May 2013 Archives

O2 said the plans seen by Telegraph are not firm but one scenario and it has already rejected mass offshoring

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I blogged earlier about a report about planned job cuts at O2 on Telegraph.co.uk. O2 have responded and claim the Telegraph article is incorrect as it presents what it has seen in a leaked document as firm plans rather than just an option.

For example offshoring was another option that was rejected.

This is related to its contract to outsource customer services to Capita for 10 years.

O2 has respionded to my blog post about the Telegraph article.

This is O2's full statement sent to me: "...because the story in the Telegraph suggests they have seen plans to close call centres and cut jobs. The story incorrectly presents these options as a firm plan rather than scenarios we may have discussed with Capita before we made our announcement last week. These are not decisions that have been made.

To be clear,  there have been many options that we and Capita have considered. For example closing contact centres (with inevitable compulsory redundancy) and looking at mass offshoring were options we considered but we rejected them because they weren't right for our people.    

Instead, we've guaranteed the jobs of transferred employees for at least 2 years. Beyond that timescale, if there is any future business requirement to reduce roles for O2 this will not necessarily result in redundancies because Capita would actively manage the process (i.e. roles not automatically being filled when people leave and potential redeployment to other roles within Capita). Capita is a growing business delivering customer service to thousands of organisations and leading brands.

In terms of the reference made in the article to site closures, it's important to note that Capita has a broad portfolio of sites across the UK including Scotland, Yorkshire and the North West. If in the future they did decide to review occupancy of any of their sites, this will not, necessarily result in redundancies because they already have a number of sites in these locations."

Documents reveal that O2 outsourcing will lead to thousands of redundancies

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O2's decision to outsource the management and digitization of its customer services to Capita will result in more job cuts than originally revealed.

According to an article on Telegraph.co.uk, which has seen an internal document, only 1,370 jobs will transfer to Capita rather than the 3,000 originally thought.

There is a great deal of uncertainty for staff. Earlier this month following Capita's announcement that it had won a ten-year deal to manage and digitise O2's customer services, the CWU reported that up to 600 O2 staff will be made redundant while over 3,000 will transfer to Capita.

An O2 spokesman told Computer Weekly earlier this month that O2 had no idea where the CWU have got the figure of 600 jobs being made redundant. So that was because it is actually more.

According to the Telegraph report customer service facilities in Bury, Greater Manchester, and Glasgow will be closed. Its 5,800 worldwide staff serving customers will be cut to fewer than 3,000 at the end of Capita's contract in 10 years. There could be an increasing proportion offshore.  The telegraph article revealed that centres in India and South Africa will be expanded.

IT services suppliers are bearing gifts - guide to renegotiating with them

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Renegotiations/restructuring now accounts for over half of the IT outsourcing contract value in Europe. Suppliers are largely driving this by approaching existing clients and offering them the opportunity to sit down and renegotiate contracts.

Suppliers are keen because there is no new business out there and if they start losing business they are in trouble.

So they are instigating renegotiation discussions. It is therefore critical that CIOs have a clear vision of what the business needs. A CIO might want to break-up an all-encompassing contract to get a better insight in the costs associated with different components. This might help them cut costs associated with different service lines rather than just try and cut the overall cost. Or perhaps the CIO might want to use a different delivery model such as the cloud.

Whatever the case may be below is some advice provided by industry experts about renegotiating contracts.

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

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

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

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

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

If you have any advice, feel free to leave a comment.

Read more about contract renewals:

Advice for companies that want to renegotiate outsourcing contracts

Nine ways to make bad outsourcing deals good

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

IT outsourcing marriages sometimes require changes from both partners

Will cyber-attack diplomacy deter corporates from offshoring IT to China?

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This week there have been a few articles about cyber war and the hacking of US military information.

Unsurprisingly China is at centre stage.

What will this mean for the IT services sector in China? The Asian giant wants to emulate India's rise as an IT services destination. India has almost become the default choice for IT services from US and UK corporates, but can China match it?

China certainly has the skills base, with 350,000 computer science graduates every year. It also offers lower cost labour and the government is encouraging the development of English language skills at education organisations.

But will US and UK companies sign contracts with China based service providers while cyber-attack diplomacy, which seems to have replaced the traditional gun boat diplomacy, continues? If the US is accusing Chinese hackers of accessing military secrets what will that mean to highly regulated US businesses. I would be surprised if it encourages them to use Chinese service providers.

Having said that many global service providers already have operations in China and China based companies such as Bleum are actually US owned and run from the US.

I recently polled readers on whether or not they would consider offshoring IT jobs to China. The result was very balanced - of the 104 people who responded, 46.15% said they would not offshore to China, 41.3% said they would, and 12.5% said they had never considered it.
Click this link and fill in the questionnaire about offshoring IT to China.

Mark Lewis, head of outsourcing at law firm Berwin Leighton Paisner, says China may not compare to India now, but this will not hold it back.

He believes that in a year's time China will have "overturned India as the number one offshore IT services destination".

Douglas Hayward, outsourcing analyst at IDC, says he is not seeing much from China in terms of providing IT services to Western companies, and many of the firms providing IT services from China are doing it through intermediaries. "We have not yet got a company like India's TCS to champion China," he added, "but at some point the IT services companies that supply within China will turn their attentions externally, which will be very interesting."

