Industry news

Health secretary Andrew Lansley is understood to be drawing up plans for a dedicated central unit to house billions of pounds of 'toxic' IT-contract exposures says the Guardian.

The IT project, which was the subject of a swingeing report from the MPs' public accounts committee last week, is also believed to be top of cabinet office minister Francis Maude's list of government procurements he wants officials to revisit.

Maude's Major Projects Authority, which is reviewing several large government contracts, last week sent tough proposals to the prime minister setting out recommendations on how years of information technology delays and contract disputes in the NHS could be resolved in the best interests of taxpayers. Lansley recently described the programme, the largest non-military IT project ever undertaken, as an "expensive farce". He is expected to announce a new structure for health service IT within weeks.

Interserve, the international support services and construction group, announces its half-year results for the six months ended 30 June 2011.

Shares in Interserve rose 10.5 per cent yesterday after the group posted higher first-half profits, saying it was confident about its medium-term outlook as demand for outsourcing gathered pace.

The company, whose clients include the BBC, the NHS and retailers including Sainsbury’s, said pre-tax profits rose 10.3 per cent to £30.1m in the first half of the year, despite choppy market conditions.

LloydsTSB is cutting another 15,000 jobs but will not be shutting branches as part of its strategic review.

The main targets will be back office staff. It is not shutting branches except as part of Project Verde – the EU-mandated scheme to sell off 632 branches, the TSB and IF brands.

The review document highlights £2bn in annual savings to be made by cutting jobs, withdrawing from 15 of 30 countries where the group operates and by moving the different parts of the business onto a common platform.

Oracle, the business software company, is launching a recruitment drive aiming to bring 1,700 new employees to the company across Europe.

Oracle, which has more than 108,000 employees across the world, said it was responding to increased demand in Europe for technologies such as cloud computing, where companies move their IT functions into remotely-hosted data centres. Europe accounts for about a third of the company’s revenues.

Activity streams, wireless power, Internet TV, NFC payment and private cloud computing are some of the technologies that have moved into the Peak of Inflated Expectations, according to the 2011 Emerging Technologies Hype Cycle by Gartner, Inc. Other newly featured high-impact trends include big data, and natural language question answering.

Gartner's 2011 Hype Cycle Special Report provides strategists and planners with an assessment of the maturity, business benefit and future direction of over 1,900 technologies, grouped into 76 distinct Hype Cycles. The Hype Cycle graphic has been used by Gartner since 1995 to highlight the common pattern of overenthusiasm, disillusionment and eventual realism that accompanies each new technology and innovation. The Hype Cycle Special Report is updated annually to track technologies along this cycle and provide guidance on when and where organizations should adopt them for maximum impact and value

The "Hype Cycle for Emerging Technologies" report is the longest-running annual Hype Cycle, providing a cross-industry perspective on the technologies and trends that IT managers should consider in developing emerging-technology portfolios.

"Hype Cycle for Emerging Technologies" targets strategic planning, innovation and emerging technology professionals by highlighting a set of technologies that will have broad-ranging impact across the business," said Jackie Fenn, vice president and Gartner fellow. "It is the broadest aggregate Gartner Hype Cycle, featuring technologies that are the focus of attention because of particularly high levels of hype, or those that may not be broadly acknowledged but that Gartner believes have the potential for significant impact."

Historically, IT management outsourcing involved organisations “throwing everything over the fence”, with whole departments being outsourced. That model has changed significantly.

In today’s IT world, monolithic contracts are being broken down with a drive towards multi-contract, multi-sourcing. So, the in-house departmental role is much more about contract management. A good example is data centre services being outsourced to one supplier, while desktop services and service desks to another.

The challenge of multiple outsourced contracts is that, even when using the same outsourced contractor, they are often negotiated at different times by different in-house teams. The result is ambiguities and can require mediation.

Many first and second generation outsourced contracts have failed to live up to clients’ expectations. In many cases there is a lack of recognition that, while suppliers do a lot of things well, certain services are weak links in the outsourcing chain. For example, information systems (IS) strategy, commercial management, governance and contract management are best retained in-house. After all, a company will always know its business better than anyone else, regardless of how embedded outsourced suppliers are.

Without this internal scrutiny, organisations are often left, at best, questioning if they are receiving the services that they signed up to receive; at worst, hiring additional resources to cover the gaps they perceive to exist in the retained suppliers’ skills and services.

So, whenever organisations are looking to renew contracts or go out to market again for their IS services, very careful consideration should be made as to what services are best suited to be outsourced and the split of these services between partners.

When selecting the services to outsource, a number of questions should be asked, including:

• Are the services commoditised and repeatable?

• Does the proposed supplier have a track-record in delivery this service?

• Does the proposed supplier have a vested interest in delivering quality service levels?

• Do other partners rely upon the output of this service and are their services potentially impacted by poor service delivery?

