Industry news

French IT services giant Atos Origin has been given clearance by the European Commission to proceed with the acquisition of Siemens IT Solutions and Services, which was originally announced on 1 February.

The transaction has also been approved by the US anti-trust authorities.

The acquisition is expected to close by July, subject to the completion of the remaining condition that the Atos Origin shareholders give their approval at an Extraordinary Shareholders Meeting.

Atos Origin will pay €850m (£725m) for the division.

The IT services company that will result from the acqusition will bring in annual revenue of about €8.7bn, and employ 78,500 staff worldwide.

Atos effectively cherry picked the best part of what has always been a loss-making division, by purchasing only 90 per cent. Siemens agreed to retain the remaining 10 per cent.

When the deal was announced, Tim Daniels, TMT strategist at Olivetree Securities, described it as "a steal".

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Southwark Council has lost a £700,000 legal battle against IBM over a problematic master data management system implementation.

The system was put in place in 2006, and after a review in July 2007, the council argued that it was unfit for purpose and of unsatisfactory quality.

Southwark found problems with the user interface, messaging integration, matching strategy, and a lack of reporting capability.

However the judge ruled that Southwark Council had fully understood the capabilities of the system, and decided to plough ahead with installation despite it being an inappropriate choice.

"An analogy is the potential car purchaser who might want an off-road vehicle but, having looked at the brochure for an on-road vehicle, says to the salesman 'That's what I want' and buys that vehicle," the judge said.

"There will be no cause of action against the garage for the car being no good off the road. The salesman will reply, with justification: 'You got exactly what you asked for'. That is essentially what has happened in Southwark's case."

The council said it will not appeal the case, and is now going to assess its current system and look to other vendors for implementation.

"This case refers to the acquisition of software back in 2006 which, in our view, was not fit for purpose," a council spokesperson said.

"We're disappointed with the judgment but we took this action because we believed we had been missold a product. Our duty is to have IT systems that work and that save the council and the council tax payer money.

"We will not appeal. We will now have an internal review to make sure we get the software we need so that we are able to cut running costs for the organisation and we will look for suitable partners to help us deliver this."

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Accenture has entered into a multi-year contract in which it will provide the Netherlands-based global logistics company CEVA with finance and accounting (F&A) business process outsourcing (BPO), and management consulting services. The financial terms of the contract were not disclosed.

The F&A BPO services Accenture will provide include accounts payable, accounts receivable, month end close, balance sheet reconciliations and reporting. Accenture will ultimately provide these F&A services to CEVA through the Accenture Global Delivery Network using delivery centers in India, Romania and Argentina.

The management consulting services Accenture will provide focus on the harmonization and redesign of a number of CEVA’s operational processes. The bundling of the management consulting services alongside F&A BPO will allow CEVA to accelerate the transformation of its finance function across both the outsourced and retained organisation by focusing on the end to end business processes.

Through these services, Accenture will help CEVA to exhibit greater control over cost management, minimize revenue leakage and create more consistency in business processes throughout the logistics and shipment lifecycle. By leveraging its deep industry skills and knowledge, Accenture will help CEVA to streamline its back-office operations while allowing the logistics company to concentrate on client relations and the development of better services.

“With its strong background in business transformation and BPO, Accenture was an obvious partner for CEVA,” said Rubin McDougal, CFO, CEVA. “Accenture already has a strong working knowledge of our operations which is helping the transformation process.”

“The bundling of our different capabilities will enable us to deliver a cost-efficient, seamless and enhanced service,” said Jan-Coen Smit, at Accenture. “And it will allow the logistics company to keep its focus on delivering quality and innovation to its customers and achieving high performance.”

Accenture has been providing a range of services to CEVA for more than three years and this agreement will bring the relationship between these companies to a new level of collaboration on a range of management consulting and technology projects.

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While faster growth looks good for investors, customers are more concerned about what a vendor can offer beyond pure cost savings.

"It's unlikely that faster growth in the past two years help these companies win a lot of new clients. A 5% or 10% difference in growth rates does not make such a big difference to the client. What a client looks at is the capability, the domain expertise and the pricing," said Amneet Singh, vice-president, global sourcing, Everest Group.

For HCL Technologies, the strategy has been about gaining more business by going for total outsourcing contracts - an area where profitability can get affected, according to analysts.

