November 2012 Archives

Do IT analysts skew the services market?

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I recently met up with an analyst relations executive form a consultancy. Being a journalist who regularly talks to analysts it was interesting to get some views on industry analysts from the other side of the fence.

The views of IT analysts are taken very seriously by businesses when they draw up It strategies and buy services.

There are many different types of analysts and most are nowhere near the size of the sector's Gorilla, otherwise known as Gartner. But there are a few big analyst firms that have a major influence on the market.

Magic quadrants and similar research, rank suppliers on different variables. Businesses are heavily influenced by these when buying.

But the problem with Magic Quadrants and the like are that analysts only really measure a few companies with global footprints. As a result research showing IT services buying habits are skewed because this type of service is often bought from a regional specialists. Particularly in continental Europe.

For example I recently interviewed an Indian supplier, Hexaware. The companies head of Europe told me the company has a really strong business in Germany. In fact he said it was the first offshore supplier to win a €25m services contract.

So if a German business was using a Magi Quadrant to decide which company to select would miss out on lots of smaller specialist options.

See this blog post about how industry analysts affect the market from the Institute of Industry Analyst Relations IIAR website.

This finding is interesting: Changing the Market to Fit Their Tools. It relates to the construction of the major ranking - the Magic Quadrant. "We found that in producing the ranking its authors will attempt to change aspects of the market to fit the tool (rather than the other way around). It appears that only a limited number of vendors can be ranked on a single Magic Quadrant (for reasons to do with clarity and parsimony), which presents problems for those areas where there are many vendors. Rather than come up with alternative means to capture vendors, however, its authors will divide up a market through introducing new nomenclatures, so as to handle the limitations of their ranking."

Perhaps small specialist analysts are where buyers should look for IT services advice before spending their cash. Or does the "nobody gets sacked for buying IBM" mantra ring true with the likes of Gartner?

Give me your views.

Are banks wasting money on mobile and online innovation?

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I recently wrote an article about some research looking into what banks were intending to spend money on.

The research jointly done by Infosys and banking association Efma found that 70% of 330 banks questioned respondents are planning to increase their spending on innovation, with the mobile and online channels seen as the most important delivery channels for innovation.

Yesterday I attended an event at Visa Europe. It was all about the companies digital wallet. I am going to do an article about it but it made me question the logic of banks investing cash in mobile and online platforms when suppliers such as Visa as well as IT suppliers could do white label versions that banks could use.

Obviously the banks would have to give the services their own look and feel as well as their own security provision, but why not use a white label service and save the money spent on development?

When internet banking became a strategy at banks they all decide to build their own. But basically all the online banking experiences are basically the same why bother?

Yesterday Visa was talking about its digital wallet. It described how users could pay people money just by knowing their mobile phone number. So just like Barclays' Pingit app that was recently launched.

I asked the Visa executive making the presentation whether Barclays had wasted its money developing Pingit. The answer was long and magnanimous.

Last year I interviewed Swift's head of innovation, Kosta Peric told me that banks invested lots in internet banks in the belief that they could differentiate. But they couldn't.

"They spent an enormous amount of money but it does not add a lot of value," he said. "They could have established a shared service." He says banks in Belgium share an internet banking platform.

It is very important for businesses to be able to identify where they can actually differentiate through technology. Even new services which are business critical, might not offer the opportunity to differentiate. Peric at Swift says an example of this is mobile banking. All banks want to offer mobile banking to consumers so they can reach every corner of the world.

Has the touchpaper of offshoring confidential UK citizen data been ignited?

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I wrote in October about Tata Consultancy Services (TCS) winning a contract with the Home Office to run the Criminal Records disclosure service for over 10 years.

The contract is worth hundreds of millions.  It had been shortlisted for a contract on the government's new Disclosure and Barring Service (DBS). The union representing the workers there revealed the news. DBS is the merger between the Criminal Records Bureau, that helps employers make recruitment decisions, and the Independent Safeguarding Authority, which prevents unsuitable people from working in certain places.

TCS has now made it official saying: "TCS will implement a programme to transform DBS, including the introduction of  electronic applications and improved online services to enhance user experience. The company will provide end-to-end process, technology and operations support for an initial period of five years, as per the agreement. The two organisations, DBS and TCS, will also collaborate to update the organisation's business processes to help improve decision making and reduce processing times. TCS will also build new integrated case management system to support seamless integration and information gathering between disclosure and barring services."

TCS is really breaking the public sector market. It has clients such as the National Employment Savings Trust (NEST), Cardiff City Council, and the DWP's Child Maintenance Group.

Because the DBS data is very sensitive it seems there are no limits to what can be run by an offshore company. Are there still fears about this? The impression I get is that once outsourced it makes little difference where the supplier is from as most are all over the world anyway. Most Western suppliers have lots of offshore staff anyway, which do much of the work.

Currently 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. So there is room for growth and with cost cutting pressures public sector organisations might be tempted.

Offshoring any public service remains controversial.

This came in from reader Mat X a couple of months ago.

"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?"


Cisco has 75% of European networking services sewn up. Survey part 6

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I have been blogging about the findings of research from Computer weekly parent company TechTarget.

Part one looked at how IT services budgets will change next year. See it here.

Part two revealed what the drivers for the IT services budget increases and decreases are. See it here. 

Part three revealed the main influences on supplier selection in Europe. See it here.

Part four revealed which technologies European businesses are planning to outsource. See it here.

Part 5 explained why businesses chose particular suppliers.See it here.

Today in part 6, I am looking at the results of the IT networking services market in Europe. It seems either Cisco or a Cisco partner accounted for 75% of the networking, wide area network (WAN) and unified communications  services consumed by respondents.

When asked if they used outside services to aid in networking, wide area networking or unified communications project, 53.9% of respondents said they did.

Out of those that did 50% said they used Cisco and 25% said a Cisco partner.

This is unlikely to change anytime soon with 46.6% 0f respondents saying they choose supplier based on an existing relationship.

But demand could fall this year. The survey showed 55.5% of organisations had used outside services for their networking, wide area network (WAN) and unified communications deployments. However, just 33% said they planned on outsourcing these tasks in the next two years.

Here are the supplier by supplier results.

From which vendor did you most recently purchase services to help in networking? (select all that apply)  
   
Cisco 50.00%
A Cisco reseller/integrator 25.00%
HP or EDS 23.90%
Dell or Perot Systems 10.90%
IBM or IBM Global Services 18.50%
CSC 1.10%
Price Waterhouse Coopers 2.20%
Lockheed Martin 1.10%
BAE Systems 2.20%
Deloitte / Braxton 3.30%
A Network / Telecommunications service provider (ex. ATT, Verizon) 15.20%
Other Large national / international firm with many offices worldwide (specify) 4.40%
Other Large regional firm with offices mainly in my country or region of the country (specify) 5.40%
Other local firm or independent consultant (specify) 5.40%
None - we have never used services for our networking, wide area networking, or unified communications. 5.40%

Don't forget you can outsource almost anything except for responsibility

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When things go wrong in outsourcing contracts the service provider might pay a penalty but no matter how much that is it will not cover things like reputational damage. In this guest blog Hornbill's chief evangelist talks about how the cloud makes it more important than ever to take care with what you decide to outsource.

Does IT belong here? What and when to outsource

By Pat Bolger, chief evangelist at Hornbill Patrick Bolger JPG.JPG

"The cloud has so far caused huge upheaval in the IT world and it's easy to see why. After all, who doesn't like the idea of a more flexible IT infrastructure, services on demand and a corresponding reduction in IT costs? Perhaps most compellingly the cloud makes it even easier to outsource IT services, gaining flexible access to capabilities that would be difficult to implement in-house, secure in the knowledge that a trusted party will have a lot of the complex management under control.

Of course, this isn't always the case: any failure of a cloud-based service can have huge repercussions for the IT department. One only needs to look at the chaos caused by incidents such as the June 2012 Amazon Cloud outage, where a large number of organisations were suddenly and massively left to fend for themselves to see these effects in action. Instances such as this, whilst rare, can have a profound effect on the IT department. While the fault may lie with a service provider, users will only see one place to lay the blame and take out their frustrations on the IT department itself.

The Golden Rule:

This is due to one simple rule: you can outsource almost anything except for responsibility. As a result, IT departments need to be sure that they still have control over and visibility of any services they outsource to the cloud. They must see exactly what is being delivered, where and to whom, and what weaknesses might exist in the supply chain. At the same time they must be able to cope in the event of a loss of service. This means the IT department is not technically removing its management burden by outsourcing. Instead it's shifting the burden, from managing in-house IT assets to managing its suppliers.

Making a Virtuous Circle:

This continuing burden of management means IT departments need to be careful about what they move to a cloud-based service. If a department has difficulty managing a service that it currently offers in-house, how can it guarantee a decent level of service from an outsourcer when it doesn't know what to look for to ensure that a good service is being provided? Instead IT departments should only outsource services that they are already fully in control of. While this might seem counter-intuitive, it means that the department will very easily be able to ensure it receives the service it needs while also making it much more prepared to deal with any outages or other incidents. In the meantime managing the outsourced service will still require less time than managing it in-house, meaning that the department can concentrate on improving its ability to manage those services it is less sure of or even develop new ones. This can then result in a virtuous circle: as more services can be outsourced so the IT department frees up more time to improve others, bringing them to a level where they can be outsourced if desired.

Supporting Evolution:

Essentially, outsourcing to the cloud is a defined step on the evolutionary process of providing IT services, rather than a missing link that allows other steps to be skipped entirely. As a result, there are a number of relatively simple checks the IT department can perform to ensure it has control over its IT. First, are the services well defined and managed effectively by internal IT? If the department is following a best practice framework such as ITIL, or a standard such as ISO 20000, and services are under the control of demand, availability and capacity management, this is a good sign that the service is healthy. Second, can it predict or explain all events and outages in the service? A service outage should hardly ever be an unexpected event and, on those rare occasions, the department should be able to show the root cause and measures that have been taken to prevent recurrence. Third, how well are changes to the service supported? If the IT department can't guarantee fast, effective upgrades and support for users then the service needs more attention. And perhaps most importantly, are user expectations managed? End users need to know exactly what to expect from their services, how they will be accessed and who to contact when things go wrong. They should be given warning of and information on both planned and unplanned disruptions to the service so that their work isn't disrupted. And the IT department should remember that, regardless of how it provides its services, it will remain the primary point of contact and focus of attention in the minds of users. As a result, it needs to be 100% confident that it can address any issues as the buck very definitely stops there.

Regardless of how much they outsource and with whom, IT departments need to remember the golden rule: technology and services may reside pretty much anywhere but ownership, responsibility and management can only ever be in one place."



Inside outsourcing interview: Downturn gave tier two Hexaware access to skills to help it compete

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Here is the latest Inside Outsourcing interview where I let suppliers tell me what they are doing. I have started of with a run of Indian suppliers. My first in the series was with Infosys, then came HCL (see links at bottom) and now Hexaware.

Hexaware is an Indian IT services provider with about 9000 staff, about 2,500 of which are outside India. With over 40% growth in revenues last year and over 20% growth expected in the next two years it has an interesting story to tell.

The company's European head Ramanan Seshadri recently told me about the company.

Although it is 21 years old 2008 was a bit of a watershed for Hexaware. While most companies were reeling from the slowdown the company reinvented itself. While it lost three important customers in a flash it was not all bad news.

Seshadri told me as all the big suppliers were laying off staff in India it gave Hexaware access to them. He said before the slowdown the company could not pay the same level of wages as the big players and as a result could not attract the best talent. With its new found skills resource the company decided to refocus.

