made was that many of the companies that are new to outsourcing continue to make the costly mistakes that companies made in the past.

Here is some advice from ISG for mid-sized companies embarking on an outsourcing projects.

-Do not think that once something is outsourced it is no longer your problem
-Ensure you plan for change management and governance
-Having clear expectations of the supplier and service.
-Mid tier businesses should look at solutions from a wide range of suppliers rather than the large system integrators. Try and be a big customer for the supplier rather than a small fish in a big pond
-Look at niche suppliers

In such a mature sector you would think lessons would have been learnt. Mind you there are lots of successful sourcing consultants out there so there must be demand.

I am sure there are many more mistakes being made in outsourcing.
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IT outsourcing marriages sometimes require changes from both partners

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As I blogged last week I am currently working on a feature about IT outsourcing contract renegotiations.

With the large amount of feedback I am getting I thought it apt to blog separately about some of the views I am receiving.

Last week I blogged: Are we seeing first wave of recession proof outsourcing contracts in trouble?; and IT services firm do not understand social media and cloud applications

Today I am blogging some of the comments from outsourcing lawyer Peter Brudenall, at Lawrence Graham.

Most of the comments I have received involve the outsourcing customers wanting renegotiation. Peter said something interesting about suppliers wanting things to change. Outsourcing relationships are supposed to be like marriages so I suppose this is not surprising.

This is what he said:

"...service providers who find that they are not making anything like the revenue they were expecting, perhaps because the volume of work has not been there.  This has led to re-negotiations to reflect the reality of the situation so that the service provider has had reduced obligations and liability levels because the contract is, in fact, a lot smaller than either party had anticipated."

Any other reasons a supplier might want change?

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Southwest One shared service under spotlight after "shambolic accounting revealed."

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Shared services in the public sector are seen as a good way of cutting costs. This is attractive in the current climate of government austerity.

It seems like a great idea in terms of cost savings, when public sector bodies can share back office operations.

The model often used, is one where a public sector organisation partners an IT supplier and then offers other public sector organisations services. The customers save money by not requiring lots of back office staff and do not have to maintain systems.

The organisation that sets up the shared service, and of course the IT supplier, make money.

Well not in the case of Southwest One which does back office work for organisations such as Somerset county council and Somerset Police to name a couple.

The shared service which is run by Somerset county council and IBM seems to have been carrying out some questionable accounting practices to hide losses. So perhaps shared services are not a guarantee of savings.

See the article below written by Mark Ballard for Computer Weekly for all the details.

Southwest One losses obscured by shambolic accounting.

See more on Mark's public sector blog

There are some success stories however.

The NHS Shared Business Service (SBS) is a joint venture between Steria and the Department of Health. It uses an Oracle platform and a single set of processes to run the back offices of NHS trusts. About 100 NHS trusts now use the NHS SBS service.
It promises trusts up to 30% cost savings and even paid the NHS back £1m last year.

Cleveland Police Authority is another which set up a shared service targeted at police forces. Also with Steria.

The police authority is spending £175m over a decade on shared services and expects £50m in savings over that time. This is through sharing services such as finance, HR, payroll, commissioning and fleet management in Steria's dedicated datacentres. When other forces sign up they will use the same infrastructure.



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General Motors recruiting 10,000 to fill IT outsourcing void is actually bad news for IT pros

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Back in July General Motors (GM) announced plans to bring outsourced IT work in-house and create about 10,000 in-house IT jobs in the process.

GM's CIO Randy Mott recently announced plans to bring 90% of outsourced IT back in-house.

The news itself is incredibly significant in the world of outsourcing because GM was not only one of the biggest IT outsourcers on earth but it was also an IT outsourcing pioneer. GM acquired a company known as EDS and turned it into its internal IT department before selling it off as a separate company, which HP bought for $13.9bn.

But when I say the creation of 10,000 internal jobs is bad news I mean it just shows how in-house IT roles, which help train people up and define careers, are few and far between if the big corporates outsource.