Indian offshore suppliers are the default choice for many large corporates

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Some large corporates haven't used traditional western IT service providers for years.
I wrote an article last week about how the offshore IT service providers that are based mainly in India are reshaping their business models. Traditional time and materials models are not offering what they used to and traditional markets in the US and UK are becoming saturated.

While I was writing the article I had a conversation with Peter Schumacher, CEO at management consultancy Value Leadership Group. He had some interesting research that he had carried out alongside Deutsche Bank.

He shared some of it with me. Below are some of the comments from senior IT services buyers within large corporates.

They make interesting reading. Many corporates are committing heavily to the Indian service providers. And it is not just about cost because most the traditional western suppliers have large delivery operations in India.

1 - Global manufacturing business in continental Europe with $2bn annual revenue

Q: Are you working with traditional vendors?
A: We haven't considered traditional players in years.

2 - Large transport group, continental Europe:

Q: Costs are rising in India - do you think the traditional firms will eventually match the Indian firms on cost?
A: No. We don't think traditional providers will ever be able to match the Indian firms on cost - rather we believe that the cost pressure on the traditional firms will increase as the offshore firms gain more market share in our country.

Q: How are you allocating projects between traditional firms and offshore firms?
A: Our procurement approach is not to give work to a European firm, if an offshore alternative exists.

3 - A large global financial services business with major operations in Europe:

Q: What strategic advantages do the traditional firms have in your view? A: Domain knowledge is the last thing the traditional firms have - once they lose this, they are gone. Q: Who do you see winning in the long run?
A: The Indians win.

4- Member of the board of a major captive Banking, Financial Services and Insurance company in continental Europe:

Q: In your view, how would you assess the capability of offshore-based firms to adopt European business practices, as opposed to the capability of European IT services firms to become more competitive in terms of pricing and efficient global delivery?
A: I think it will be easier for the Indian companies to adapt to the European way, than for the European companies to make efficient offshoring. I have trust more in Indian companies.

Q: So, you are saying that the legacy companies have a material disadvantage as in fact they have legacy structures?
A: Yes.

5 - A large global manufacturing business with major operations in continental Europe;

Q: Would it be fair to say that the offshore companies have a global capability that is at least equivalent to, or would you say that is possibly even better than, that offered by the conventional companies
A: At this moment, I would say it is better.

6 - A large global bank with major operations in continental Europe:

Q: How would you assess the global delivery capabilities of traditional firms?
A: The traditional firms just pretend to provide offshore services.

Can Dell learn from HP's mistakes in the IT services sector or will Ross Perot be the only winner?

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When HP acquired EDS it had a plan to become a global leader in IT services. HP realized that the future was not in the PC and server markets where commoditisation and cut throat competition was pushing prices down.

Dell has realized this and is now transforming itself into a services firm. It now wants to go private so it can invest more in services.

HP acquired EDS in 2008 for $13.9bn and has since devalued it to $8bn. EDS was set up by Ross Perot in 1962 until he sold it to General Motors in 1984.

HP announced its results this week and it seems it is not just PC and server sales that are declining. In the company's second quarter financial results HP said its enterprise services revenue declined 8% year on year. Ok this is the best of a bad bunch.  Revenue in its commodity server business was 12% lower than the same period last year, while its Itanium business-critical systems revenue was down 37%. The PC business plunged 20%, commercial PC revenue were down by 14% and the consumer PC revenue down by 29%.

Things could get worse in services. General Motors, which was a huge customer of EDS and then HP, decided in October to take outsourced IT back in-house.

There was also recent new that another big HP services customer US manufacturing giant Procter & Gamble is considering moving outsourced work in-house.

Also read:

How did EDS lose $8bn in value in four years?

HP troubles show dangers of demotivated staff

If you look at Dell's results you can see that services is growing. And they need to continue to grow. Dell saw profits plummet by 73% to $226m (£149m), as its first quarter results revealed its hardware division's profits to be in freefall. Dell's services division now contributes more than half of overall profits.

Dell has probably learned from HP's mistakes. It was less extravagant in its acquisition strategy. It bought another Perot business, Perot Systems for £2.4bn in 2009. Ross Perot set up Perot systems when he sold EDS to General Motors.

So can Dell make its services work where HP is failing?

I wrote about Dell's services arm quite a bit in the past. Here is how the company described its services business in 2010 after it acquired Perot Systems.

Dell claims:

"1 - The IT industry remains fragmented with only 4 companies offering a set of integrated service offerings (IBM, HP, Fujitsu, and now Dell).
 
2 - Dell is powerfully positioned as one of the 10 largest IT services providers.
Industry comment: "In terms of pure services turnover maybe number 15-20 worldwide."

3 - From a customer point of view, we know IT budgets are pressured, and customers want technology that offers best value solutions.

4 -   We want to help organisations innovate and focus on strategic objectives while spending less on routine IT management."

This is why Dell says it bought Perot:

1 -   Dell became an IT leader through highly efficient built-to-order solutions.