HCL's strategy of focusing on market share gain has yielded good results over the past 18 months as HCL has grown revenues ahead of peers.

"That said, the concomitant deterioration in margins and cash-flows has meant that there isn't enough in the plate at the cash profit level for investors. While we do not think having a lower margin is necessarily a bad thing, it needs to be accompanied by solid revenue growth over an extended period of time (which Cognizant has demonstrated)," CLSA analysts Nimish Joshi, Bhavtosh Vajpayee and Arati Mishra said in their February report to investors.

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Building on 25-plus years of experience working with more than 1,000 clients, IBM is officially unveiling a ‘pre-engineered technology services model’ that can cut deployment time by more than 60 percent, and slash costs by up to 50 percent. Big Blue’s new services capabilities are based on a set of server, storage, networking and help desk services ‘assets’ that integrate process, software, industry expertise and IBM research to create reusable building blocks. The company says that by ‘baking’ its expertise, software capabilities, experience and best practices into its services offerings in a standardized, systematic way, it can speed up the time it takes to build the basics.

IBM says that most IT organizations have been dealing with massive growth and less-than-ideal results over the last few years. The challenge was to come up with how to dramatically increase its outsourcing business in a way that would enable future growth for their clients, sort of “a gift that keeps on giving”.

While each customer engagement tends to be unique, IBM says that they tend to involve 80 percent standard solutions and 20 percent customization. The company started putting the concept together about two years ago, and a year later used itself as a test bed, deploying its entire storage infrastructure using the standardized asset-based approach, which is expected to lower its storage costs by nearly 50 percent.

According to the InformationWeek Analytics 2010 Business of Outsourcing Survey, nearly six of 10 IT shops outsource some critical function–management, engineering, or development; almost one-fourth keep executive and management functions in-house but look to outsource everything else. However, 29 percent of the 530 business technology professionals surveyed have fired a vendor within the last 12 months.

Last year HP launched its Cloud Start service, which includes everything for a cloud deployment such as application and virtual machine sizing tools, deployment scripts, processes and work flows to new, on-board applications and training for HP’s Cloud Service Automation software. The offering was based on taking a standardized approach to the company’s consulting and build-out services, and offering a quicker turnaround.

Bill Martorelli, principal analyst, sourcing and vendor management, Forrester Research, thinks that IBM’s new offering, as well as cloud service initiative’s like HP’s, are in line with the trends he’s following in the outsourcing market. “I think it is broadly consistent with the trend in this market that is focusing on services that are more packaged, more bound up as building blocks as opposed to custom one-offs.” This market has tended to be characterized by a lot of customization, he says, and this is an attempt to bring in more standardized, pre-engineered solutions.

There is growing commoditization in the outsourcing market, as well as an increase in the number of companies competing with IBM, says Martorelli. It’s been a very competitive market which finally looks like it’s growing again. He expects that the move to cloud services will become more prevalent and that IBM’s latest announcement is a step in that direction.

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Sri Lanka’s information technology and business process outsourcing sector is positioning itself as a niche player targeting finance and accounting, telco, travel and aviation sectors, an official said.

“We will focus on SMEs (small and medium enterprises), more that 90 percent of us are working with SMEs in other countries,” Dinesh Saparamadu, head of Sri Lanka Association of Software and Service Companies (SLASSCOM).

“We want to be known for quality and ethics, which will be the differentiator.”

SLASSCOM has 120 members who account for 90 percent of the exports.

Saparamadu said IT was now the country’s fifth largest export and the industry wanted to push revenues to a billion dollars by 2015.

SLASSCOM was working with universities and higher education institutes to expand capacity and was also increasing awareness is schools with students and parents about opportunities available in the sector.

Saparamadu said the association has engaged a public relations firm in the UK to build international awareness about the country.

Recently a sector report on financial and accounting services outsourcing had been released which potential investors who want to set up shop can use.

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Thames Water, the largest water company in the UK, has signed a five-year contract with procurement specialists Efficio to manage £500m worth of spend a year.

The deal, which takes effect on April 6th, will mean Efficio providing a full procurement managed service taking responsibility for sourcing and contract management of all Reading-based Thames Water’s direct and indirect spend.