OK GM is an extreme example but imagine the total number of IT job vacancies that would be available if all the big banks for example brought work that is outsourced in-house. Thousands of jobs would be created.

So whilst the move by GM is an opportunity for 10,000 IT pros it is also confirmation of the lack of opportunities for IT workers to get in-house jobs. In the long run this can be damaging to IT pros opportunities and also the businesses that are outsourcing.

John Harris, chair of The Corporate IT Forum and chief architect and head of IT strategy at pharmaceutical firm GlaxoSmithKline (GSK), for example told Computer weekly in a recent interview that years of outsourcing commodity IT skills means young people are not being given a chance to come into the industry.

"Yes, it may be more economical to outsource to India, but such a job may be the type of work that gives an apprentice a real grounding [in IT]," he says.

By developing skills in-house young IT apprentices who progress into future IT architecture experts will have a thorough grasp of the businesses. It may be regarded as a long-term game, but Harris believes clear career planning and progression can ultimately deliver high value to a business.

Is India becoming too expensive for offshoring your IT?

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India is synonymous with offshoring. But in this guest post NOA board member Debra Maxwell who is global BPO director at Arvato where heads up the company's $200m global contract with Microsoft, discusses the changing geographies of outsourcing and the factors that make emerging offshoring locations a good bet.

Challenging offshoring cost effectiveness in India: how is the market responding?


By Debra Maxwell,

"India is undoubtedly still a prominent offshoring location, but wage inflation and high staff turnover mean the cost savings aren't as impressive as they once were. At the same time, the necessary skills and infrastructure are improving in several up-and-coming destinations, leading to a shift in the geography of outsourcing. This competition can only be good for companies looking to offshore and their customers; it's driving improvements in quality while keeping costs low.

While cost will always be the overarching driver for offshoring, smart companies are looking for the right mix of cost and quality from their offshoring arrangements - be that accurate data transactions or excellence in customer service or both.

To really challenge India as a major destination for offshoring, emerging locations need to have a combination of attributes at their disposal. The ease of doing business is a key consideration, including the level of government support, political stability, accessibility and security. Investment in infrastructure is another prerequisite; including access to technology, decent internet bandwidth and a reliable electricity supply. With these factors in place, those countries with a large, highly-skilled and university-educated workforce with the right language capabilities are creating the right environment for successful offshoring.

But the destinations that really stand out from the crowd are those that deliver commonality between your business or customer base and the location. No matter what the cost benefits are, it's easy to be put off when it's difficult to communicate with agents in offshore locations due to language or cultural differences.

For this reason, we often see French companies outsourcing to Morocco and Spanish speaking business going to Mexico. So, India was an obvious choice for English-speaking companies. But we're now, for example, seeing the Philippines emerge as an alternative destination, especially for American companies, thanks to the neutral accent and employees' familiarity with American culture and society.

Indeed, a recent study by GlobalEnglish showed that of the 30 countries with the largest labour forces, the Philippines scores highest in terms of workers' fluency in English -- above India, Canada, and, astonishingly, the UK.

The final consideration should be about the type of service you're looking to offshore. Not all destinations are equally strong across front and back office services. Some, like China, are perhaps strongest in ITO, whereas the Philippines has always been recognised for providing good voice services but is increasingly delivering growth in BPO.

One size doesn't fit all, so I for one welcome the addition of new destinations on the global offshoring map, and the choices and diversity they bring."

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Businesses offshoring analytics work to India

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Data is king and companies are looking for ways to save money and improve the processes related to making use of data.

Suppliers in India providing analytics services grew at almost 40% a year between 2007 and 2011despite the econominc turmoil.

Research firm ValueNotes says analytics as a segment of the Knowledge Process Outsourcing (KPO) sector in India has been particularly strong.

More and more businesses are hiring offshopre forms

"The analytics segment has stood up to the global economic slowdown remarkably well, and is currently the most attractive segment in the KPO sector," says Arjun Bhuwalka, project manager at ValueNotes.