"This was an opportunity," Seshadri told me. "Before the slowdown companies like IBM, TCS, Wipro and Accenture got the best staff because they were too expensive for companies like us."

The company decided to focus on two verticals: Banking and finance as well as travel and transportation. These two sectors account for 60% of Hexaware's revenue. The other 40% comes from three horizontal technology segments it also has a focus on. These are BI, HR and testing. Although the company also has other verticals in incubation it will only push its specialities to its customers.

It's customers include Dixons, Deutsche Leasing and Air Canada. So it has large clients.
An example of recent work was the creation of a business intelligence system for a European bank which asked suppliers if they could give it better sight of its liquidity. Hexaware built a system that shows the bank its liquidity by the minute.

Hexaware's biggest European market is Germany. Seshadri says it's a hard market to get into but he believes German values are more similar to Indian values than the UK's. "We understand their hearts not their minds." In 2002 he said Hexaware became the first offshore supplier to win a €25m deal in Germany and at the time the company only had total revenues of €34m.

In Europe the company grew its revenues 44% last year and expects 22% next year.
Seshadri says the company has a mantra that it cannot lose a customer and as a result of some success 94% of new business is from existing customers.

Hexaware has 250 staff in the UK with about 180 of them IT workers.

See other Inside Outsourcing interviews:

Inside outsourcing interview: IT services rock star on the market and Infosys

Inside outsourcing interview: HCL discusses targeting potential customers unhappy with current suppliers and having a DNA like IBM.


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Are IT contractors, known as Ringers, winning multiple contracts and sub-letting the work to low cost workers?

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I was approached yesterday by BBC radio asking me whether I was aware of a trend that is seeing IT contractors win multiple jobs and then subletting them to low cost IT professionals from overseas. These contractors known as "Ringers" are taking a slice of the work done by others.

I know there are a lot of contractors that comment on this blog about various issues so I told the BBC journalist I would put a blog post up asking for feedback. If this phenomenon is true it would be shocking with the number of UK contractors out there looking for work.

You can either leave a comment on the blog or email Fiona Leach at the BBC direct on Fiona.leach@bbc.co.uk.

If this is true I am very interested in hearing more myself.

There is much more IT outsourcing to come at UK banks

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There may not be many greenfield sites for IT outsourcing at banks but there is plenty of space for more. Nationwide building society is an example of a bank that was late to the outsourcing table, coming to it in 2008, but now a major user of outsourcers including heavy use of Indian services.  But these are few and far between. Most have heavily outsourced for mush longer.

But that doesn't mean there is not much IT outsourcing to come.

In this blog post, following news that French bank Socgen was outsourcing 400 back office roles, I asked for opinions on how far UK banks can go with their outsourcing.

I got the reply below from John Enstone, partner specialising in IT, outsourcing and commercial projects at the law firm Faegre Baker Daniels.
    
How much more can be outsourced at UK banks?

By John Enstonejohne.JPG

"The simple answer is 'quite a bit'.  After all, the conventional wisdom is that whatever is outside the core of a company's business may well be effectively outsourced.

The complexity comes in the negotiation, oversight and operation of that outsourcing.  Where cost reduction is a bank's main motivation, the immediate concerns become reliability and responsibility. 

So to some the question becomes: "Just how much more can be outsourced at UK banks without, at a minimum, triggering a reduction in quality and compliance?"

Suppliers are well acquainted with the pressure to discount that banks exert, as well as the attraction of the (sometimes elusive) benefits that a really large contract with a major company can bring. And banks, for their part, are familiar with the pressures to be profitable and to meet increasing regulatory and other demands.

What should we make of the temptation companies encounter to accept the benefit of lower costs now knowing that the business will bear higher costs later - a potential result of outsourcing? This sounds a little like the investments that some financial institutions offer the public where the overall returns may in fact be lower than expected.

Based on the more readily severable nature of the service, IT outsourcing may seem straightforward compared to, say, HR or accounting and finance.  The latter, after all, not only require that people talk to people but also are characterised by performance metrics the setting and evaluation of which are more art than science.

The solution, illusory as it may at times seem, is to ensure that as more and more functions are outsourced, banks and suppliers achieve a more effective balance between cost reduction (judged at least over the medium term) and performance definition and quality.  The more difficult it is to specify what and how an outsourced service will be provided, the more focus there should be on getting it right.

The more subjective the resultant performance criteria, the harder it will be for banks to recover damages from their suppliers.  It simply isn't enough to have the contractual right to extract Draconian compensation. Words are no substitute for actions: both sides need not only to commit to working together in good faith - many contracts tell a good story on this score- but also be content actually doing so.

Banks should comply - and be seen to comply - with public expectations and regulatory requirements, while avoiding the temptation to wring the last pound of savings out of suppliers. Putting suppliers under that kind of pressure leads to their cutting corners that ultimately damage the banks and their reputations.  Getting the balance right will make more functions capable of being effectively outsourced."
 

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Accenture and Capgemini latest corporations identified as tax avoiders

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Accenture and Capgemini, which both have lucrative contracts with HMRC are the latest companies to be drawn to the UK corporate tax avoidance row.

According to a report here on Contractor UK, which followed up a Sunday Times report, Accenture managed to reduce its tax bill to less than 3.5%, while Capgemini was able to pay its liabilities at a rate of less than 1%. The standard rate of UK corporation tax is 24%.

Accenture said it "pays tax in accordance with the tax legislation of each country in which it operates."

So Indian suppliers don't pay UK tax for onshored workers in the UK and others are minimizing theirs. Is anybody actually paying tax?

With the government calling for all of its suppliers to reveal UK taxes there could be more of these revelations.

Please leave comments on this blog

This is what, National Outsourcing Association Chairman Martyn Hart had to say:

"It is time for a change in the law to ensure that companies earning revenues from the taxpayer pay their fair share in taxes. That the largest of companies pay the least tax is a failure in the system, and this loophole needs to rectified. If companies earning from the government paid more tax, maybe there would not be such a great need for budget reductions.

"There is a worry that if companies had to pay their taxes, that price rises could result (as Andy Street, CEO of John Lewis says, companies that do not pay their fair share of tax in the UK have a price advantage: this is anti-competitive). But with such a congested, competitive marketplace, with a tendency to embrace shorter, more flexible contracts, there are so many options for buyer to go elsewhere - provided they have paid proper attention to contingency and built a robust strategy for exit.

 "Attitude to taxes could become a differentiator.  Of course, price, technology and service levels will remain crucial aspects of a bid, but maybe the company that pays the most tax could prove to be the most attractive bidder - The NOA would like to see the tax factor built into the public sector RFP evaluation process, to make sure companies with the most honest approach to taxpaying get the most business from government. HMRC would need to facilitate this, providing clear and open information and guidance to government departments needing to check potential suppliers' taxpaying credentials. A scoring system, a tax attitude health-check is required - something transparent, for fair comparison between companies - so that organisations that are currently operating carefree, paying next to no tax, but perfectly within the law, have a more morally righteous code to operate under. "



Was data that might have stopped £1.4bn rogue trader losses at UBS deleted at Indian captive centre?

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Reports suggesting that an offshore service in India being partly responsible for missing  for missing the rogue trading that cost UBS £1.4bn seem to be accurate.

I was talking to a contact of mine today and he told me that the problem occurred at a UBS captive centre in Hyderabad.

He told me unlike suppliers, who have processes that must be adhered to, captives are less stringent. He told me that the reason the rogue trading was missed was because data had been deleted as part of a system upgrade. "If there had been a process, like that of any supplier, this would not have happened."

Apparently when data was being migrated to a new system it started to slow things down. The person doing the migration deleted data to speed things up, which meant the trading went unnoticed.

My source tells me this would never happen with a supplier because of the strict processes and the risk of contract penalties. "The penalty for a mistake like this would be huge."

The FSA has fined UBS £29.7m for its failings and partly blamed an ineffective computer system for the problems.

Indian offshore IT service was part of the cause of £1.4bn loss at UBS

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It seems, according to this report, that the £1.4bn loss at UBS caused by a rogue trader could have been avoided if a service managed offshore by an Indian IT services provider had not failed.

The FSA reported that: "The computerised system operated by UBS to assist in risk management was not effective in controlling the risk of unauthorised trading.#

An offshore service  used by UBS used to detect suspicious trading activity that was undertaken by  London based UBS trader Kweku Adoboli losing, who caused £1.4bn losses.

 The Financial Services Authority (FSA) has fined UBS £29.7m for failings that led to trader making the losses. 

I wonder if this changes how regulators look upon outsourced services? At the moment banks are under pressure to sort out their ships and events like this could make the regulators and for that matter the public anti-offshoring.

Mind you it probably could have happened anyway, no matter where the service was run from.

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Is technology knowledge more important than price when choosing an IT service provider? Survey part 5.

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I have been blogging about the findings of research from Computer weekly parent company Techtarget.

Part one looked at how IT services budgets will change next year. See it here. 

Part two revealed what the drivers for I service budget increases and decreases are. See it here. 

Part three revealed the main influences on supplier selection in Europe. See it here.

Part four revealed which technologies European businesses are planning to outsource.. See it here.

Today I am providing some interesting insights into why businesses chose particular suppliers. When you ask most people in the industry why service providers are chosen they usually say, "price, price, price." The results confirm the importance of price for overall selection (see table below) but less important than deep technology knowledge would appear more important.

According to the Computer Weekly/Techtarget study looking at specialist technology areas it appears that deep technology knowledge is more important. While existing relationships with suppliers is the most common influence on a supplier choice it appears that deep technology is more important than price in most cases.

Here is the overall result on reasons for selecting suppliers.

When selecting an IT Service Provider for your firm, which are the most important properties for that firm to have? (select up to 3 responses)  
   
Price 62.80%
Vendor has deep expertise in the technology or application 71.50%
Vendor with whom we already have an existing relationship 32.90%
Top Tier Provider with a global reputation 14.60%
Local / Lives in my community 11.00%
Independent - not from the hardware or software vendor 3.70%
Is authorized and / or certified by hardware vendor to support or implement product. 24.80%
Is well known / recognized in my firm's industry 17.50%
Is the vendor that sold us the product being serviced 3.70%
Other 2.20%



Here are the price/deep knowledge comparisons for each technology.

Networking:


Price: 33.7%
Vendor has deep expertise in the technology or application: 58.7%

Cloud;

Price: 21.9%
Vendor has deep expertise in the technology or application: 41.10%

Server deployment, virtualization or license/asset management projects
:

Price: 29.5%
Vendor has deep expertise in the technology or application: 57.7%

Storage/Back-up:

Price: 39.1%
Vendor has deep expertise in the technology or application: 54%

Enterprise application selection, customisation, deployment or upgrade projects:


Price: 29.4%
Vendor has deep expertise in the technology or application: 63.2%

Security
:

Price: 40.7%
Vendor has deep expertise in the technology or application: 47.5%

BPO:

Price: 47%
Vendor has deep expertise in the technology or application: 38%

Can CIOs move completely off the Microsoft stack or will SI vested interests make it difficult?

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I was having a conversation with an IT supplier last week about the cloud and how it was changing and it appears CIOs are asking: where does Microsoft play these days?

It is being attacked from all angles from the industry. Exchange is being challenged by the likes of Google, SQL server has its niche but is there much opportunity to grow, SharePoint is being challenged by cloud suppliers such as Huddle and Windows and Microsoft Office have lower cost alternatives.

The supplier said to me that there are plans within Enterprises to move off Microsoft completely. "Where does Microsoft fit? Many CTO's that we have spoken to want to move entirely off the Microsoft stack within years."