2 - Now, we want to do the same thing in services, reducing complexity and driving out inefficiencies across the service and support lifecycle.

3 -    We believe that the new Dell Services (Dell's legacy services organisation combined with Perot Systems - which we acquired last November) is big enough to be credible, yet nimble enough to lead a transformation in the services industry."

This is what Dell says about the merged services organisation:

1 - We are a $7.5bn global services organisation with more than 42,000 employees.

2 - The organisation generates approximately three-quarters of its revenue from infrastructure and related support services 18% from applications and consulting services, and 7% from business process services.
 
3 - We serve the entire spectrum of potential clients, from large organisations to consumers.

4 - We see the combination of our solutions and teams creating enhanced growth opportunities through cross-selling opportunities as well as being presented the opportunity to participate in a broader range of sales activities

5 - This is a very exciting time and we're stronger together

6 - We can fill out capabilities that neither company owned by itself

7 - Qualify for more RFPs and win more deals
 
8 - Sell more products and services at existing accounts."

This is what Dell claims to do?

1 - In addition to scale, the components that now form Dell Services have a comprehensive range of complementary strengths ... and a consistent history of creating an award-winning customer experience.

2 -   Together, the companies support nearly 15 million systems and manage over two million seats

3 - Consistently, Dell Perot Systems has ranked number one as healthcare IT contractor and number one by KLAS for Clinical Implementation Services

4 - The combination of solutions and teams from each company creates growth opportunities through cross-selling, but even more significantly presents the opportunity to participate in a broader range of sales activities.

5 -  Dell Services offer best-in-class suite of intelligent, end-to-end services and business solutions to reduce IT complexity and lower costs

6 - From our knowledge of industry requirements, we then tailor industry-specific solutions that solve business problems and deliver the best value for the resources invested.

7 - The strength of our combined business model rests in several areas:

-  Intense customer focus - committed to top customer success
-  Domain knowledge - Industry expertise in healthcare, government, and large enterprise is a competitive advantage that allows us to add long-term value through industry-focused solutions 
- Breadth of services - Integrated technologies, IT and business services, and industry-specific consulting are combined to create services that transform organizations
- Global delivery model - Modular services delivery put customers in control, allowing them to select only what they need, which means lower cost for customers
-   Recurring revenue - Over $13 billion in annuity-like revenues."

Smart metering project delay a sensible move?

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I blogged last week about the fact the GB smart meter implementation programme (GB SMIP) has had its target of having smart meters in UK homes has been put back a year.

According to Department of Energy and Climate Change (DECC) the target for the introduction of smart meters in homes by the summer of 2014, has been put back to the Autumn of 2015. The project, originally planned to be complete in 2019, will now go live in 2020. This is a huge project and it involves significant IT and IT outsourcing. In fact it was the necessity to get the communications network right that was cited as the reason for the delay.

Although any delay to a project of this scale will inevitable lead to higher costs the delay was justified according to David Green, business development director at smart metering consortium SmartReach, a working with a collaboration of Arqiva, BT, BAE Systems, Detica and Sensus.

Here is a guest blog from Green.

Smart metering: The importance of making the right decisions


By David Green

"Smart metering has the potential to transform energy management and consumption across Great Britain, delivering billions of pounds of energy and cost savings for consumers and utilities. It is also a major critical national infrastructure programme so it's important that we take the time to get it right. The delay to the start of the rollout will allow more room to finalise technical standards and for the integration plus testing of communications, data and metering technologies. As such, we believe it is a sensible move that should increase confidence, support consumer engagement and assist the programme in delivering the anticipated benefits.

The communication network is a key element of smart metering and the chosen technology needs to be proven to be able to cope with the unique geography of Great Britain, with meters typically located in hard to reach areas such as basements. SmartReach has been running trials in Glasgow, rural Scotland, Ipswich and Reading, where it has been able to successfully connect over 99% of meters using long-range radio, wherever they are, with a single installation visit. This includes meters in hard to reach areas, which other communications struggle to reach. We believe using a proven and dedicated smart metering communications technology will make the task easier by simplifying the integration and testing of technologies ahead of mass rollout. It should also reduce cost, risks and complexity through the supply chain.

The communication network will also have a major influence on consumer engagement as it will underpin the whole smart metering experience. Using a single, proven technology that connects to meters wherever they are supports easier installation of smart meters into homes, which could help reduce the impact on consumers and generate positive word of mouth at the critical early stages of the smart metering rollout.

A positive step is being taken right now, with the creation of an independent organisation currently called the Central Delivery Body, or CDB, from July 2013. The CDB will drive information programmes on the practicalities and benefits of smart metering to consumers and is likely to span all manner of channels from social media to working with local charities. In addition, the CDB will be tasked with improving awareness and support, stimulating people's willingness to change the way they use energy, and providing helpful information to assist the vulnerable.

Finally, we can learn from the recent TV Digital Switch Over, where great technology and a concerted programme of consumer engagement combined to deliver a highly successful national rollout and positive experience for households."


Will Capita O2 deal trigger a strike after union warning?

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Last month the Communication Workers Union (CWUs) announced that it intended to take action if stories about O2 transferring jobs to Capita, as part of an outsourcing deal were true.