I have not really covered this much in the blog because it is not necessarily IT related. But with big data one of the biggest buzzwords in IT and more businesses needing to make more use of the zettabytes of data they are collecting and are outsourcing the work in many cases.

Five of the biggest KPOs in India with analytics services are: MuSigma, Fractal Analytics, ActiveCubes, Manthan and Vehere.

What are the alternatives to India for analytics KPO.

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IT services firm do not understand social media and cloud applications

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As I am currently investigating the subject of IT outsourcing contract renegotiations for a feature I am writing, see my earlier post,  I will delve into some of the technology challenges that might instigate a contact renegotiation.

Peter Schumacher, CEO at management consultant The Value Leadership Group, gave me his thoughts.

One thing he told me is that understanding how to apply new technologies and applications like social media and cloud-based applications requires progressive thinking and new approaches, which many service providers lack.

He said: "Many customers we have recently spoken with believe that many IT services firms have not invested enough into understanding these new opportunities and have not done a good enough job at integrating them into their offerings - or in other words much of their thinking remains obstructed by outdated thinking around legacy-based solutions. This is causing frustrations amongst progressive customers and causing them to revaluate their options."

The problem with fixed term arrangements is that when new technologies become available there is not always a contractual cattle prod to get a service provider to introduce it.

Peter Schumacher says businesses should Demand more flexibility and pro-activeness from IT services vendors to solve this problem.

Have you recently had social media and cloud based applications integrated by a service provider as part of an existing contract?

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Are we seeing first wave of recession proof outsourcing contracts in trouble?

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I am currently working on a feature about renegotiating IT outsourcing contracts. As a result I have contacted people in the sector to get their views. As I go through some of the comments I get some interesting stuff.

Kit Burden, Kit Burden, head of technology sourcing at law firm DLA Piper, said there have been a lot of renegotiations as a result of a need to change contracts signed quickly by businesses to help them cope with recession.

"We are seeing the first wave of deals done in haste during the first stages of the recession, which are in trouble and needing to be reworked."

Outsourcing is seen primarily by many as a way to cut costs. According to KPMG 70% of UK businesses see it as a way to cut costs.  Hence when the recession kicked-in companies would have looked at outsourcing to cut costs quickly.

Now that things have changed, although the economic outlook isn't good, these contracts might not be appropriate. KPMG's survey also revealed that businesses are increasingly outsourcing for other reasons than cost cutting. The survey found that 46% said the need for better quality services was their reason for outsourcing, while 51% said it was due to a lack of in-house skills.

Are your recession driven IT outsourcing contracts still relevant?
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Banks still biggest IT outsourcers but where is the money going?

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KPMG's latest UK IT Service Provider Performance Study showed once again that finance firms are the biggest spenders on IT outsourcing.

Financial services firms, accounted for 30% of the companies interviewed by KPMG. It revealed that they are the most likely businesses to outsource IT, with 58% of them likely to outsource more over the next year, compared with 44% of all companies surveyed.

I asked Tony Virdi, head of financial services and banking UK at Cognizant, which gets over 40% of its revenues come from the finance sector, what the banks are spending on?

He said this: "Two particular areas where we are seeing growth are in compliance and innovation. Over the next three to five years, financial institutions will be faced with some major compliance issues such as Dodd Frank and FATCA, and ensuring they address the capital adequacy, stress testing and market liquidity risk requirements of Basel 3. We are currently involved in a number of projects in this area, which we expect to increase steadily as international regulations continue to come into play.
 
We are also helping many organisations tackle the rapidly evolving retail banking market and all the accompanying process and infrastructure challenges brought by these changes. Consumer demand for digital services mean banks are battling to bring to market the most innovative offerings; mobile banking and mobile payments are two areas where we're being called upon to both consult and to deliver solutions."