How realistic is this? And will SIs, that benefit from big Microsoft enterprise deals, allow this to happen?


Why is the UK IT services industry employing less and generating less revenue?

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I wrote an article on Computer weekly yesterday about the latest research about the size of the UK outsourcing sector. This is done every year by Oxford Economics.

It looks at the entire outsourcing sector, including employment services and maintenance, services and not just IT. The latest survey, which covers 2010, reports that revenues in the UK outsourcing sector were just under £199bn that year. The sector employed 3.2 million people.

The IT and data related services segment had the biggest revenues of all sectors at £38.7bn. The sector recruited just over 10% of the total outsourcing workforce at 320,000.

This would appear great for the UK IT outsourcing sector. However the revenues and the numbers employed have both fallen.

But in 2009 there was £207bn in revenues, and 340,000 people were employed.

Why has this happened? The most obvious cause would be the economy which has really felt the effects of the downturn in 2010. But how much is related to offshoring and the increased tendency for IT to be outsourced to huge multinational suppliers, with revenues reported overseas and increasing numbers of staff either offshore or onshore form offshore locations on Intra Company Transfers and not paying taxes.

When you think that IT has the biggest revenue share in the UK outsourcing sector and that outsourcing was 7.4% of the UK's total production, there is good reason to protect the industry.

See the full report here and compare IT outsourcing against other forms.

These graphs give you a taste.
total outsource.JPG
IT outsource final.JPG





West Midlands police force chooses IT task force over service providers

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We have joint ventures, shared services, full outsourcing, mutuals and all kinds of partnerships in the public sector to help deliver IT services.

They are all controversial. Today I read about West Midlands police using a "task force".

This article from Reuters describes how the new commissioner at West Midlands police has scrapped plans to outsource IT to cu help it cut costs but will instead put a task force on the case.

Police commissioner Bob Jones described the plan in this way. "The Task Force will undertake its work knowing that I wish to see core policing services remain within the police service," He added that proposals to improve its IT functions could involve private sector partners.

See the article here.
 
So I wonder what the private sector involvement in IT is. And for that matter how the task force  will differ from the internal team.

The companies bidding for the contract were BT, Capita , G4S, IBM, Logica UK,Northgate Information Solutions, Serco , HP and Accenture.

There is a lot of controversy in the public sector at the moment as organizations attempt to cut operating costs while retaining service levels.

What IT are European businesses outsourcing? Survey part 4.

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Over the last two days I have reported the findings of a survey looking at the IT services plans of businesses in Europe and North America. This survey was compiled by TechTarget, which is Computer weekly's parent company.

Part one looked at how IT services budgets will change next year. See it here.

Part two revealed what the drivers for I service budget increases and decreases are. See it here. 

Part three revealed the main influences on supplier selection in Europe. See it here.

Today in part four, I can reveal which technologies European businesses are planning to outsource. Next week technology by technology I will report which suppliers are being chosen.

See table below for results.

Does your organization plan to use outside services to aid in any of the following in the next 24 months. (select all that apply)  
   
Network / Wide Area Network / Unified Communications installation, maintenance, upgrade. 32.90%
Storage / Disaster Recovery / Backup installation, upgrade 37.20%
Server installation, upgrade, or services 30.70%
Enterprise Application installation upgrade or customization services (ERP, CRM, Email) 27.00%
Compliance / IT Security related services 20.40%
Data Center Facility Design / Redesign 20.40%
Asset Management / License Management 8.00%
Server Virtualization 25.60%
Desktop Virtualization 16.80%
Network Virtualization 11.00%
Cloud Computing 29.20%
Business Process Outsourcing 8.80%
None of the above 20.40%
Other 1.50%

Controversial Barnet Council outsourcing gathers pace

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News today that Barnet Council has named Capita as its preferred bidder to provide back offices services, including IT, as part of a £1bn contract is the latest development t in a very controversial project.

See this article I wrote.


Barnet One, as the overall outsourcing strategy is known will see the council spend £1bn on a plethora of outsourcing services.

The back office deal, which Capita looks set to take on, is worth a whopping £320m over 10 year and includes HR and payroll as well as IT.

The controversy has seen a confidence vote over the leadership, a film made about it and hundreds of headlines.

Cornwall Council has a controversial outsourcing plan of its own, which since the leader lost a confidence vote has been put on Ice. Barnet's leader survived his and the project rolls on.

I had a conversation with the leader of the Labour opposition in Barnet. Councillor Alison Moore says that later this month a council committee will run a rule over the contact. She said the promises in terms of savings and performance improvements will be looked at closely. Many councilors worry that if the contract fails it will be the citizens that pay the bill. Councillors are also concerned about the number of jobs being outsourced.

She said in a statement: "This is a huge contract and we will only know if this risky gamble pays off after the council signs a contract for at least 10 years, which effectively means that services will be tied-in for the next two or even three electoral cycles. Councillors of all political parties will be rightly concerned about how they will be able to continue to represent their constituents and ensure that services are efficiently and effectively delivered for all residents.

There is no guarantee that this contract will make savings or deliver better services, and we know there are other places where this has gone disastrously wrong and where councils have had to bring those services back in house at great cost to the council tax payer.
The loss of 200 jobs from the borough is yet another blow to the local economy which we know is already struggling, as well as a personal tragedy for those staff affected who may lose their jobs.

The business case has not been properly made and there has been very little scrutiny allowed of the business plan - If this contract does not deliver it could end up causing real misery for local people."


French banking giant SocGen could be outsourcing 400 back office roles to Accenture

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According to Reuters French Bank SocGen is planning to transfer 400 back office roles to Accenture.

See the article here.

Bank outsourcing back office jobs might not seem particularly interesting or surprising story. Banks, particularly in the UK outsource heavily, but in France it will probably stir up a bit of industrial relations trouble.

Staff unions at SocGen have already called for a strike on January 8 in protest against the threat of job cuts and salary freezes at the bank.

I am interested in hearing peoples' views about just how much more can be outsourced at UK banks? If you have any thoughts please leave a comment as I am planning to write an article on the subject.

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.

See an exclusive extract of this year's KPMG UK IT Service Provider Performance Study.

What do you look for in your IT services provider? Survey part three.

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Over the last two days I have reported the findings of a survey looking at the IT services plans of businesses in Europe and North America.

Part one looked at how IT services budgets will change next year. See it here.

Part two revealed what the drivers for I service budget increases and decreases are. See it here.

Today in part three, I can reveal the main influences on supplier selection in Europe.

Unsurprisingly price is one of the most important factors with 62.8% of respondents putting it down as an influence on supplier choice. But the biggest influence, with 71.5% selecting it is deep expertise in the technology or application. see table for more.

In North America the results were very similar.

When selecting an IT Service Provider for your firm, which are the most important properties for that firm to have? (select up to 3 responses)  
   
Price 62.80%
Vendor has deep expertise in the technology or application 71.50%
Vendor with whom we already have an existing relationship 32.90%
Top Tier Provider with a global reputation 14.60%
Local / Lives in my community 11.00%
Independent - not from the hardware or software vendor 3.70%
Is authorized and / or certified by hardware vendor to support or implement product. 24.80%
Is well known / recognized in my firm's industry 17.50%
Is the vendor that sold us the product being serviced 3.70%
Other 2.20%

How will 4G affect IT outsourcing?

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The recently launch of 4G service from mobile company EE  has got consumers excited, especially some of my colleagues at Computer Weekly. But businesses will also be looking  to their IT departments and suppliers to see how 4G can help them. Sam Kingston, UK head at IT services firm T-Systems wrote this guest blog.

4G for business

By Sam KingstonSam Kingston T-Systems.JPG

"Speed is the parameter which most people identify as the label for 4G but to understand the impact on the outsourcing landscape requires us to take a more holistic view on technology and consider the impacts on us as consumers or workers.

With 4G offering enough data bandwidth to really compete with Wi-Fi, enterprises can realistically consider making major business applications available, on the move.

If the bandwidth/speeds live up to the hype, then business users should be able to work in the same way as they would in the office.  Remote software distribution, back-up and richer client applications that use more data would be much more responsive than previously, nudging uptake further into the core of enterprise operations.

Add to this fact the popularity of tablets as a productivity tool of choice and you can see a whole new strategy for corporates opening up. On the back of 4G they will increasingly look to create a virtual application environment in place of a virtual desk infrastructure.  Application virtualisation, in which the apps and their data stays in the cloud will be the essential element application vendors need to provide in order to ensure their availability is truly seamless across any device.  Just as we expect as consumers to choose where we access our data from, as employees we demand the ability to choose whether to lug our laptop through airport security one last time, or instead pack no more than the lightest smart device.   

Aside from the many benefits of being able to mobilise the workforce, access to enterprise applications on the move from non-pc devices could actually provide greater security of data. Without an opportunity to download and lose information, a large portion of data security breaches would be avoided.  Corporate anxieties about the security of the network itself are still a potential show-stopper nonetheless and an understanding of how to integrate 4G into the corporate security infrastructure remains a priority.  CTOs must decide what can travel outside and what needs to remain behind more traditional 'walls'.

Cost, of course, is the second great hurdle. Data packages and tariffs need to reflect the massive increase in consumption otherwise consumers as well as corporates simply won't be willing to pay the price to view their content portfolio.  The CIO needs a single cost ceiling to be in place in order to contain all roaming users. In turn, this demands that network coverage becomes truly ubiquitous across the UK. The same is true for the international corporate user.  As it becomes easier to use cloud based apps in the enterprise, pressure will be put on mobile operators to provide realistic 4G data roaming tariffs so the CIO is not forced to restrict usage to home countries only.

Consumerisation is already influencing the traditionally conservative enterprise application environment, for example the increasing 'like' and 'follow' functionality introduced in the latest versions of corporate collaboration software.  If 4G delivers well for us 'outside' however, CIOs will soon be challenged to bring it indoors and extend its use into offices too. Today's offices are predominantly still fixed wired and /or have a slower speed Wi-Fi enabled network which does tend to restrict the flexibility of employees from collaborating.  However with 4G bandwidth offering such expanded capacity, many organisations could leapfrog Wi-Fi altogether and by simply using 4G, contemplate the possibility of even using this to replace their wired connections. Are telecom providers willing to put in place a suitable SLA for coverage and availability and change their infrastructure investment plans to ensure that 'corporate locations' are prioritised to enjoy good quality signals?  Perhaps in time companies will adopt a hybrid model and use the public 4G networks as a primary ubiquitous access to apps, but provide a lower cost in-house wireless solution to provide resilience if the public network fails or degrades.

Without a doubt, 4G opens up the possibility of corporate environments adopting more devices which act as portholes into the corporate cloud that houses their data.

4G is the foundation of realising the potential of having a connected work and life!"


Cloud finally beginning to shake outsourcing industry

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Interesting news this week from Information Services Group (ISG) this week is that cloud computing is beginning to change the IT outsourcing sector. It was always inevitable that cloud computing would become a feature of more contracts and, according to ISG there were three times as many deals with a cloud component in 2012 than in  2010.

It found that there were 110 deals globally included cloud in 2010, 220 in 2011 and there will be 300 in 2012. 

300 deals globally might not seem a lot but these are big deals. ISG's TPI index tracks deals worth millions. The research found that software as a service is the most common cloud based service being taken on. ISG also revealed that half of service providers say that cloud computing is a feature of at least 25% of their pipeline opportunities

One supplier that is seeing more of its IT suppliers business involving the cloud is Infosys. BG Srinivas, who heads global financial services at the company, said the recession has driven customers to look for more flexible ways of paying for services. As a result there is interest from customers in Infosys platforms as service. Infosys has a range of Edge products. These are platforms, delivered via a private cloud. They are designed as a service for a particular part of a business.