An article that appeared in the Sun in April suggested  O2 call centre jobs would transfer to Capita as part of a deal that had not been announced. As we know there is no smoke without fire and Capita yesterday announced a ten year deal with O2. This sees Capita manage O2's customer services and help with the digitisation of many of these services.

The CWU told me today that about 3000 workers across four siutes will tranfer to Capita. They said another 600 will be made redundant. But Industrial action could be on the cards if the CWUs stance last month is anything to go by.

The CWU said: "Whilst the CWU understands that this is a company that is transforming itself for the future, to take advantage of new technologies and in order to provide new services, any transformation plans need to take into consideration the CWU members that are affected and they need to be at the very heart of any decisions made.

"The CWU therefore instructs the Telecom and Financial Services Executive to oppose any move by O2 to outsource the majority of call centre work as it is not in the interests of the members we represent. To oppose by all means possible up to and including industrial action."

Should businesses cut their losses and bring offshore IT back to the UK?

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Offshoring IT made sense ten years ago because labour costs in countries such as India were so much lower than the UK. But is this still the case?

In this guest blog post Andrew Holley, founder partner at Holley Holland argues that some businesses with offshore operations should cut their losses and come home.

Offshore or off course?

By Andrew Holley

"It's time for a re-think on offshoring. A decade or so ago it may have made sense for UK-based organisations to send some of their jobs and business processes to areas of the world where labour costs were lower. There were reports of overheads cut by around three-quarters. Yet, any company still following an outdated offshoring strategy needs to ask: 'Does the maths still add up?'

Think back to the London Olympics.  Overnight, the UK re-defined itself as a 21st century, vibrant and highly-capable nation; a welcome change from its previous heritage-based image. We should use this updated image to optimise our identity business-wise, bringing jobs back to the UK and encouraging European companies with bases in this country to see that the UK is better served by local jobs and services.

The tide is already turning; more competitive onshore wage bills are being negotiated through the unions and the cost of offshore manpower is rising. Gartner is predicting that by 2014, EU directives will drive legislation to protect jobs, reducing offshoring by 20 per cent by 2016.

The unemployment figures are fuelling frustration. Returning work to the UK would be good for brand image. Onshoring or nearshoring also helps reduce an organisation's carbon footprint.

There are hard economic reasons to return too. Previous estimates of cost savings though offshoring now seem naïve. For some, the loss of customers has eaten away at any initial savings. Santander was an early backtracker, announcing in 2011 that it would replace its Indian call centres with those in Glasgow, Leicester and Liverpool.

Wages in fast-developing countries such as Brazil, China and India have risen steadily. Last year The Economist reported a rise in Chinese labour costs of 20% year on year over the past four years. One company, New Call Telecom, is reported as discovering that it was cheaper to set up its datacentre in Burnley, Lancashire than Mumbai.

Job mobility in India and other offshoring destinations is high. Consequently, training has to be continuously repeated and becomes an ongoing cost. In some sectors, the annual attrition/staff turnover rate can reach 30%.

It's no wonder that nearshoring - the transfer of business operations to a nearby region - is becoming the favoured option. Doing so can mean becoming eligible for various incentives. Those relocating to an Enterprise Area in Scotland, for example may enjoy discounted business rates and enhanced capital allowances, training support and planning concessions.

There are still reasons why offshoring makes sense for some businesses; for example, for those that need to '"follow the sun" and provide a worldwide, 24/7 service. However, many companies that offshored on purely financial grounds are now left with a dilemma.

A move back could make sense financially and earn the trust and respect that has waned in the financial services sector of late."

Satyam Timeline: From tragedy to fairytale.

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I interviewed Mahindra Satyam last week and for the first time since it was hit by a $1bn internal fraud in 2008 it was confident enough to say it has now recovered and will push for growth. I spoke to Roger Newman, who heads up a UK business unit, at Mahindra Satyam.

He said the company is ready to draw a line under the chaos case over four years ago when Satyam's former chief B Ramalinga Raju admitted to fixing the outsourcer's books. Last thing I heard about him was that he was in a prison in Hyderabad.

So important is the Indian IOT services sector that the Indian government so fit to get directly involved to help protect the countries reputation. Following the fraud Western corportes were suddenly very concerned about offshoring to India.

Back in November 2010 Mahindra Satyam's European head Vikram Nair told me the company was back, but now it is drawing a line under the problems.

Satyam is a company close to my heart. I wrote so many articles about the company and the fraud that it felt that that was all I was doing. I thought I would do a timeline with a selection of the articles I wrote about Satyam so you can follow the saga through to its happy ending.

There are many more but here are some of the key stories.