For more detail in KPMG's UK IT Service Provider Performance Study click here.
 
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Is HP selling EDS?

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Sources have told US channel publication CRN that HP has considered selling EDS and even looked at potential interested parties.

HP has denied this. If it did sell it HP would lose billions after writing off $8bn of EDS's value recently.

Here is the CRN article in full.


I wouldn't write a news article just about a company denying something but I know CRN US and it does get some great stories. It would be a shock if it did sell EDS.

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How to create an IT outsourcing rock star?

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I met up with Matt Barney of Infosys yesterday. He is the person in charge of developing executives into senior management.

He is an occupational psychologist who joined Infosys about four years ago.

I have not written about the subject at all in the past and it was an interesting meeting. Just to see all the processes and efforts put into ensuring that potential leaders in the company reach their potential.

"We make rock stars even better," says Barney. "We take exceptionally high performing individuals and make them even better."

I must admit when I think of employers helping manage your career I get shivers down my spine because of a previous employers' badly run Personal Development Plan. The dreaded PDP was more about ticking boxes than furthering my career.

Barney agreed with me that a badly run PDP programme is counter-productive.

Infosys' Leadership Institute in contrast is a major effort. Staff that show promise or a desire to be senior management enter the programme and receive tutoring throughout their career at Infosys. It means Infosys, which is a high growth company, can expand quickly without requiring external hires.

Barney's team is only 7 people globally at the moment but so much importance is placed on the Leadership Institute by Infosys that the team will grow to 200 in the next four years.

In the UK there are 42 Infosys senior managers that are part of the programme, Including BG Srinivas (pictured) who has been a contributor to this blog in the past. BG is now a member of the Infosys board so he must be one of teh rock stars that has got even better. Although his status must have been helped by being involved with Inside Outsourcing.


Programme participants might learn concepts such as ethical persuasion one day and have a virtual reality meeting with a CIO customer the next to test them out. Barney also told me about the importance of charisma as well as knowing.

The leadership organisation at Infosys is split into three parts. Broadly speaking it encompasses: coaching and training, where individuals receive mentoring and training; a department that assesses employees using software and forecasts how many leaders Infosys will need; and another that plans succession to ensure if someone leaves there is a ready replacement.

It is amazing how much time, money and effort goes into shaping the current and future leaders at Infosys. If you are a CIO and have a meeting with one of them remember their rock star status.

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Do we really want our critical public sector systems to be dependent on companies on the other side of the world?

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I sometimes publish comments of readers in standalone blog posts but have been a little neglectful of this recently. In an effort to do more of this here is a comment from yesterday to a post I wrote about offshoring public sector IT.

It is a controversial subject in the world of IT and outsourcing.

This came in from Mat X who I presume has worked in public sector IT. Thanks for taking time to comment Mat X.

"Public sector outsourcing barely works (if at all) even when all parties are in the same country, speak the same language and understand at least roughly what the government department is all about. So shipping the work offshore is likely to make this situation much worse. Moving government IT work offshore will also have a lot of hidden costs to the UK taxpayer: loss of jobs in the UK, with knock-on effects across communities where public sector employers dominate, loss of opportunities for future IT graduates in the UK, damage to the UK IT skills base etc. None of these will be accounted for when governments claim they are "saving money" through offshoring, but the negative impact on the UK IT industry and tax revenues will be substantial. The bottom line is that UK taxes should be spent to benefit the UK, not India. Moving work offshore also removes skills and understanding of the relevant systems from the UK. Look at RBS for a shining example of what happens when you fire all your experienced staff and move work halfway around the world. Do we really want our critical public sector systems to be dependent on companies on the other side of the world?"


What do you think?

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Is the recession and utility computing driving outsourcing renegotiations?

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Or is it just a case of getting a lower price?

After numerous conversations about the subject recently I am writing a feature about renegotiating IT outsourcing contracts.