Computer Weekly/TechTarget research into cloud services that 20.4% of European businesses surveyed have used third parties to support cloud implementations and only 10% of North American businesses. Next year looks set to see an increase with 29.2% of European businesses plan to use third parties to supply cloud services compared to 18% in North America.

Is it time for IT contractors to get permanent jobs?

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Writing about IT and having a beat that includes IT outsourcing puts me in contact with lots of businesses that rely on outside support for their IT.

As it is the PCG's National Freelance Day I thought I would put together a blog about the challenges facing freelancers.

Thousands of IT contractors support our government and financial institutions.

Nationwide cuts contractors

I recently spoke to Nationwide's COO Tony Prestedge, who told me that contractors are perhaps the most talented and knowledgeable IT professionals out there.

Despite this high praise Nationwide, which used to hire over 200 contractors virtually constantly, has replaced them with IT service providers as part of a £1bn IT transformation project.

Also the supplier builds up expertise so trains new hires itself rather than internal staff doing it. When contractors leave they take specific skills and knowledge with them. When new one come in they have to be trained again.

So despite Nationwide's COO believing IT contractors are some of the best resources available and the company consuming IT skills heavily at the moment it cut out contractors in favour of suppliers with the internal staff becoming integrators.

General Motors goes in-house

The next recent event that could impact IT contractors is General Motors' decision to take IT back in-house. Obviously this affects IT services firms more, particularly main supplier HP, but if other companies follow GM's example IT contractors could lose out.

GM sees the future of IT in-house so if other big businesses follow its example there could be less work for contractors.

GM CIO Randy Mott said: "Transforming our internal IT operations will give us the resources, tools and flexibility we need to provide better services and products to our global GM customers."

Offshore threat


And nobody can forget the offshore threat. IT services forms are substantially undercutting UK IT contractors through lower cost labour from offshore locations. UK IT contractors are even being forced to train overseas workers to take their jobs.

Shrinking public sector opportunity


Then in the UK public sector there could be less contracting as the government faces an exodus, as new guidelines will force freelancers earning more than £220 a day onto departmental payrolls.  

But perhaps more of a threat to contractors and possibly a reason for them to seek jobs with IT services providers is the move by businesses to have more strategic relationships with suppliers. IT departments inside big business are becoming smaller and more focused on integrating multiple suppliers.

So what next for IT contractors?

What is driving IT services spending in 2013? Survey part two.

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Yesterday I reported the findings of a survey looking at the IT services plans of businesses in Europe and North America. See part one here.

Today in part two, I am revealing the findings of the survey concerning the factors that are deriving IT services spending in the Europe. While 32% said budgets for IT services would not change this year. About 30% said they are increasing IT services budgets while the biggest grout over 37% said they are decreasing the budgets.

What will your IT services budgets be like next year. Europe (137 respondents).




Most those that reduced budgets pointed to economic conditions while the reasons for increasing IT services budgets was more of a mixed bag as you can see below.

Why did you decrease IT services budget?

19.7% said it is to aligning expenditures with economic projection
5.1% said there are no new projects or they  have postponed or delayed projects
2.2% said they have hired staff with skills, so no need for IT Services
2.9% gave another reason

Why did you increase IT services budget?

12.4% because there are new or significantly updated application(s) being rolled out
5.1%  said they need outside expertise they do not currently have
8.8% said they are doing server or infrastructure refresh
7.3% said it is cloud computing or virtualisation related
3.7% gave another reason

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Is HP stupid or does nobody love it? Did they just see it coming.

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The latest chapter in HP's recent history sees it reduce the value of its Automony acquisition by $8.8bn. HP  paid $11.7bn for the company back in August 2011.

At the time HP said the acquisition positioned it as a leader in the large and growing enterprise information management space.

But now it says it was wilfully misled by 'former' members of Autonomy's management team in the lead up to its acquisition. Serious stuff.

Let's not forget HP wrote off a similar amount as a result to the failure of its EDS acquisition to perform. It acquired EDS in 2008 for $13.9bn.

And don't forget in 2010 HP paid $1.2bn for smartphone maker Palm. About a year later it discontinued the product line.

One source told me that these three bad acquisitions tell a story. "HP is either stupid or unloved."

What do you think?

IT sourcing models are shifting: A Deloitte perspective.

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From the number of renegotiations going on it is clear that businesses are changing how they buy IT service. In this guest blog Bhupinder Sandhu from Deloitte explores changing sourcing models.

IT sourcing is no longer as simple as A, B or C; but it need not be overly complex.

By Bhupinder Sandhu, manager in Deloitte's Technology Consulting practice.Bhupinder_Sandhu.jpg

"Are we witnessing the death of the 'mega-deal'? Is it going to get even tougher for the traditional one-stop-shop IT Outsourcing (ITO) houses? Why are so many organisations re-thinking traditional sourcing models all at the same time?

Right now many companies are fundamentally changing their sourcing models to develop a smarter approach that will maximise the benefits of competition.  Some of our clients have recently moved from a single supplier managed service to a layered approach with a Service Integrator, managing a small cluster of vendors. Many companies are moving toward multi-sourced models with shorter contract durations, increased flexibility and outcome focussed commercial models. Others are transitioning from best of breed supplier mixes toward "Tower-Sourcing"; "Layered-Source" or "Guardian Vendor" approaches.

Recent sourcing trends have spawned fashionable titles including "Competitive Ecosystems", "Smart-sourcing"; "Right-Sourcing" and even "Back-Sourcing". Whatever the fad, like it or not, outsourcing continues to thrive, albeit through an increasingly complex and fragmented marketplace.
 
Dave Tansley, head of Technology Effectiveness at Deloitte says; "Given the rate of technological change, the traditional 10-year monolithic ITO deals are simply unsustainable. Our clients are looking at alternate mechanisms to deliver cost savings, performance improvement and innovation. However, moving toward multi-sourced models carries an additional integration risk and therefore requires careful planning and execution."

The death of monogamy


At the time, it all made sense. The single source mega-deal offered competitive advantage through huge economies of scale, operational simplicity and stability. It allowed companies to focus on their core business and hand over complicated IT services to 'one-stop-shops' often transferring risk, accountability and even redundant staff through TUPE arrangements. The model was well suited to end-to-end providers.  These vendors promised reliability, resilience and availability alongside performance improvements and cost savings in return for long term stable revenues.

Some cynics may argue that the real driver of the change is the political motivations and short-term ambitions of IT leaders at the time. Over time, however, the alignment between the business and IT became unworkable. Contracts themselves became increasingly irrelevant leading to a breakdown of trust and increasingly tense relationships. Macroeconomic factors including technology advancement, extended delivery models and the reducing cost of electronics made long term ITO deals more and more out of touch. And now? Organisations don't want to make the same mistake. The quest to find the holy grail of an optimised IT supply chain continues.

Is it tough times for the big vendors?


The rate of technology change is a clear driving force. Virtualisation, cloud computing and innovations in mobility are just some examples that are fuelling disruption and making long term contracts unsustainable. This could be because some technology giants have struggled to maintain the specialist skills required to deal with rapid obsolescence. On the other hand, traditional System Integrator (SI) outfits are reaping the benefits of connecting up outsource deals taking on the management and risk of a tiered supply chain. Indeed the marketplace is experiencing somewhat of a convergence as global outsourcers are also scrambling to offer an SI proposition alongside their wholesale outsourcing offerings.
 
While the current economic environment is making the allure of cost reduction through outsourcing attractive, the same conditions are making targeted acquisitions for huge vendors increasingly difficult in austere times.

The agility offered by smaller organisations and the reduce risk of being acquired over recent years has enabled an environment for multi-sourcing to continue at pace.

Choosing a sourcing approach


"Before you bring in third parties to run parts of your business, it is worth pausing to consider the risks," comments Tansley. "Some outsourcing deals fail dramatically and publicly. Rather more are quietly set aside as one (or both) parties exit and even larger number limp on, failing to deliver quite the benefits that were expected. There are many success stories though - businesses that have used outsourcing to achieve dramatic savings, shed themselves of expensive assets or built the capacity to grow in a way that would not have been possible using in-house resources."

Once you've made the decision to outsource at least part of your business you need to consider which model is the best fit. You will need to prioritise and align you new sourcing approach to your organisational objectives and then decide the extent to which you mono or multi-source. Businesses need to remember that extreme multi-sourcing has its own issues as the benefits of a best of breed model are often outweighed by the additional vendor management overhead, increased integration risk and simply getting vendors to work together.

Making the transition requires a structured approach and deep commercial skill set to ensure that both the incumbent provider is managed out effectively and there is minimal disruption to end users and customers. Finally, sustaining the optimised sourcing model and tracking the benefits identified is by no means a simple task. This requires a new type of organisation that has the skills to effectively manage vendor relationships and tweak the sourcing model as the market shifts and technology changes.

The future


So what do these statistics and opinions mean?

For buyers;

Talent War - Procurement functions will need to have the right skill-set along with senior stakeholder accountability enabling stronger alignment of the buying activity with the organisations strategic objectives. Experienced and qualified sourcing staff will be required not only in the early stages of contract development, but also in the longer term vendor relationship management aspects.

Mature Sourcing Functions - The focus needs to be on preventing the costly pendulum swing from one sourcing extreme to another every few years. Instead, buyers should develop a sustainable sourcing strategy with regular tweaking of their supply chain as technology and other environmental factors disrupt the equilibrium.

Focus on Whole Life Cost - It will be important to remember the balance between scale economies derived from sole sourcing vs. the additional overhead costs of managing multiple suppliers.

Governance - The management of suppliers (in-particular when they have to work together) will be of paramount importance to any successful transition.

For suppliers;

Cooperation (even with competitors) - Buyers will be less tolerant of 'blame games' and will demand suppliers work in a cooperative manor for the benefit of the whole ecosystem. System Integrators or Guardian Vendors will leverage more power and they will also need expert commercial capabilities to ensure outcomes for their clients can be delivered throughout the supply chain.

Death of the Monoliths - 'One stop shops' will have to differentiate, as the perceived benefits of competition will outweigh the scale economies of sole sourcing, this will force increased alliances and collaboration and threaten M&A activity. Large suppliers must be careful of positioning themselves with too much breadth given the propensity (and mandatory requirement in some sectors) for competition.

Mixed news for SMEs - Although multi-sourcing in general will be positive for the SME market, smaller organisations will increasingly have relationships with 'Guardian Vendor' rather than direct buyer relationships (for larger buyers). This will force SMEs to further differentiate their offerings.

Outsourcing and multi-sourcing in particular is increasing. Through our clients, we have found that this means there will be a greater requirement for expert procurement professionals and procurement advisory services, along with improving repeatability and standardisation in the contracting process. Having a strong procurement skill-set at your disposal to drive a sourcing strategy and build and maintain good supplier relations, in an environment where your suppliers may be working hand-in-hand, will be the key to managing your transition to the model that best compliments your IT and business strategy."


market trends.png
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Europe and US IT services spending 2013 revealed. Part one: changing budgets.

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As part of Computer Weekly this blog has access to research carried out by our parent company Techtarget. The research covers every technology area and there is some really good material about what CIOs and IT leaders are investing their budgets on.

I have just received the results of a survey about IT services so I am going to reveal the results, which are extensive, in parts. I have the results of the same survey carried out in Europe and North America.

Here in Part I, can reveal how IT services budgets are expected to change next year.

In Europe 27.7% said IT services budgets will increase and 27.8% said they will decrease, while in North America 32% said budgets will increase and 18.1% said they will decrease.. In Europe 39.4% of respondents said that budgets will stay the same compared to 43.6% in North America.