An approach, which takes-in the entire operational design and delivery of IS services (both retained and outsourced) is often very powerful and beneficial, focusing on ensuring an holistic view and understanding of the services. Specific attention to detail is required around the hand-off points between retained organisation(s) and partners, and between partners themselves where relevant. These hand-off points are often the areas that cause angst when it comes to the period of actual operation. Taking the time to get these right at the outset will pay dividends later on.

Operational design is essential to ensure outsource contracts are set up for success. The in-house team needs to take a step back and map everything required to deliver the best service to the business and determine whether it should be managed in-house or externally. Companies need to recognise their strengths and weaknesses. This, in turn, helps in identifying what is required from outsourced suppliers.

In Xantus’ experience, “honesty” and “trust” are great words, but are not always adhered to. Organisational design is often the aspect that is missed out, with people perceiving structure and design as names in boxes. In reality, the process starts further back, requiring an understanding of the necessary services before names are considered. It’s not groundbreaking, but is often forgotten or left until the last minute. Failure to take this approach means the surprising appearance of gaps and ambiguity between clients and suppliers and, more importantly, between suppliers themselves.

IT spending is just one of many areas in which public sector organisations are required to make cuts. There is a lot to be gained by those who take a more structured approach to cost reduction. Here are five pieces of advice that will stand your organisation in good stead...

1. Review existing contracts

A good first step is to review all of your existing contracts with suppliers. It’s important to get a system in place that allows you to see who is spending what, and in which areas. Document:

• when the contracts were last reviewed;

• whether there are any credits, or service-level penalties or rebates in the contracts;

• what termination clauses each contract has;

• and the context in which the contract was signed.

Once you have this system in place, you will have a better understanding of what flexibility you have for cost reduction.

2. Identify inefficiencies

Having a system in place will allow you to identify where you are spending more than you need to. You could either begin with the contracts that are up for renewal within the next six months, or take a more strategic approach by looking first at the bigger areas of spending.

But rather than just looking at costs, take care to consider the context in which each contract was originally signed. Even if the prices, service levels and supplier performance metrics tell you that a contract is not worth renewing, after some investigation you may find that in the context of a wider supplier relationship there is a valid explanation for the contract’s pricing and structure.

It is often the case that contracts constituting operational expenditure come into being as part of a larger capital expenditure (capex) project and then survive for months or years without being looked at objectively beyond the initial project. These can cost the organisation money long after the people involved in the capex project have moved on. Identifying and scrutinising these contracts costs often leads to significant gains.

For each contract, talk to the contract owners, and also the people who deal with the supplier, to find out if the supplier has performed satisfactorily and has met the agreed service levels. In each instance, the aim is to arrange something that is acceptable to the supplier, and provides value to your organisation.

Establish if there are items in the contract that over time have become less valuable to you, but that remain onerous and costly for the supplier to deliver. Sometimes it is possible to reduce costs by making suppliers’ lives easier: reduce their overheads and they can pass the savings on to you.

3. Stay abreast of IT developments

The next step is to ask if there are cheaper, easier, more efficient ways to deliver the solution. Here, the key to reducing costs is to benchmark what you are spending against other available suppliers and technologies on the market.

Of course, before you can benchmark, first you need to know who those suppliers are, and what those technologies are. To keep up to date with this, we partner with companies like Softcat that work with a comprehensive range of software and hardware from all of the main global technology vendors. This helps us to gain benchmark pricing across the board, and to establish what margins other organisations are paying in the market at any point in time.

The benefits of this are clear. Working with Softcat, for example, we managed to secure a 60% reduction on what our county council client was paying its previous supplier for one of its contracts. There are also significant savings to be made by outsourcing to companies like Softcat that have their own network operations centres for providing managed services.

4. Keep an eye on rules and procedures

Obviously, public sector organisations looking to reduce costs must ensure that they observe standard procurement rules. There is no point in investing a lot of time, energy, resource in negotiating a contract with a specific supplier only to find later that you were required, say, to put the work out to tender, or that the contract winner needed to be part of an approved supplier framework. That’s another advantage of working in partnership with companies like Softcat, which have already invested time, money and expertise in making themselves accessible to public sector organisations.

5. Learn from external consultants

It’s good to have external consultants assist you in reducing costs, but better still to have them explain how to keep doing it once they have gone. It’s important that part of what consultants deliver is knowledge transfer of the process and mechanisms that you can use to procure cost savings.

Your goal in working with a consultant might be to change the culture of your organisation from one that spends budgets to one that optimises budgets. This is an area that our public sector clients are very keen on. They see the value in our transferring roadmaps and repeatable methodologies to their internal teams.