The recession and multi-sourcing alongside new ways of providing IT services, such as cloud computing with pay as you go commercials, are reasons why a business might want to renegotiate IT outsourcing contracts.

Robert Morgan, director at sourcing consultancy Burnt-Oak Partners says there has been an increase in renegotiations of over 50%.

He says, "It is open season from clients who are approaching an end of contract or merely because they feel that they can extract a better price from the market - and they can. Service providers are taking small losses in order to protect their existing accounts and avoid new presales costs."

But I was wondering what factors are driving people to renegotiate IT outsourcing contracts. Or whether people actually agree there is a trend?

Mark Lewis, head of outsourcing at law firm Berwin Leighton Paisner says he is not seeing many renegotiations in the private sector but adds that contractual windows are the time when businesses look to change things to lower costs.

If you have any views on this please leave a comment and I will try to use it in ten feature I am writing for Computer weekly.

Also does anybody have any advice on how to renegotiate IT outsourcing contracts?

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More evidence that software testing could be huge IT outsourcing growth area

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I recently wrote about the increasing trend for businesses to outsource IT testing.

In a nutshell applications are increasingly being tested by third party suppliers as businesses strive to reduce the huge investments needed for rigorous in-house testing processes.

According to analyst Nelson Hall, the global testing services market was $8.4bn in 2011, and although 2012 is expected to be flat, it predicts an average 9% growth every year over the next five years.

It seems that there is a lot of room for growth. According to Capgemini only 13% of businesses are currently using fully managed software testing from an external provider and over half still have a separate internal function for software testing.

See more on the Capgemini story here.

Only fraction of public sector offshore IT. But for how long?

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Less than a third of public sector organisations receive IT services from offshore or nearshore location despite 90% outsourcing IT.

This is one of the findings of KPMG's in depth research of UK outsourcing contracts. The annual survey looks at UK contracts worth a total of £14bn from 230 organisations.
It has some interesting findings which you can see if you follow this link and give Computer Weekly your contact details. It takes a couple of minutes and is worth it because once signed in you can read the hundreds of specialists reports we publish online.

One of the most interesting findings is that only 29% of public sector organisations have IT delivered from offshore or nearshore locations. With cost cutting at the top of the public sector agenda it is probably the time organisations will at least consider offshoring even if they don't do it.

One senior executive at a supplier I spoke to said there is more interest in offshoring and more questions are being asked by public sector buyers.

"The precedent has been set and there is more openness towards it," he said. "There was a taboo but this has been offset by the realities of what is happening."

What are your thoughts on this IT hot potato?

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Cabinet Office reiterates tough stance on suppliers

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Following the news that IT services firm Fujitsu had been put on a blacklist as a high risk supplier the Cabinet Office gave me the statement below. It is outlining its tough, business-like, stance on suppliers including IT services firms.

Here is what a Cabinet Office spokesman said:

"We cannot comment on the status of individual suppliers, but we are absolutely clear that this Government will not tolerate poor supplier performance.

"We want to strengthen our contract management by reporting on suppliers' performance against criteria and sharing the information across Government. This means that information on a supplier's performance will be available and taken into consideration at the start of and during the procurement process (pre-contract). Suppliers with poor performance may therefore find it more difficult to secure new work with HMG.

"This policy will include the identification of any high-risk suppliers so that performance issues are properly taken into account before any new contracts are given.

"High-risk classification is based on material performance concerns. Suppliers deemed high risk will be subject to particularly close scrutiny when awarding new work.

"Overall, this is simply good commercial practice and in line with how we are improving the way government does business and emulating the best of the private sector."

I wrote this article yesterday. It questions whether this tough stance will actually have the desired effect.

BTGS completes retreat to its core with change at top

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The man responsible for transforming BT Global Services from a company making huge losses on IT services contracts to one focused on its core business of networking services has left the company.

Jeff Kelly, who ran EDS's massive contract with General Motors in the past, has left BTGS to return to the US. He joined BT in January 2010.