The remainder in both cases, about 5% in Europe and just over 6% in North America have no plans to use outside services.

Graph 1: What will your IT services budgets be like next year. Europe (137 respondents).




Graph 2: What will your IT services budgets be like next year. North America (172 respondents).



Tomorrow I will report the survey findings about what is driving IT services spending.





Nationwide's transformation into a highly outsourced IT shop

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I met up with Tony Prestedge yesterday. He is COO at Nationwide. I was there to ask him all about the building society's 5 year £1bnIT transformation project, which I will write about, but thought I would use the blog to detail its IT outsourcing journey.

It has enabled itself to transform from a user old ailing in-house technology to a company leading the way in moving to off-the shelf software and a largely outsourced and offshored IT operation.

In 2008 Nationwide did not outsource any IT. Today it works with Accenture, TCS, IBM, Computacenter and BT. The company has retained control of its IT design but has used third parties to enable it to transform while the business runs as usual.

The building society began an IT transformation in 2008 after years of underinvestment. As well as moving to SAP software in the back office and Microsoft for customer facing applications the company has transformed into a highly outsourced IT shop.

Nationwide even has 700 people in India in Pune, Dehli and Bangalore. 60% of IT development and support will be offshore eventually,

What is more the company has not made major redundancies in its IT department because people have left and the company has expanded its IT operation. For example before 2008 it sent £150m on IT but for the last four years it has spent between £420m and £500m each year.

It has also reduced the impact on permanent staff by no longer using large numbers of contractors. "We have not reduced staff because the transformation agenda is so significant. We have seen a reduction in contractors that have been replaced by outsourcimng partners."Prestedge says that Nationwide used to have about 200 IT contractors permanently. He says that contractors are some of the most skilled IT professionals available but when they leave they take knowledge with them.

Its outsourcing line-up is full of the usual suspects. Indian offshore service provider TCS provides legacy application development and support, IBM develops and supports applications in its customer facing channels and Accenture provides support for the company's SAP core banking software. Meanwhile Computacenter and BT, which provide desktop services and communications respectively, were Nationwide's first outsourcing partners.

Agile software development demand could put nearshore IT in the spotlight

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The Millennium bug is always credited with putting offshore IT services providers in India on the world stage. Big businesses needed lots of software development done quickly in preparation for Y2K when they feared computer systems would crash when the date change to 00.

This propelled Indian software firms onto the world stage and they haven't looked back.  Today there is an increasing interest in nearshore locations such as in Eastern Europe. These regions offer well educated software development at a lower cost and they are not that far away geographically or culturally.

From meetings I have had with suppliers in eastern Europe as well as feedback from their customers it seems that they are seen as a trusted source for agile software development.

Demand for agile software development skills is growing fast.  According to research from CWJobs that I recently wrote about, it will soon be one of the most in demand software skills. (see table below for CWJobs' figures.)

But is insourcing, outsourcing, offshoring or nearshoring the best option for businesses hoping to take advantage of the software development methodology.

Agile software development requires development teams and users communicating all the time.

The flexibility and constant testing makes it a challenge to succeed using agile software development techniques if groups of people are not in close contact during work time. You can't really do a scrum over thousands of miles.

This introduces major challenges for businesses outsourcing never mind offshoring.

I met a company last year based in Romania and Moldova. Endava has customers including Cadbury and Endsleigh Insurance who use it in part because of its agile software development capability. Nearshore locations are less costly than onshore services but are often seen as less risky than offshore.

Because central and eastern Europe are close to the UK both geographically and culturally Agile software techniques are easier.

One source said that distance and cultural differences can be a problem in agile development projects. "I advised on an agile software development project that went badly wrong. The customer was UK-based, and the supplier was in India. It proved to be very difficult to use agile principles when there were both geographical and cultural differences."

But companies are reporting good results from nearshore locations. .Jason Collins, IT development centre manager at Endsleigh, said the internal team stretched when the company is preparing for the new intake of university students every year. "Agile development is critical because Endava and Endsleigh had to be in constant contact during the project, so requirements and changes could be immediately communicated and deadlines met," he added.

See CWJobs's latest figures on software jobs advertised.

IT permanent software skills advertised: Q3 2008-Q3 2012

SoftwareQ3 2012Q3 2011Q3 2010Q3 2009Q3 2008
SQL20,96020,04618,27917,28425,402
C14,20115,13115,04312,87118,961
C#13,78012,78311,3618,81715,098
.Net12,38811,64810,3228,03714,537
Java9,8568,7587,2376,14012,289
SQL Server9,0798,5238,4147,81713,344
ASP8,3347,8917,7776,75411,143
Javascript6,9486,5825,3655,3436,807
HTML6,5706,2285,2685,9447,815
Agile6,4415,7673,283N/AN/A

London Stock Exchange turns IT oustourcing on its head and wins

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Don't pay your outsourcer for services or partner them. If you can afford to, just buy them and build an offshore development team, cut costs and increase revenue in one fell swoop.

One of my first posts on this blog in 2009 was about outsourcing being turned inside-out by the London Stock Exchange. inside outsourcing.PNG

Big businesses buying IT suppliers is not new, in 1984 General Motors bought EDS, but the success of the London Stock Exchange's acquisition of trading software supplier MillenniumIT is a recent success story.

Back in 2009 I broke the news that the London Stock Exchange was dumping its .Net based trading system, Tradelect, and replacing it with one from Sri-Lanka bases treading software supplier MillenniumIT.

In fact the LSE acquired the entire company. This way it retained control of the development of the trading platform which is critical to the exchange's business. It also gave it hundreds of developers in Sri-Lanka, an additional revenue stream through sales to other trading venues.
 
In fact the clout that the London Stock Exchange gave Millennium IT both financially and reputation ally actually increased sales. The stock exchange announced today that in the first 6 months of this year sales of MillenniumIT software grew 19% to £11.4m.

And additional revenue is unimportant compared to how the actual technology has improved the performance of the London Stock Exchange. The exchange completes trades in about 100 microseconds on average today compared to about 3 milliseconds in 2009.
What's more it is no longer blighted by crashes.

Good business you might say when you consider MillenniumIT cost £18m and provides revenue compared to the previous system where the exchange paid Accenture £20m each year to maintain.

Will this be a trend? General Motors recently decided to take IT back in-house and take on thousands of staff from its current services partner HP

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Are Cornwall council's outsourcing supporters using undemocratic tactics?

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I have written quite a few blogs and news stories about the controversy surrounding a proposed outsourcing contract at Cornwall council.  The councils CEO and its cabinet wanted to go forward with a plan to outsource libraries, benefits, payroll and IT services  to either BT or CSC.

Speaking to Computer Weekly last month, Cornwall councillor Rob Nolan said he and other councillors were concerned that such a fundamental change was not being decided by full council, but only in cabinet.

The outsourcing controversy led to Cornwall Council axing council leader Alec Robertson after he lost a vote of confidence. Robertson was replaced by his former deputy, who had already resigned over the outsourcing issue.

CSC also pulled out of the bidding leaving BT as the only candidate to run the services.
The plan was put on hold pending further investigation debate.

Now Mark Ballard has revealed growing concerns about some of the tactics the BT proposal's backers are using to influence the debate. Read his article here.

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Gartner has spoken and IT spending must increase, barring disaster

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Gartner announced its Enterprise IT spending prediction for 2013. It seems after a really tough year there will be an increase in IT budgets next year.

This could even be sustained if senior business executives have their way with technologies such as social media, mobile, analytics and the cloud.

Gartner reckons that the amount spent globally by businesses next year will increase 2.5% next year reaching $2.679tn.

Well that is of course if there is not an additional economic shock says Gartner.

I think the interesting part is that some of the sustained growth in spending will come in the areas of social media, mobile, analytics and the cloud, labeled the SMAC stack by one supplier. Senior executives in the business are requesting this type of technology.

Suppliers have been touting these areas for some time but it now seems that those that count, the CIOs, are also going for it and they have the backing of the CEOs. These technologies have crossed the chasm between the consumer and business sectors.
Last month I attended the Computer Weekly CW500 Cub and listed to two presentations from IT leaders about their use of technologies such as mobile, cloud and social media. They were Chris Hewertson, the CIO of Colt Telecom and BA's head of Service Transformation Glenn Morgan.

Hewertson, CIO at Colt, talked about the company's bring your own device programme (BYOD) and the challenges associated with introducing that. This programme includes introducing Wi-Fi, enabling staff to use any device they want and Colt paying for the support.

He said the company had focussed its investment on the technology that serves its customers and is now investing in technology to support its own operation.

Morgan talked about the criticality of mobile to BA and its customers. He talked about mobile applications for customers, such as check in and choosing where to sit as well as providing staff with the devices they want.

According to Forrester there will be a huge challenge integrating mobile working into the back office systems. This could lead spending on IT services providers as businesses look for the right skills to do this. See this article I wrote.

Inside outsourcing interview: HCL discusses targeting potential customers unhappy with current suppliers and having a DNA like IBM.

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I caught up with Bindi Bhullar yesterday. He is a director in the UK at Indian IT services provider HCL.

HCL has been one of the fastest growing of a fast growing bunch of suppliers based in India over recent years so it was good to catch up.

Bindi told me about HCL's strategy to offer a wide range of services. It offers services around application development and maintenance, infrastructure, BPO and a little consultancy.
This is interesting given what Jean Louis Bravard at Burnt-Oak Partners told me last week. He talked about how IT suppliers are attempting to create heterogeneous stacks of services including BPO, applications and infrastructure as the cloud increases demand for joined up services.

See this article: IT suppliers are attempting to create heterogeneous stacks of services.

Bindi said that a few years ago while some suppliers were focusing on areas of specialisation HCL decided to have a broad stack of services.

As a result today, although much smaller in scale. HCL's DNA is more like that of a big global players like IBM, CSC and Accenture, he says. But HCL does not want to be too closely associated with these companies. "We push ourselves as the alternative player in the market," he says. "There is a lot of dissatisfaction with the established players and  businesses are more open to talking to companies like HCL."

This is the reason why in Europe HCL it is targeting on the re-bid opportunities. There are lots of contracts coming up for renegotiation as I recently wrote, and HCL is going for them.

Bindi says HCL is winning a lot of these deals because the big established players cannot compete with its flexibility due to their rigid structures. HCL can agree contracts that are highly bespoke in terms of the way to pay for the service and the way in which it is delivered.

And you cannot have a meeting with HCL without mention of its charismatic leader Vineet Nayar, famous for his strategy that put employees first and customers second, and of course his four letter word rant on Radio 4.

See this article for more on the strategy to put employees before customers. HCL's Employees First Customer Second is more than shallow marketing slogan.

But if you want to hear about it from the man himself (pictured on right below) here is a recent Ideas Exchange on the BBC, which puts global CEOs in a room together to share ideas. This addition sees Nayar talking to Carlos Ghosn, the CEO of Renault-Nissan.

Would you offshore your IT to China?

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I blogged earlier in the week about how Indian IT services association Nasscom expects software and services export growth for this year as a result of European and US customers holding back spending. It still expects double digit growth, but only just.

It seems the Chinese IT services sectoris also feeling the pinch. According to this website two of China's biggest IT service providers are merging amid fierce competition and harsh market conditions.

HiSoft Technology International and VanceInfo Technologies, both US listed, are merging to form one new company, Pactera Technology International.

I have met VanceInfo as well as another China based service provider known as Bleum. These companies are managed from the US but have access to a massive computer science worker resource. China has 350,000 computer science graduates every year and they cost less than their equivalents in India.