An external third party can help to broker a public sector organisation’s ideal relationships with its suppliers, especially in instances where the two parties have some history of working together and have become entrenched in their thinking. Often it is possible to improve the understanding you share with your suppliers of what it takes to deliver a service, and what it takes to be a good client. It is possible to make the service more efficient for the benefit of both parties. The aim, naturally, of taking a win-win approach is to ensure the stability and longevity of successful client/supplier working relationships.

Before you do anything else, you need to understand exactly what outsourcing is and why you need it. Outsourcing can benefit companies of all sizes, but particularly organisations making the transition from start up to fully fledged business. When it’s done well outsourcing owners can save your business money and support growth, but it’s essentially that business owners understand the challenges and potential pit falls in order to get the most from outsourcing

Outsourcing can bring huge benefits to a company, but only when it is done right. The common misconception is that it’s all about handing over control to a stranger, but it doesn’t have to be this way. Instead it should be viewed as a strategic, cost-effective service provided by a close partner that gives your business more flexibility and the room to grow.

When should you outsource?

Understandably, some entrepreneurs will be nervous about entrusting part of their business to an external company. There are a number of reasons for this, from trust and loss of control, to quality assurance or even the perceived vulnerability of relying on a supplier. But discussing these concerns openly with potential suppliers will often be enough to reassure you. A prospective outsourcer’s costing process and service presentation should provide reassurance and help you understand how and what parts of the process can and/or should be outsourced.

Key considerations

You need to have assurances in place to make sure any issues in the repacking process aren’t transferred to the end consumer. The warehousing system between the client and supplier have to be completely integrated in order to maintain the integrity of the product – for recall purposes, both parties need to be able to identify, monitor and control production batches.

When selecting an outsource partner, it’s not just about the supplier’s ability to do the job but also its ability to manage an escalation in increased volume; it’s important that the supplier has the ability to increase capacity if required. I would urge you to go and see the operation and check for yourself.

Benefits

Undoubtedly one of the single biggest benefits of outsourcing is being able to continue with production at full speed.

Another major benefit of outsourcing is managing resources through the peaks and troughs. Most manufacturers don’t have the luxury of having abundant capacity in its warehouses, so the ability to change inventory with demand and buy by the hour or per unit is a massive advantage when it comes to controlling costs. You're also likely to get an optimum cost for doing the job, which should ultimately provide cost savings. Finally, above all else, it allows the organisation that is outsourcing to concentrate on its core services.

Potential pitfalls of outsourcing

There are of course potential cons to outsourcing. As a potential outsourcer you're going to have to work extremely hard to put together the most accurate invitation to tender. If you fail at that, you will fail all the way through. When you're looking for a potential outsource partner you need to know what you're buying. You have to know exactly what you need, as the pitfalls of ambiguity on invitations to tender are the prime reason for partnerships failing and indeed, are the biggest complaint amongst the outsourcing community.

The secret of successful partnerships

To develop closer relationships and work out mutually beneficial strategies, business owners need to openly discuss their plans for the future with suppliers, under a non-disclosure agreement if necessary. Ultimately if the outsourcing is very successful it may end up with the business having enough critical mass to take the operation back in house. This is not something to be afraid of talking about, as suppliers need to be well aware of their part in the development process and will often be happy to work on this basis.

Business owners and suppliers need to work harder at forging stronger relationship, as it’s only when close working partnerships are developed that the benefits of outsourcing are truly realised. Regular contact and transparency throughout the supply chain is essential, as any small error could potentially affect thousands of products. As such it is important that your outsourcing partner has the software in place to enable you to do this. For example, implement a real-time reporting system to demonstrate capability for clients to keep 100% up to date with campaign activity.

If nothing else, I’d say businesses shouldn’t be scared of outsourcing. There are suppliers out there that can provide great tactical solutions and could be just the right catalyst to take your business to the next level.

New reports state that proposals for seven Scottish local authorities to share some services have been announced, with the mission objective to save millions.

The plans will see North Lanarkshire, Renfrewshire, East Renfrewshire, Glasgow, Inverclyde and West and East Dunbartonshire councils sharing support services including finance, payroll, revenues and benefits, HR and IT.

If agreed the new shared service would operate as a public body jointly owned by the participating councils. A management team would be appointed to manage the transfer of services.

BSkyB is set to double the number of wi-fi hotspots it operates in the UK to 10,000 sites by the end of the year as The Cloud, its mobile broadband division, continues to add substantial numbers of new customers to its network.

The Cloud, which the satellite broadcaster acquired for almost £50 million in January, has signed up Nintendo as a new wholesale customer. Nintendo will allow its 3DS customers to link to The Cloud free of charge.

Steve Nicholson, managing director of The Cloud, said that the takeover by BSkyB means it can better compete with the likes of BT, the largest operator of wi-fi hotspots in the country, in winning new business from companies looking to offer wi-fi. “Our ambition is to double the size of our network by Christmas. Our problem is how to scale from a relatively small business to deliver what Sky wants to achieve without the wheels coming off,” he said.