Under his leadership BT Global Services has transformed from a company making huge losses on IT services contracts to one with more focus on what it is traditionally good at, such as the provision of managed networked IT services.

In 2009 BTGS recorded an operating loss of £134m. It lost £1.2bn due to cost overruns on big contracts with the NHS and Reuters and another £100m on other smaller contracts.

BT Group CEO Ian Livingston, said BTGS is in a much better place than it was when Kelly joined. Kelly will continue to advise BT in the US in a part time role.

BT has replaced Kelly as BTGS CEO with Luis Alvarez. Alvarez's last role, of many at BT, was president of BT Global Services Europe, Middle East, Africa and Latin America.

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Will Logica's strong internal culture be broken and cause an HP EDS like failure?

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News that the new owners of Logica, Canadian company CGI, will cut the workforce by 700 at Logica as part of its £1.7bn takeover. Read more here.

Could this make integration difficult? Robert Morgan, director at sourcing consultancy Burnt-Oak Partners told me that Logica has a workforce bonded by a strong culture.

This makes me think about what happened at EDS when HP acquired the company. Lots of people were let go and the core culture of the company which, according to former staff, was to deliver excellent service levels was broken.

HP recently that it would write off $8bn after the business it acquired in 2008 for $13.9bn, was devalued.

Also see ten reasons why EDS is worth $8bn less than it was four years ago.

According to the Times Logica said: "Regrettably, the integration process, as expected, has identified potential job redundancies in UK-based global functions and UK corporate and back-office functions resulting from the combination of the two businesses," CGI said.

So could CGI commit a similar error with Logica?

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Government's tough love with IT suppliers

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There is a really interesting article in the FT today. The story is talking about how the government, through its procurement strong arm otherwise known as the Cabinet Office, is getting tough on outsourcing service providers.

It describes the problems related to the G4S contract to provide security guards for the Olympics, when the company failed to meet its commitment.

But the FT article gets juicy because it reveals that two IT suppliers have been banned from tendering for government projects because they are deemed "too risky". It has been revealed that Fujitsu is one of the companies banned but the other has not been named. Everybody I have spoken to about this thinks it is CSC.

Fujitsu, which is a major public sector supplier, has had some public problems with contracts such as its deal with the Highland Council in Scotland and a contract that failed to get going with the DWP.

CSC has had major problems with its contract with the Department of Health to implement Lorenzo patient records software to NHS trusts. But as I said it has not been confirmed whether CSC is one of the companies involved.

Any ideas who the second company is?

Managing an outsourced project teaches you about your own business

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As my work colleagues have discovered recently having major building work done on your house can be quite stressful and uncomfortable.

For the last five weeks, and still going, I have been practicing what I preach and had to outsource large parts of my everyday life.

In the absence of a kitchen and different parts of a bathroom for long periods of time, combined with enough dust to bury Tutankhamen for thousands more years, to surviveI have used various services of friends, cafes, restaurants, gyms, the office while on leave, as well as a natural history museum.

Not only that but after offshoring my family to their grandparents for nearly a month I found to my horror that I rather than my wife had to become a project manager of the build.

But it has taught me a lot about building despite not having a clue about any of the individual processes. It has also taught me how to communicate with non English speakers when discussing how a bathroom has to be laid out. My Polish is limited  to one word which I can't spell so won't reveal.

So it has shown to me what a specialist task project management is. You do not have to know how everything is done but you do have to be able to understand what is going on and think of better ways of doing it. To my amazement some of my suggestions have been adopted.

I have even had long discussion with the boss of the building firm and actually came away thinking I had the better of the argument. Although if you compare bank balances at the end I am sure he is the winner.

It has even taught me about my home. I now know where a lot of important things like pipes and wires are. I now fancy a bit of DIY.

But it is pretty stressful so I think managers of big projects, far more risky than my extension, deserve praise and reward if successful.

This blog was written by Karl Flinders, services editor at Computer Weekly and part-time building works project manager

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