Professor ILan Oshri at Loughborough School of Business said unlike most Indian IT vendors that have been growing organically by gradually adding scale and areas of specialities, Chinese vendors grow through acquisitions and grow fast.

"This growth strategy is going to challenge Chinese vendors but also may offer them opportunities to eventually compete with Indian vendors. The key challenge for a company such as Pactera following this merger is to ensure synergies between their various businesses currently in-house such as IT, BPO and some KPO. Much of that depends on the re-organisation of the new venture that on the one hand needs greater diversity in the boardroom but at the same time greater alignment between the different businesses, so Pectera can position itself as an outsourcing powerhouse at the global level. The fast growth that Pectera has achieved in recent years is surely signalling to the outsourcing industry that the Chinese vendor landscape is changing, moving one step closer to become a serious contender to some Indian vendors."

Please fill in the poll at the bottom of this post, but before that read the below posts I have done about China offshoring,

Is China ready for frontline offshore services?

Is China a serious alternative to India for software development?

Indian CEO warns of business threat from China

Can China catch India without a Y2K?

China needs a Y2K to overtake India

Michael McCourt of the China-Britain Business Council in Shanghai describes the opportunities for UK IT companies in China

Xerox announces 2,500 job cuts with services arm taking biggest hit

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As exclusively revealed on this blog last month Xerox is cutting its workforce.

A US website has reported that Xerox officials have confoirmed there will be about 2,500, cuts but does nt reveal any of the finer details apart from that the services arm will take the biggest hit.

This blog has already revealed a bit more. Computer Weekly understands the European services arm of Xerox is letting sales and pre sales teams go as well as the leadership in a bid to save $18m to contribute to an overall Xerox target of reducing costs by hundreds of millions of dollars.

A source that knows the situation said that Xerox is not going for growth in its European services business but wants to protect the business it already has.

Xerox's European services business includes IT outsourcing, financial services BPO and HR outsourcing.

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UK government to continue to outsource services as its kicks off second half

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Often when suppliers are called into the Cabinet Office it means bad news.

According to this article, Paul Pindar who is CEO of back office service provider Capita, had a nice experience when he last visited.

According to Reuters, this is what he had to say after meeting with the Cabinet Office. "One of the clear themes that came through was that we're now in the second half of the football match and the activity needs to kick off again."

Could the second half see the introduction of the new Indian winger? You know the one. Young, fast and still on a low salary.

Pindar said that the MoJ, MoD and local authorities are showing signs of being the best opportunities.

I am curious about what the government will outsource next in terms of IT? The Universal Credit looks like it might be turning into a bit of a disaster and there is controversy at local authorities that are planning to outsource, such as Cornwall council.

 

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What value can analytics provide BPO?

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I recently wrote a feature about how BPO was changing and one of the factors that is making BPO more valuable is the ability to mine and analyses the massive volumes of data collected.

Businesses armed with this data translated into business metrics can use it strategically.

Accenture sent me some detail about this. The service giant said BPO providers and their clients are sitting on goldmines of data.

Accenture said the ability to tap into and analyse data about the functions and processes being outsourced can more predictably drive valuable business outcomes. According to its research,  42% of those found to be high performers - that get full business value from their BPO relationships --said analytics provided by the service provider is an important component of the BPO relationship, compared to just 28% of typical performers. 
 
What value can analytics provide?

Accenture says,

"Applying analytics capabilities to large volumes of data can provide a single source for consistent, high-quality data about the performance of a process or function.  This becomes a base layer of transactional data and information that organisations can work with faster and more efficiently - using analytics to deliver improvements in everything from finance to customer service to manufacturing.
 
"By analysing the performance of a process end to end, an outsourcing provider can discover where inefficiencies and risks lie and then work to drive time and waste out of the process and standardise wherever possible. Embedding analytics within the processes themselves can help make it easier to look beyond the immediate task or decision to understand the big picture.
 
"Analytics can generate additional insights by tracking data across different parts of the organisation. The integration of data sets from separate functions can optimise results or help balance apparently competing or contradictory objectives.
 
"BPO analytics can also offer distinctive value in helping companies mine and manage data - from the front office, the back office, or both--to generate innovations within a given industry or client relationship, or to improve time to market as a means for increasing revenue."

Even Indian IT firms feel the economic pinch - sign of how hard things are?

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Nasscom, the association represents India's IT services industry, has had to reign in its software and services sales growth expectations this year as a result of European and US customers holding back spending.

The fact that companies offering low cost services are reducing their expectations in the current economic climate is a reflection about how bad things are.

Nasscom had previously predicted growth in software and services exports of between 11% and 14%. It now expect it to be around 11%. "For 2013, a year marked by significantly varied trends, the industry is expected to meet the lower-end of its growth guidance and at least achieve a double-digit growth," said Nasscom. Software and services revenues increases 14.9% in 2012 compared to 2011.


The big Indian suppliers, known as the SWITCH group (Satyam, Wipro, Infosys, TCS, Cognizant and HCL) will have to make do with barely growing by a double digit. With major cost cutting exercises in businesses and the public sector the low cost offerings from these suppliers is attractive, but things are so bad even the Indian suppliers are downgrading expectations.


I have recently interviewed some of the big Indian forms. They are certainly confident and are investing in broadening their offerings.


See this interview with Infosys last week.

Will the Indian suppliers emerge stronger than ever when the slowdown finally ends?

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Should I outsource my IT onshore, nearshore or offshore?

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Professor Ilan Oshri at Loughborough School of Business has contributed this article to the blog. He recently set up the Centre for Global Sourcing and Services' (CGSS) at the university to do independent research on the trends and practices in global sourcing of IT and business services and to improve sourcing practices.

Here he gives his views on some of the choices facing businesses when outsourcing.


ILAN OSHRI.jpgOn-Shore, Nearshore or Offshore - Are You Sure?

By professor Ilan Oshri at Loughborough School of Business


"In 2011 the market for information technology (IT) outsourcing worldwide was reported to be $270 billion and for business process outsourcing (BPO), $165 billion. Recent estimates predict that between 2012 and 2014, ITO growth will be 5 to 8 per cent per annum and BPO growth 8 to 12 per cent per annum, with the BPO market size worldwide overtaking the ITO market.

Based on my research from 2011, over 50% of Fortune 250 global firms have offshored work by setting up their own subsidiaries to provide IT and business services from remote locations. And latest KPMG study indicated that since late 2011 investments in shared services have exceeded those made toward 3rd party outsourcing. No doubt that we are witnessing one of the most significant transformations in business in modern times: the disaggregation of the firm's value chain in particular in the area of information technology and business processes. What does this mean for many organisations?


Put simply (or maybe not): organisations can either outsource to a local vendor (domestic outsourcing), or to a near-shore vendor or perhaps to an offshore vendor. But firms can also set-up their own captive centres in a near-shore or an offshore location. And firms can also establish their captives as shared services by consolidating several functions into one centre. Confused? So are the many firms that are considering to embark on outsourcing or offshoring. Their favourite question has been: where and how I start my global sourcing journey?


Our extensive research into outsourcing and offshoring has attempted to offer some direction. As in any journey the very basic questions are probably the most important ones. Our most favourable question to client firms has always been: why would you like to outsource or offshore and what are you trying to achieve? Quite a few of the firms we have held conversations with about outsourcing have decided to outsource simply because other firms in their industry were doing so. Their strategy was 'if others are cutting costs through outsourcing, we should do so also'. Unfortunately, there are quite a few horror stories about outsourcing projects that have proven us that such a strategy is faulty.

Success in outsourcing is often the result of good preparation on both sides: the client firm and the vendor. Client firms should prepare their IT or business processes for outsourcing by clearly defining their expectations from such partnership while vendors should investigate and realize the client's level of readiness for outsourcing. Short cuts or over-confidence that things will be OK are just recipe for disaster. BskyB and EDS learned the hard way what they should not do in their outsourcing engagements!


The subsequent question is about the client firm's ability to manage vendors. While the potential cost saving is attractive and the promises to benefit from significant innovation made vendors often seem as an offer 'one cannot refuse', in reality much of the client's ability to appropriate value from its vendors depends on the strength of its own sourcing management capabilities. Clients with a thin ability to manage vendors might find themselves struggling to work with a single vendor, let alone trying to follow the current trend in which quite a few client firms put together a team of vendors with the hope to benefit from on-going competition between the vendors. Assuming that the client is capable of managing more than one vendor, the third question that pops to mind is: offshore, near-shore or onshore?


In the current economic climate it would be politically correct to pursue an onshore setting. By contracting with an onshore service provider, client firms keep and sometimes even create jobs in the UK. Such an arrangement might not offer the scale that many vendors developed offshore or even near-shore, allowing them to offer bigger cost savings to their clients. Also, by relying on onshore vendors, client firms might restrict their ability to access talent they are after. And with governments tightening their immigration law, vendors might be struggling to develop a viable business case for operations onshore.


So if not onshore, perhaps near-shore? Contracting with a near-shore vendor is an appealing proposition. Just imagine that your vendor is only an hour flight away, one hour time difference and some of its employees can even relate to your culture (say discuss last night's football match). Cost savings should be more significant than onshore and access to talent that can carry out various IT and business process activities such as programming and call centre operators, is relatively good; however, not as significant as they can be offshore. Also, access to talent is limited in scale in particular in the area of engineering. So what would you do if you have decided to outsource IT maintenance and software development?  Consider Poland as a near-shore location for your IT operations or take the rather well travelled road to India?


If indeed offshoring is the more appealing value proposition for your business, our next question is: are you ready for the ride? Don't get us wrong. Many firms have successfully offshored to India and other Asian, African or South American countries. But embarking on such a journey requires you to realize the challenges you will facing and devise a plan to mitigate them, in most cases in a contingent manner. Some of the challenges are because of cultural differences while others are more operational. But all of them require attention as distance, time zone and culture differences will be posing significant challenges to you. If you find it hard to believe, ask Toad Anderson from the movie 'Outsourced'.   

India won't miss UK aid because intra company transfers are as charitable as can be.

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The UK will stop donating money to India in 2015. It is hard to believe that the UK still gives India about £200m a year when the country has a space programme.

But when it comes to being charitable to India many believe the UK government's immigration policy, which allows Indian IT firms to undercut UK workers, is more than enough.

India has a massive IT services industry and UK businesses are big customers.

Because these companies can use staff in India on lower salaries as their UK equivalents, it is difficult for UK IT workers to compete. Intra Company Transfers (ICTs) are workers that are brought to the UK from overseas to work on projects. They do not require a visa because the employer has a UK office.

There are rules on how much ICTs should be paid but the figures are set far too low. For example according to government figures an IT director can earn as little as £25,000.  See this blog for more information. The accusation is that because of the ICT loophole UK IT workers are losing their jobs. As a result less tax is being paid and the UK is losing its IT skills pipeline.

And as the public sector looks to operate on a much lower budget the prospect of outsourcing en masse to offshore suppliers becomes ever more possible.

See this for details of the number of ICTs brought to the UK every year between 1997 and 2008. It shows the numbers by occupation and it clearly shows how IT workers, for which there are a few groups, are by far and away the biggest ICT users. The figures also reveal that India accounted for a massive chunk of ICTs in the period. See table below.

Work permits granted between 1997 and 2008 for certain IT roles.

Other IT occupation - 104,070
Computer engineer - 3,720
Computer programmer -  8,610
Software engineer - 62,165
System analyst -  26,800
Total 1,568,235

Of this over 300,000 were Intra Company Transfers and half were IT workers. 