Thames Water head of supply chain Ian Bolger said: “We are confident Efficio will build on our existing staff expertise to take us to a higher level of procurement effectiveness.”

The London-based consultancy had previously led an 18-month procurement transformation project with Thames Water to improve efficiencies and generate savings in both capital and operational expenditure.

Efficio chief executive Jens Pedersen said: “We are delighted to have won this contract with a major UK company and look forward to delivering excellent results for Thames Water.

“Having worked with Thames Water in the past we know they understand the contribution we can make to their continuing success.”

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The Ministry of Justice (MoJ) has signed a £14m five-year deal to have its ERP system hosted in the cloud.

It is expected that this will deliver annual savings of £28m a year by 2014.

Cloud infrastructure company Savvis will provide the MoJ with access to its Government Wide Service (GWS) platform.

GWS is an infrastructure-as-a-service (IaaS) platform that has been made available to all government departments and third-party suppliers in the UK.

It was developed to help the government achieve its ambition of creating a G-Cloud – a hosted environment for public sector IT operations and services.

The MoJ will use GWS for its ERP system, which is being designed by Steria, and will be implemented by Accenture.

The ERP system will deliver transactional and professional services to more than 80,000 users, including functions such as human resources, finance, purchase and payroll.

It is expected that this will be fully operational by spring 2013.

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Spanish telecom giant Telefonica plans to invest 24.3 billion reais (some $14.7 billion) in Brazil between 2011 and 2014, CEO Cesar Alierta told Brazilian President Dilma Rousseff.

That amount represents a 52 percent increase over the previous four years, the company said Wednesday in a statement.

The funds will be used to modernize and expand the company's telecom network and launch products and services in the fixed and mobile telephony, mobile and fixed broadband and cable television segments, as well as acquire operating licenses.

Alierta, who was received here Wednesday by Rousseff at the Planalto presidential palace, also announced that a new innovation center will be established in Sao Paulo - Telefonica's first outside Spain - to develop technological solutions for video and fiber-optic platforms.

"We are investing heavily in expanding our services and networks with the aim of covering close to 100 percent of Brazil's municipalities with our telephone and broadband internet, both fixed and mobile," Alierta was quoted as saying in the statement.

Telefonica has invested a total of 57.4 billion reais (some $34.6 billion at the current exchange rate) in Brazil since launching operations there in 1998.

Including projected investment through 2014, that total would climb to 82 billion reais (some $49.4 billion at the current exchange rate).

Telefonica is the fixed-telephony market leader in Sao Paulo state, Brazil's wealthiest and most heavily populated, with close to 12 million customers. The company also has 3.3 million fixed broadband subscribers in that state.

Its mobile phone unit in Brazil, Vivo, is the country's market leader with close to 60 million subscribers, or roughly a 30 percent market share.

Telefonica last year took full control of Vivo by buying out the stake held by then-joint venture partner Portugal Telecom for 7.5 billion euros.

The Spanish company's fixed-telephony unit in Brazil, Telesp, posted net income of 2.4 billion reais (some $1.4 billion) in 2010, an 8.8 percent increase with respect to the previous year.

Vivo's net income came in at a record high of 1.9 billion reais (some $1.1 billion) last year, up 115.7 percent compared to 2009.

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Krispy Kreme Doughnuts has revealed plans to seal a supply chain distribution agreement with Sysco Corporation, a food marketing and distribution company.

Under the terms of the proposed agreement, Sygma, a Sysco subsidiary, will distribute proprietary doughnut mixes, other ingredients and supplies to Krispy Kreme franchise and Company shops in the eastern United States.

Sysco subsidiary IFG will be responsible for export of Krispy Kreme goods to the 20 foreign countries in which the company's international franchisees operate.

Krispy Kreme outsourced distribution to shops in the western United States in 2008. The anticipated transition to Sysco in the eastern US and internationally is expected to take place in the second and third quarters of calendar year 2011.

Upon completion of the transition, the company will have outsourced all of its domestic and international distribution operations.

The deal means Krispy Kreme will benefit from Sysco's buying power and the size and reach of its distribution network, said Brad Wall, senior vice president of supply chain and off-premises operations for Krispy Kreme: "By completing the outsourcing of delivery of doughnut mixes, ingredients and supplies, we expect to further simplify our supply chain operations and add capabilities and services for our franchisees."

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