17 May  2013: Mahindra Satyam draws a line under turmoil
07 Feb  2013: Inside outsourcing interview: Former Satyam business in a better position than ever before following Tech Mahindra take-over
16 November 2010: "We are back" says Mahindra Satyam's European head, as the supplier has its year zero
29 October 2010: Disgraced former Satyam chief to head up prison BPO
30 September 2010: The ghost of Satyam is laid to rest
29 September2010: Mahindra Satyam has cut its losses as ship steadies
12 July  2010: Well done Mahindra Satyam as the World Cup software acheives 100% uptime
27 November 2009: Satyam's fraud bigger than thought, what does this mean?
27 January 2009: Interest grows in Satyam acquisition
27 May 2009: European customers stick with Satyam
14 April 2009: Satyam saviour is part-owned by BT
20 March 2009: Satyam bidding deadline arrives
17 march 2009: Satyam loses 46 customers
01 February 2009: Interview - Satyam CEO speaks to Computer Weekly
05 February 2009: Satyam sets the record straight
04 Feruary 2009: Satyam could be auctioned off electronically
02 February 2009: Satyam signs 15 contracts despite its troubles
26 January 2009: Price Waterhouse partners arrested in connection with Satyam fraud
23 January 2009: Satyam close to sealing funding
22 January 2009: 13,000 Satyam staff never existed, says prosecutor
20 January 2009: General Electric gives Satyam vote of confidence
16 January 2009: Satyam staff dreams shattered
16 January 2009: Satyam may ask customers for cash early
12 January 2012: New board at Satyam following chairman's arrest
09 January 2009: Satyam staff exodus as fraud unravels
08 January 2009: Satyam emergency conference reveals recovery plans
08 January 2009: Troubled Satyam needs cash
07 January 2009: Satyam chief B Ramalinga Raju admits to fixing the outsourcer's books 

Who are the top outsourcing advisories?

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The International Association of Outsourcing Professionals (IAOP) recently published the results of its research identifying the world's best outsourcing firms.

One part of this focuses on outsourcing advisors. I think the number of CIOs that outsource without taking independent advice must be pretty much zero. The outsourcing industry transforms every few years in reaction to new technologies, such as cloud computing, and economic changes, such as the 2008 financial crisis. So a CIO will struggle to keep up to date. Then you have an unimaginable amount of possible suppliers and numerous delivery locations. So outsourcing advisory has become big business.

Here is the IOAP top ten outsourcing advisories.

1 Deloitte Consulting
2 KPMG
3 Avasant
4 Alsbridge
5 Elix-IRR
6 Ernst & Young
7 Baker & McKenzie
8 Pace Harmon
9 Kirkland & Ellis
10 Quint Wellington Redwood

Is outsourcing the answer to IT innovation?

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I recently blogged asking the question: Can you outsource innovation?

In this guest blog post Matt Cooper, CEO at Imaginatik, tells us why the answer is yes. In fact he thinks outsourcing could be the answer.

This is interesting because one of the biggest criticisms of outsourcing is often that there is no innovation. But there is a counter argument that if you outsource it frees up internal staff to innovate.

Ready for Innovation? Outsourcing may hold the answer

By Matt Cooper

"Can companies outsource their innovation function? The answer to this questionis a resounding 'yes' with an important caveat - companies need to know when to outsource innovation and toward what end.

At a growing number of large organisations, innovation is now an identified organisational group, with a specific mandate, roles and responsibilities, metrics, processes, resources, and governance. According to a 2012 Capgemini study, 43 per cent of large global companies now have a formally accountable innovation executive. Innovation has become a corporate function, and the trend is gaining steam.

Yet despite the trend, today's innovation leader has a very difficult mission, for two reasons. First, most corporate warriors in middle management persist in thinking of 'innovation' as a management fad - a distraction from quarterly goals and core objectives. As a result, the innovation leader faces a constant uphill battle for legitimacy - unless he/she demonstrates clear, powerful business results from innovation's efforts. And there is a limited time window before faith and confidence are lost permanently.

Secondly, innovation has a distinct rhythm from the daily business. Instead of driving to efficiency and operational excellence, successful innovation requires space and time to create, tolerance of failure and a culture of open experimentation. In a corporate setting, individuals with 'innovative' personalities have long since learned to hide or downplay them, for the sake of career advancement. So the natural rhythm of innovation inevitably feels strange and foreign within a large organisation.

Yet senior leaders increasingly view innovation as a strategic imperative, allowing the firm to adapt and respond to competitive pressures, customer needs and technology change in a rapidly changing, information-rich 21st century world. Most of the time, a great deal is riding on the success or failure of the Innovation Leader. In some cases, the C-suite has staked the company's future on it.

In this environment, outsourcing is a critical enabler of success. Experienced innovation firms use proven methods and tools to produce those crucial early-stage results, while also injecting the DNA of innovation process into the organisation. Typically this outsourcing takes one of two forms.

When the need for a specific innovation is clear - breakthrough new product designs, for example - the innovation leader may outsource the entirety of an innovation project. This is called Innovation Project Outsourcing - in which an innovation firm acts like a design agency, working independently and producing ready-made innovations as deliverables. These projects can range from R&D and engineering work, product and/or industrial design, to innovation process design.

Ultimately, however, the innovation leader cannot be wholly dependent on an outsourcer to produce innovation. Innovation Process Outsourcing is a critical step in embedding innovation habits into an organisation's DNA. An experienced innovation firm will be intimately familiar with the difficulties of involving broad sets of enterprise stakeholders in a collaborative process. Working underneath the innovation leader, outsourced programme managers can be embedded into the organisation as change agents and campaign managers. Through careful scoping of innovation initiatives, combined with skilful management of the campaigns themselves, dramatic results can be achieved while also socialising the behaviours and rhythms of successful enterprise innovation.