Intra Company Transfers in the UK between 1997 and 2008 by nationality

India -166,410
USA - 61,845
Japan - 20,625
Australia -12,570

Also see this link for lots of b log posts on the subject.

What do you think?

 

 

Are charities and outsourcing suppliers a match made in heaven?

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I was sent some research about how IT departments within charities are focusing more on strategy and as a result are struggling to do their day to day role due to a shortage in resources.

The research from MSM Software of 100 IT managers, at charities, found that 92% believe the It department's role has changed to become more strategic over the last 12 months.

It also found that cash strapped charities have had to let people in the IT departments go. These have been non-strategic role which has left charities with a gaping hole.

So it seems charities and IT service providers are a match made in heaven.

I wonder if suppliers approach there charity customers in a different way to how they work with the private sector?

I know the big service providers walk on eggshells around public sector customers, although they still seem, in many cases, to make a mess of it. Whenever a story is published about money wasted by the government on IT there is a public backlash. People believe that suppliers are cashing in on government and  wasting tax payers money.

I imagine suppliers have to be on their game when it comes to charities. If they mess up there the publicity would not be good.

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IT services firms are being nice to sourcing advisers as they promote heterogeneous stacks

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IT suppliers are attempting to create heterogeneous stacks of services including BPO, applications and infrastructure as the cloud increases demand for joined up services.

I had a quick chat with Jean Louis Bravard today. He is a director at sourcing consultancy Burnt-Oak Partners. He was telling me that is what the suppliers are struggling to build and he said they are trying to be very nice to third party advisers because they want their stacks promoted.

The bad news for most suppliers Bravard does not think they are able to offer heterogeneous stacks. Not yet anyway.

He is pretty close to both suppliers and business so understands both sides. Before Burnt-Oak Partners he was global head of Financial Services at EDS. He also had a long career in financial services, including being CIO at JP Morgan in the early 1990s.

He gave examples of where some suppliers have to up their game. He said TCS for example needs to improve its BPO offering and Wipro its infrastructure services.

There is also an accelerating move into consultancy services from the major IT companies.

If you see what the likes of Infosys are doing it is clear that the big suppliers want to broaden what they offer existing customers and win new ones through investing in different specialities. See this interview with Infosys's global head of financial services.

He talks about Infosys boosting its platform as a service offerings as well as mobile. He also said the company is increasing its consultancy business. Fellow Indian suppliers Wipro and Cognizant are also investing in their consultancy arms.

With multi-sourcing almost a default strategy these days is this risky? Is it better to a Jack of all trades or a master of one?

What do you prefer?

Inside outsourcing interview: IT services rock star on the market and Infosys

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BG Srinivas, global head of financial services at infosys,  is an old friend of this blog. He has contributed with articles in the past and has provided feedback on the IT services sector trends.

The reason I call him an 'IT services rock star' is because he has had his career developed by Infosys' leadership institute. I recently interviewed its head Matt Barney who told me how they develop the "rock stars" of the IT services industry. Thumbnail image for Thumbnail image for Thumbnail image for BG.JPG

BG is one of them. He is currently global head of financial services at Infosys and also heads up Europe.

I caught up with him today to get his views of the current IT outsourcing sector and what Infosys is doing.

BG said the recession has driven customers to look for more flexible ways of paying for services. As a result there is interest from customers in Infosys platforms as service.
Infosys has a range of Edge products. These are platforms, delivered via a private cloud. They are desinged as a a service for a particular part of a business

For example they have an HR platform known as TalentEdge, Procurement Edge and a marketing system called BrandEdge.

Infosys will take the underlying technology being used by the customer and put its own intellectual property on top. Large customers include Pharmaceutical giant GlaxoSmithKline  and beverages firm Diageo.

He said the consultancy layer of Infosys' business can sell these platforms. He talked about Infosys's acquisition of management consultancy Lodestone which gives it which will complement its SAP business.

He said Infosys can now offer its services to Lodestone's large SAP user customer base and try and sell Lodestone services into the Infosys customer base.

"The acquisition doubled our capability in management consultancy and we now have 30,000 people working in system integration and consultancy."

BG said that another IT trend Infosys is seeing from customers is enterprise mobility. Clients want to communicate with customers better through mobile devices, said BG and businesses want their workers to be more mobile. Infosys is developing applications for this.

Another area of focus is analytics. Customers want to use the masses of data they have. Infosys is using third party software to do the number crunching but has its own tools to help its customers interpret data.

Consulting accounts for about 30% of infosys's business globally and BG says the company wants this to be between 35% and 40%.

See BG's: Five predictions for outsourcing in 2012.





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Are Capgemini's consultancy prices on a slippery slope?

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In its results yesterday Capgemini announced that it is cutting its consulting rates by 2.2% and local processional services rates by 0.5%.

Is this a dangerous thing to do? Is it just a reaction to increased competition or an attempt to squeeze more revenues out of customer?

Robert Morgan, director at sourcing consultancy Burnt-Oak Partners says reducing consultancy prices could cause problems for Capgemini. "It is always a slippery slope and the prices can never be changed back. Also existing clients will return to try and negotiate a better price."

Capgemini took over Ernst & Young Consulting in 2000 to give it consulting expertise. Many other IT companies are doing the same thing.

For example in 1995 EDS acquired A.T. Kearny and IBM bought PwC Consulting in 2002. Atos and CSC are others that have acquired consultancies.

Then you have suppliers that are doing it themselves. Cognizant for example wants its business consultancy operation in Europe to emulate the growth rates of its IT services business. See this article I wrote about it.

An example of Cognizant's approach to consulting is a project known as The Future of Work, which is advising businesses on transforming their operations to meet new demands and harness social and technological changes. These include the fact that over a third of staff and customers of many businesses today are "Millennials" - people born in the 1980s. Other factors are globalisation, virtualisation, the cloud and social media.

In 2010 Wipro told me in May last year that it was investing in resources to help customers transform their businesses and that it was targeting senior staff at the big consultancies.

I met up with BG Srinivas of Infosys yesterday. He is global head of financial services and head up Europe at the Indian service provider. He told me one of the areas the company is trying to grow is in consultancy. "We can sell consultancy into our existing customers." The company bought a management consultancy recently, known as Lodestone, that specialises in SAP.

Robert Morgan said buying consultancies is really dangerous for IT companies unless they are culturally matched. He believes it is better to grow the businesses organically.

Mark Lewis, who heads up the outsourcing practice at law firm Berwin Leighton Painsner says IT outsourcers and consultancies are difficult to integrate. "There is incompatible DNA if you look at the acquisitions by outsourcing companies of the Big Four consultancies, e.g. Capgemini/EY Consulting, IBM/PwC and what happened to the consulting businesses afterwards."

Tell me what you think?

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Capgemini will be a mainly offshore based supplier by 2015

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Capgemini will have over half of its employees in offshore locations such as India by 2015, as it continuously pushes offshore.

In a presentation given at its results the company revealed its plan. See the picture for details.

In 2011 it had 44,000 staff offshore out of 119,000 in total, with 35,000 in India. Today it has 123,000 employees with 48,000 offshore, over 40,000 of which are in India. But it plans to increase its workforce to 155,000 in 2015 with a massive 80,000 offshore.
Capgemini offshore push.png
This year the company has recruited 9,264 workers in India and 2844 in other offshore locations.

The company is not planning to lay off its onshore staff but it seems that new hires will be made offshore.

See the presentation here.

I suppose everyone tries to be IBM, which has a huge India based workforce Over 100,000 according to some.



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US anti-outsourcing is aimed at manufacturing in China and not IT in India

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Barack Obama won his second term in office and while most non Americans and probably Americans breathed a sigh of relief. But suppliers in low cost nations that provide products and services to the US might be a little afraid of his plans for reducing outsourcing/offshoring.

NASSCOM, the organisation that represents Indian IT services firms, was quick to reassure members that it is not the Indian IT sector that is being targeted but the manufacturing sector in China.

According to an article in the Economic Times in India NASSCOM President Som Mittal said:  "Every time there is anti-outsourcing topic, we always take it as it's for our industry (Indian IT services industry)." 

Actually, it's targeted at manufacturing sector, he added. Many of the jobs (in the manufacturing sector in the US) have moved (to China)", he said. He also said the anti-outsourcing rhetoric is different from reality in the US.

He said that there is an IT skills shortage in the US and IT will be critical if the US economy is to recover.

It reminds me of the UK election when the Tories were talking about reducing the number of offshore workers, from low cost regions, entering the UK. We ended up with an immigration cap, but one that didn't really impact the UK IT sector. This was because offshore companies use the Intra Company Transfer (ICT) route to bring IT staff in and ICTs were not touched by the cap. There are also claims that there is an IT skills shortage on the UK

So if you are an American or British IT worker what do you think about the skills shortage?

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What does aligning business with technology actually mean?

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IT professionals are always talking about becoming more business relevant and talking the same language as users. But what do phrases like 'run IT like a business' actually mean?

Colin Rowland, VP EMEA at Apptio Software explains in this guest blog. Apptio provides businesses with information about the total cost of IT and outsourcing projects. Its software is often used by businesses to help them decide whether outsourcing is value for money.

Facebook, Microsoft, Cisco, Google and Starbucks are already customers.

Seeing is believing when it comes to IT costs

By Colin Rowland, VP EMEA, Apptio

"Modern business totally depends on technology and so the importance of the IT department has grown rapidly, accounting for more and more of the budget. In IT we are guilty of talking about 'bridging the gap' and 'aligning' business with technology, to 'run IT like a business' - but what exactly does that mean? A traffic light system based on how your technology is running? Not really.

In my opinion a green light is just a way of covering backs or giving a somewhat meaningless reassurance that the system is working, without providing any actionable feedback to the business managers.

In reality, for most businesses I have worked with, making sure they get absolute value from their technology requires much more complex, far reaching analysis than simple traffic lights. With a £7.6bn overspend on NHS IT and HP writing off $8bn as the result of failed contracts by its EDS subsidiary - it's clear how easily IT costs can spiral out of control.

In order for the maximum value to be gained from technology, decision makers need to have access to all the data they can on how their IT is selected, managed and outsourced. Three or four years ago business was solely concerned with the top line but tightening budgets and a focus on cutting expenditure by finance departments has brought welcome scrutiny to line items of cost.

So the next question becomes how do we determine which solutions are of 'real value' to the business? The answer to this is Transparency - the ability to arm decision makers with an understanding of the cost implications, functionality and business value of every scenario. In turn this provides the ability to choose the solutions which are the most suitable, based on a full understanding of not only the cost implications, but the timescale, the skillset and investment required.

By having a comprehensive list of options companies are able to create the IT supply chain which is most suitable for their needs, rather than spending lots on off-the-shelf packages in isolation which in reality are often less cost effective.

For example one of our customers had outsourced a considerable amount of its servers to a third-party provider. However the pricing data and performance metrics were sent to different departments, meaning the company had no transparent view of the service it was receiving. When it was finally able to view the two factors together it discovered it was buying more services than required, in fact the company was only using 15% of its servers. This translated to a waste of $1.6million of capacity each month - accost which has now been avoided thanks to a transparent reporting system.

Having access to the whole picture gives you the ability to weigh up supply versus demand and gain better understanding of which departments need support and which are overspending. The aim of transparency is to change behaviour on a companywide scale, and begin budgeting and forecasting based on actual business demand - enabling business to reduce costs while still being effective.

For those who fear a backlash from their IT departments, rest assured that in my experience IT have been desperate for a change. They want to work with the best and most effective systems but many have been left, over the years, with just a few simple levers to pull. Transparency is not just rewarding for finance, it also arms IT with all the data they need to be able to argue for changes or improvements.

As technology becomes increasingly complex and integrated with core business functions, the need for transparency will grow ever more important if solutions are to remain cost effective. By setting a president of keeping visibility on technology contracts, business can effectively change behaviour for maximum value.  Be sure to educate yourself to the options available because when it comes to IT what you don't know can cost you."

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Anti-outsourcing councillors in Barnet will fight to the end despite losing vote

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The leader of Barnet council has survived a confidence vote over a controversial outsourcing programme but opponents will continue to fight their corner until the deal is signed.

Last night the council's leader, Conservative Richard Cornelius, survived with 32 councillors backing him and 24 against him. Three councillors didn't vote and four were absent.

The motion, which included a confidence vote on the council's leadership, was brought by councillors unhappy with a £1bn outsourcing programme known as One Barnet, which sees council services outsourced.

Labour leader, councillor Alison Moore told me the motion, which includes the confidence vote, was an attempt to get the council to meet and discuss the project before the contracts are awarded. She told me today: "We will keep on scrutinising the detail and challenging the proposals in these last few weeks before contracts are let. We owe it to the people of Barnet to do our very best in that."

The confidence vote followed a similar event at Cornwall council, which was also over a controversial outsourcing plan. But Cornwall councils leader was not so lucky. Alec Robertson lost the vote 63 to 49.

I recently ran a survey about outsourcing council services. The massive majority of people that responded to it do not think council services should be outsourced to a private company. In fact almost 90% of the 90 responses.

Here is a poll if you want to give your views
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Barnet council leader survives confidence vote over outsourcing plan

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As I blogged earlier, tonight was the night that Barnet's Tory council leader, Richard Cornelius, face a confidence vote over the controversial One Barnet outsourcing programme.
Unlike Alec Robertson at Cornwall council, who was axed after losing a similar vote over a similar issue, Cornelius hung on.

News from the council minutes ago was that the result was 24 votes against him, 32 for him 3 didn't vote and 4 were absent. So 32 out of 63 councillors voted for him. Just a majority. There are 22 Labour and 3 Liberal councillors at Barnet.

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Could reduced offshoring hurt US economy? US election poll.

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As the US election reaches its climax I felt a poll was in order. Obama is promising to curb the offshoring of US jobs. Meanwhile Romney's own business offshores jobs.

Please leave a comment with reasons for your answers.

So what do you think?

Obama more popular than Romney in India despite anti-offshoring stance

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It seems it is not only politicians in local government that have to tread carefully when it comes to outsourcing but also US presidents and those trying to oust them.

In the mid-term US election outsourcing is playing a key role. Barack Obama is taking an anti-offshoring stance to win over citizens during hard times, while Republican Mitt Romney owns a company that offshores work.

I was reading an article on the Hindustan Times website which asked Indian who they would prefer to be US president given that Barack Obama is really pushing for the anti-offshoring vote and the US is a huge source of income to Indian services firms.

When I wrote this article 53.65% said they would prefer Obama while 40.8% said Romney. The rest said they couldn't say.

Read the article here.

Recently Cornwall Council's leader was ousted because of his support for outsourcing and
tonight Barnet Council's leader faces a confidence vote over the issue of outsourcing council services.

Machines are rising and they are offshore IT killers

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I was sent this article on horses for sources today  It is about process automation and the use of software robots to do tasks carried out by humans, often cheap offshore workers. The reason I highlight it is because I have written lots about this and it is interesting.

Automation software is providing businesses with a real alternative to cheap offshore labour. The article is also about UK firm Blue Prism which I have covered regularly. They seem to be winning lots of business and promote themselves as an offshore killer.

The software robots replace manual triggers and which integrates disparate systems to enable an end to end business process. Costs are saved by the reduced need for people. See this guide I put together for more.

The software is also designed so people in the business rather than IT can create new automated business processes. If a company needs to introduce a business process for a new product it doesn't need to recruit loads of bodies. The O2 story below is a good example.


Mobile operator O2 has deployed software to automate business processes, which will reduce the cost of back office operations and cut its reliance on offshore recruitment to cope with spikes in workload

Other examples:

Online shopping giant Shop Direct has deployed software to automate business processes without eating into the IT department's busy timetable


Co-operative Financial Services has freed up the time of nine members of staff by installing software to automate decisions on making payments from accounts with insufficient funds.

But if outsourcing service providers are not shaking in their boots then an outsourcer insourcing to cut costs might just push them too far.

According to the London Evening Standard's City Spy BT, which makes money outsourcing IT, is cutting costs by bringing work in-house.  "We think we can run a number of things more efficiently ourselves," says chief executive Ian Livingston. Don't know if BT Global Services' new CEO Luis Alverez will want BT customers to do the same thing.

The City Spy report gives facilities management as something that can be done for less money using internal staff in-house. The report says it cut costs by 10%.

Controversy and betrayal: Is Barnet Council's leader going the same way as Cornwall's?

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Today is a big day for Barnet Council and for the outsourcing. Tonight sees a confidence vote, regarding the leader, at the council. The motion was set because councillors are unhappy with a £1bn outsourcing project at the council.

It is becoming a bit of a trend. Only last month Cornwall council leader, Conservative Alec Robertson, fell on his sword over an outsourcing proposal when he was voted out by 63 to 49 votes.

Now at Barnet Council, leader Conservative Richard Cornelius faces a confidence vote. There are 63 councillors in Barnet with 22 Labour and 3 Liberal democrats. Not a forgone conclusion unless there is a Tory rebellion.

But rebellion is in the air. In a twist similar to the Cornwall controversy a senior Conservative has spoken out against the outsourcing. Brian Coleman, chair of the council's budget and overview committee has slated the plans. Read this article on the Guardian website.

When the controversy was unfolding in Cornwall the deputy leader, Jim Currie, stoked the fire by speaking out against the planned outsource and stepping down.

So will Barnet's go? Or will his majority be enough? I shall report as soon as I get the results.

Cabinet Office freezes frozen IT procurement

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One of my colleagues wrote an article about the government's decision freeze all new IT procurement frameworks while it makes sure that they are not excluding SMEs. Read the story here.

This is all part of the government's drive to increase the proportion of services it buys from SMEs.

But I was talking to a contact of mine who works with the government on IT contracts and he tells me nothing is moving anyway. So the government has frozen all "new" procurement frameworks but not existing ones. So nothing will really changed then if my source is right that nothing is being signed off.

What do you think? Are you seeing much IT buying going on in  government?


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Could nearshore IT services be the best alternative to internal IT?

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I think every business would agree that if money grew on trees and if they had a money tree they would always chose in-house IT over outsourced.

Having IT resources that know your business and are available on-tap is a good place to be. But, ironically, could IT suppliers based in regions such as central Europe be the closest alternative to an in-house team for UK businesses looking to cut costs?

I had an interesting conversation with an IT head about nearshore services with a senior IT worker at a finance firm.

When the company's 30 internal application developers are stretched at the busiest time of the year the company has to bring in the skills.

Traditionally the company had hired contractors for short periods to fill the gaps. This was its preferred method over the cheaper offshore alternatives. The reason offshore was not attractive is the large resource required to manage offshore development.

But this has its limits. The IT contact of mine said contractors are expensive and transferring all the knowledge to them is a lot of effort for a short time. The contractors can move to pastures new when they like almost and take the knowledge with them.

Suppliers also can, but if you can develop good strong relationships with them over years it can give you the skills you need on tap but you don't have to pay for them all the time.
Now add to that the lower cost and close proximity of nearshore locations and you have potentially the nearest thing to an in-house team as you can get. Lower cost services combined with easy to manage teams that understand your business.

But suppliers have multiple customers and I suppose the dedication you get depends on how important you are to the supplier.

What do you think?



Xerox European services cuts in more detail

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I have been blogging since yesterday about Xerox Europe's plans to cut costs in its services business.

The company has admitted that it is restructuring in Europe since this blog broke the story and I have been told a bit more from a couple of sources of mine.

There are currently lots of salespeople from Xerox's European Services business looking for work as the company lets lots of them go. It is also making senior leaders redundant.

It seems things are tough in Europe and Xerox is not even looking at making new sales but wants to protect the business it has. And it wants to cut $300m costs globally with the European services business contributing savings of $18m.


If you are affected by the Xerox cuts please give me your thoughts.
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Xerox defends ACS compatibility but admits to restructure

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I blogged yesterday about news that Xerox is going to restructure its services business in Europe. I was told by a source that this will involve hundreds of redundancies.

I also asked the question: Do hardware firms and services suppliers have incompatible DNA?
I have had an interesting response on the blog from a Ken Ericson. He is head of communications at Xerox based in the US. Who says social media will never take-off.

Ericson admits there is some restructuring but outlines why he thinks ACS and Xerox are compatible.

This is what he said: "Speaking on behalf of Xerox, I wanted to clear up some of the points in your article: I'd have to disagree with your premise of "incompatible DNA." Our differentiated mix gives Xerox strength to help clients simplify business challenges. Here's an example: a few weeks ago we demonstrated how Xerox innovation is being applied to services from ACS in industries like transportation and healthcare. These are new ways we're helping our clients and strengthening our annuity-based business model. There's no question many companies are facing headwinds in Europe, but we're managing it with focus, discipline and sound investments to tap into high-growth areas, most recently acquiring customer care providers WDS and Unamic. Our restructuring, the details of which will be announced in November, will make us even more efficient and responsive to the needs of our customers and changing business."


Barnet council leader faces axe over outsourcing on Tuesday

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Thumbnail image for barnet meeting.png
As I blogged last week Barnet councillors are emulating their fellow local government. representatives in Cornwall by holding a confidence vote over the council leadership.

On Tuesday 06 November the Conservative and council leader Richard Cornelius faces a confidence vote at an extraordinary meeting.

This is over the controversial One Barnet council transformation programme. For the leader to fall there needs to be a straight majority. There are 63 councillors in Barnet with 22 Labour and 3 Liberal democrats. So certainly not a forgone conclusion unless there is a Tory rebellion of the scale seen in the House of Commons over the European budget.

This is what the council agenda for Tuesday's meeting where the confidence vote will be held.
 
"Council believes that this Conservative administration has completely lost its way over the One Barnet Programme. Council believes the process to outsource 70% of council services in two large contracts under One Barnet has been dogged by a lack of transparency. Scrutiny of One Barnet by elected councillors has been severely compromised by the administration scrapping the dedicated One Barnet Scrutiny Panel, and by preventing administration and opposition councillors outside the Cabinet from having sufficient time to scrutinise detailed financial information for the project - information which has been presented to elected members on blue exempt papers at the beginning of committee meetings, and then taken away at the end of the agenda item.

Council notes that the One Barnet Programme has so far not made any net savings, and that we are now in the third year of the programme. In fact the One Barnet Programme has actually incurred a net cost for the Council of at least £663,000. Council further notes that the Leader and Deputy Leader seem to disagree over the appropriateness of the preferred model for the Development and Regulatory Services contract - Joint Venture - and that therefore the project seems to be in complete disarray. Given the level of risk involved in the procurement of these two enormous One Barnet contracts, NSCSO and DRS, and the gambling of £1 billion of council tax payers' money that is involved, Council resolves that the Executive Leader be removed from office and that a vote be taken on electing a new Leader who can propose a new way forward for Barnet Council and appoint a new Cabinet."

At Cornwall Council, leader Alec Robertson lost a confidence vote over a proposed outsourcing deal.  He lost the vote 63 to 49.

Labour leader, councillor Alison Moore told me the motion, which includes the confidence vote, is an attempt to get the council to meet and discuss the project before the contracts are awarded.
 
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