The end goal of these outsourcing efforts is innovation skill transfer and discipline-building within the corporation. Over time, the outsourcer trains its client on the core Innovation Management skills and methods, which allows the innovation programme to achieve sustainable scale as an enterprise program. As a result, the organisation begins to treat ideas as valuable intellectual capital - and consistently collect, vet and leverage this capital for business benefit.

In the longer term, there is a permanent home for innovation outsourcing in most companies. Innovation strategy is a core competence any organisation needs to build, refine and invest in - it's the future of the company. But aspects of how innovation is built and executed may be outsourced, as external parties have skills and competencies which the company may not have or even need to be in-house."

Also read:

Has Outsourcing 2.0 arrived and is innovation built-in?

CW500 in the City: IT innovation in financial services


UK smart metering delayed, as expected by anyone with the ability to think

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It came as no surprise to hear last week that the GB smart meter implementation programme (GB SMIP) has had its target of having smart meters in UK homes has been put back a year.

The project, which is planned to be fully completed by 2019, had a target for the introduction of smart meters in homes by the summer of 2014, but this has been put back to the autumn of 2015. The reason for this is that more time is needed to get the critical communications network right.

SMIP is part of the UK's plan to cut carbon emissions by helping consumers and businesses better control their energy usage. These meters communicate with a central system at regular intervals. This can give consumers accurate information on their usage and enable them to make cuts.

But it is a huge task to get it right. Not only does billions have to be spent on getting the smart meters in and the IT that makes it all work, but there is also a lack of public understanding. A lack of public understanding has led to the downfall of many a public sector IT project. If the taxpayers that are funding the project don't understand its benefits the battle could be lost even before the massive IT undertaking gets going. Research has shown that consumers are not up for it because it is likely to cost more for energy and the promised savings in the long run will not be guaranteed. Basically most people would rather save money than the planet. Part of the problem is the government have not done enough to sell the cost advantages to consumers.

And it is a massive IT undertaking involving huge outsourcing contracts.

This project will require a company to be set up, known as the Central Data and Communications Company (DCC). This will manage the data that smart meters send and receive. The DCC will require services from IT and communications service providers. It will collect information from smart meters in homes and send information on to utility companies to enable them to bill accurately. This will be a massive IT shop.

All this as well as the need for smart meters, smart communicating sensors, modules, advanced communications networks and then things like security will make this a major project. The problem is that the public don't seem to be behind it.

So we have a huge IT project that people don't seem to support. In a few years people could just see the project as a lot of very expensive IT projects that don't deliver any savings.

This would be a shame because protecting the environment is important. But the government must better communicate the financial savings people can make. This will require a lot of education and if consumers want to really save money they will have to have smart devices to link to the grid and use power efficiently. So there is investment needed in homes as well. 

OK there has only been a delay to one of the projects deadlines, but that will inevitable mean an increased cost. It will be interesting to see if there are further problems when the IT and comms service providers actually get going. I can imagine costs rising and rising.

Could this be another NHS Project for IT (NHS NPfIT) in the making? What I mean is there is a lot to do and a lot of money required to do it and there seems to be lots of points of failure. The fact that the public aren't really behind it could be the excuse a government needs to cancel it. Just like NHS NPfIT.

In 2011 Margaret Hodge MP, chair of the committee of public accounts, said:

"Smart meters could help us all cut our energy consumption but government's track record on delivering large programmes is patchy at best. At the moment the estimated cost is £11.3 billion, but all our experience suggests that this budget will be blown.

Also, for the money spent to provide value, we all have to change the way we behave. It is not clear how the Department will stimulate this behaviour change. And, as technology changes, the Department will have to be properly flexible to respond with up-to-date technology for the smart meters. These uncertainties can drive up costs more than planned.

We will keep a close eye on project progress, and would urge the Department to address the risks identified in this report."

Also read:

Smart metering - the next big waste of money or venerable project?

Is UK smart metering project an NHS IT disaster in the making?

The UK smart metering project: a failed NHS project in the making? Continued
.

Smart metering project puts billions of pounds on table for IT suppliers, but are cost overruns inevitable?

How a war injury in 1943 lead to a software development centre in Poland

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I recently met up with the CEO of finance software maker Microgen. One of the things we talked about was outsourcing. Microgen does a lot of its development work in Poland. The story behind this is a great one.

Neil Thompson, CTO of Microgen, discusses how, following the advice of his father who was injured in WWII in Poland, he came to launch a software development centre in Poland.

By Neil Thompson

"I started a software company in Poland because my father was injured in the war. He spent six months in a hospital bed next to a polish sailor who didn't speak English so, to avoid dying of boredom while his leg healed, he learnt Polish. He was told by the sailor that Polish people were good technically and had a strong work ethic.

In 1992, I was trying to start my second software company and could not afford English programmer's rates. On my father's advice, I went to Wroclaw, Poland, where they had a huge technical university as well as eight other universities in the same city. I found two graduates who helped me to recruit nine programmers and we started on our first contract writing a sales management system for ICL.  It was successful and we prospered although it was initially a hand to mouth existence.  I spent half my time in Poland and the rest, working as a salesman or doing consultancy work in Abu Dhabi to help pay the wage bills.

I was then approached by a salesman and an accountant whom I knew from a previous life and who believed there was an opening in investment banks for a 'Rules Engine' which could be used by business professionals to develop and control business logic.  I developed a prototype in Poland and together we started a London based company to sell and market the product; OST Business Rules.  UBS in London was our first customer. The product was a success so we went on to sell it to a number of investment banks with all the development work being carried out in Poland.

In 2002,  Microgen plc acquired our business, despite my expectation to either leave or be resigned from the company, due to always having been an entrepreneur, the company allowed me to continue to run the software house in Poland.  Supported by Microgen, we re-wrote the Rules Engine to use "In Memory" processing to achieve unrivalled levels of performance. The product Microgen Aptitude was launched in 2007.  While 'In Memory' processing is now in vogue, back in 2002, it was a novel architecture and enabled Microgen to realise great success in the market.

We celebrated out 20th Anniversary last year and Microgen Poland has grown to almost 100 staff. We have produced Microgen Aptitude and the Microgen Accounting Hub products, both of which have been adopted widely are used in some of the largest financial services, telecommunications and digital media companies amongst others. 

Over the last 20 years, the Polish staff have proven to be consistently loyal and innovative and we have a stable team of clever people who other companies envy and regularly try to steal.  With hindsight, the choice of Wroclaw seems prescient as it has become an important technical centre with IBM, Google, Microsoft, Credit Suisse, Philips and many other Western companies since opening offices in the area - in fact, it was all due to a war injury that happened in 1943!"

Read more about sending your IT to central and eastern Europe:

Report on Central and Eastern European nearshoring

Agile software development demand could put nearshore IT in the spotlight

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

Vampire IT service workers that tell you as it is.

Why more businesses are nearshoring in Eastern Europe

UK IT professionals face nearshore competition

Union threatens strike as O2 plans to outsource call centre

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The Communications Workers Union (CWU) said it will use all actions at its disposal, including strike, to oppose call centre outsourcing at O2 if reports are accurate.

I missed this late last month but thought it worth noting.

Reacting to an article in the Sun Newspaper, revealing plans at O2 to outsource call centres and up to 1000 jobs to Capita.

It is another good example of the challenges facing companies when they introduce technology at the expense of people.

"Whilst the CWU understands that this is a company that is transforming itself for the future, to take advantage of new technologies and in order to provide new services, any transformation plans need to take into consideration the CWU members that are affected and they need to be at the very heart of any decisions made.

"The CWU therefore instructs the Telecom and Financial Services Executive to oppose any move by O2 to outsource the majority of call centre work as it is not in the interests of the members we represent. To oppose by all means possible up to and including industrial action."

Should outsourcing ranking be taken with a pinch of salt?

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Two different ranking lists in the outsourcing sector struck me this week because they both lacked the name IBM within them. Both had reasons for not including IBM but it does put into question the value of these lists.

IBM Global Services personifies IT services and its absence from these lists was surprising to say the least.

The first was a list from ISG, the big IT outsourcing consultancy, it has a list of the top 20 IT service providers for the first quarter of 2013. This was the 20 suppliers that had reported the highest contract values won in that period. IBM was not on the list. Apparently this was because a. contracts often come in lumps so it is not that surprising that a supplier might have a quiet quarter. And it is only contracts that are made public, so IBM might have been quiet about it.

The second list wasn't the top 100 Outsourcing Leaders from the International Association of Outsourcing Professionals. This is the top 100 outsourcers in general and is not focused on IT. However IT makes up a sizable chunk of the list and IBM is not on there. I was told the reason for this is that it is an opt-in list, so IBM presumable didn't opt in. Although the ranking is not just on size it is still a surprise that IBM is not there.

This makes me question the value of such lists. Having worked in journalism for years and seen many people win awards you learn that entering a competition is not only a must if you want to win, but is also half the battle. But it does not mean you the winner or winners are the best. OK industry awards are a bit of fun I suppose, but if you are a business taking these lists seriously they might be misleading if leading companies are excluded for one reason or another.

This reminds me of an article I wrote about IT analysts a while ago. IT analysts are highly respected and really influence buyers when decisions are made by CIOs. But how accurate and broad is the research? I suppose if you follow Gartner's advice you can't go far wrong, but this does not mean you will get the best IT for your need.

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.


Cognizant exceeds $2bn in a quarter driven by SMAC and non-linear growth

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Cognizant announced its results this week and reported sales worth over $2bn in a quarter for the first time ever. The company said its social, mobile, analytics and cloud (SMAC) services contributed to the sales growth as well as services that achieve non-linear growth.

This is interesting because it is the big challenge for the Indian suppliers. They have grown fat of offering more and more to corporate customers. They have been achieving linear growth by selling more and more of the same services. For example add 10 more offshore workers and you add the same amount of revenue, but there is a limit to how many workers you can sell. In contrast a cloud service can increase your revenue whenever the customer increases its consumption, but the cost of providing the service does not increase in the same way as adding workers would.

Rising costs in India as well as technology developments such as cloud computing and process automation software are putting the big offshore suppliers under pressure but they are reacting to it.

Cognizant said in its results announcement that it is benefiting from non-linear growth. I am waiting to hear more details about the services providing this growth and will blog about it when I get some details.

It is not alone amongst the big Indian players. Infosys recently partnered IT and business process automation software maker IPSoft to add value to its services. This means Infosys will be providing higher value work to customers in the form of managing the automation of processes that previously would have been completed manually by Infosys.

And for similar reasons Wipro partnered and took a stake in Big Data science company Opera Solutions.

Then you have TCS, India's biggest IT services firm. TCS's deal with the Home Office to run the Disclosure and Barring Service (DBS), is interesting because when TCS takes over the contract there will be fewer of the delivery staff working offshore than there was under the previous supplier Capita. This is because TCS is increasing the amount of automation and digitization, which requires less people.

Could we see a lot more acquisitions from the big Indian players? I always thought someone like TCS would buy a big European supplier to gain a bigger footprint in Europe but it seems it is more likely to be small niche players that offer non-linear growth opportunities.

In his ten predictions for outsourcing in 2103, Mark Lewis, outsourcing lawyer at Berwin Leighton Paisner, said: "Only offshore IT and BPO providers that achieve the nirvana of non-linear growth will put on significant revenue and margin growth in 2013."

IBM's services arm is still a monster, the lumpy bookings skewed performance

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I blogged yesterday about ISG's list of the top 20 IT service providers in the first quarter of 2013.

This is in terms of contract value sold in the quarter. I focused in the fact that IBM was not in there. It seemed strange as IBM Global Services is a gorilla and a half.

I asked ISG why this might be the case so I thought I would set the record straight with the ISG reply.

he first thing to point out is the list only takes into account public announcements so if IBM didn't publicly announce wins they would not appear and the other point is that bookings come in chunks so nothing should be read into a quarter's performance.

So the shock of IBM's absence is explained.

Who are Europe's top IT services firms in Q1 of 2013 and what happened to IBM?

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The EMEA region saw $762m worth of IT services contracts signed at the beginning of this year. This was a 20% fall in contract values in the first three months of 2013 compared to the same period in 2012. This was according to the latest report from ISG, which registers all contracts worth over €4m.

I thought I would publish ISG's list of the companies that took the biggest shares of this spend. What is a surprise is IBM's absence? Strange, in 2009 according to Gartner IBM was the number one IT services firm in Western Europe (which accounts for most the EMEA spend.)

Most the usual suspects are all there but there are also a few I don't know at all, as well as some specialists thrown in.

Top 20 IT services firms in terms of total EMEA contract value won in the first three months of 2013. This is in alphabetic order

1 - Accenture
2 - AT&T
3 - Capgemini
4 - CGI
5 -Communisis
6 - Evry
7 - Genpact
8 - HCL
9 - HP
10 - Infosys
11 - Lottomatica
12 - Nokia
13 - SQS
14 - Swisscom
15 - TCS
16 - Thales
17 - Tieto
18 - Virtusa
19 - Xchanging
20 - Xerox

See more on ISG's research here.

Do you really know the IT services firms you are outsourcing to?

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Here at Computer Weekly we provide premium content for readers, free of charge. This includes detailed reports about IT services providers.

The latest one is about CSC, but we have published many already. You can download them by clicking on the suppliers' name and filling in a simple form.

Once you sign in you can read any premium content without having to out your details again.

CSC
Accenture
Infosys
Cognizant
Atos
Tata Consultancy Services (TCS)
Capgemini
Wipro
Capita
Steria

Indian IT supplier partners offshore IT killer

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I have been writing quite extensively recently about the increasing use of automation software in business. Businesses are increasingly automating low level IT and business process tasks through software.

This might be a large telco automating a process by which it sends customers new SIM cards or it might be the automation of thousands on monthly software releases at a bank. Although there are money advantages such as increasing the speed and consistency of tasks it is the low cost which is seen by many as the big attraction.

So in the same way that offshore suppliers can lower the cost of IT and business processes through cheaper labour, software robots can. So it is often labeled as an offshore killer. For example O2 decided to move to business process automation software to reduce its reliance on offshore staff. Although the staff in India are about a quarter of the cost of UK equivalents it adds up.

The offshore suppliers therefore have to get involved with automation software as more and more businesses are likely to take it up. IT trade body Intellect is even promoting automation software to UK businesses. One of the things that software automation brings to IT departments is a freeing up of resources to focus on higher level tasks. It is debatable how many low level IT tasks are carried out in-house these days by big businesses with the massive cost savings offered offshore, but the offshore suppliers will want to be the ones that do the higher level jobs.

Anyway the point to this post is to highlight the deal agreed between IT automation software firm IPsoft and Indian IT services provider Infosys, which is training 5000 people in India on the IPsoft technology. So Infosys will be after the higher level IT jobs. I am sure there will be more offshore suppliers following Infosys' example but thought this was worth noting.

Read some of the articles I have written about automation software here:

Low-level tasks eat up 30% of IT departments' time, report reveals

Shop Direct deploys software to automate business processes

Co-operative bank extends automation

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