Industry news

With cloud computing being the number one sourcing hot topic at the moment - the NOA steering committee was held on Thursday 14th October at Zylog Systems to focus on the commercial, technical and legal aspects of buying or developing, new, cloud-based applications.

Apollo Research analyses coverage of outsourcing in a large sample of UK media, including print, online news sites and blogs. In July and September, cloud computing was the number one subject in outsourcing with a 14% share of all coverage. Only 1.2 % of all of that coverage was deemed to be negative. Cloud computing is big news.

Andy Rogers, Representative for Corporate Users, said: “This NOA steering committee was developed out of user feedback, client interest and recent Apollo Research. The element of trust is a key point for the future of cloud computing. A strategic partnership, such as this one, and sharing of development and innovation is key.”

It is clear that the two main issues regarding cloud at the moment are security and cost.

Time will tell whether new reforms and legislature regarding EU data transfer are needed as many companies are already developing new ways to secure their own transfers.

Andy Beale, Technology Director for Architecture and Services, Guardian News and Media, said: “There should be an increase in security with cloud data transfer and there will obviously be no need for hard-copies, data pens and laptops. However if cloud computing is truly going to succeed, it needs to show its cost and be completely transparent about its expenses.”

The committee agreed that businesses and technology will need to be completely integrated otherwise the full value and advantages of cloud will not be gained. Large tentative enterprises will look to adopt cloud but it will first need to be embraced by the SMEs to demonstrate its true flexibility, costs and security.

Matt Watson, Opal, said: “The market is actually quite far ahead on cloud and there seems to be a lot of people writing a lot of things about it. What the market needs now is some guidance and insights.”

Moving forward the NOA steering committee will endeavour to provide some guidance and insights and produce an agreed model for cloud computing, encompassing Cloud / SaaS Platforms, Identity Management, API Management, Integrations, as well as Subscriber Management and Billing Systems. This model will be used to map the Cloud / SaaS Scene, and also to generate topics for discussion during the NOA’s scheduled Cloud Computing seminar in 2011.

A sourcing focus feature on cloud computing will be available early November.

The toughest public spending cuts in living memory will be achieved only with a mix of unprecedented political will and a dollop of economic good luck.

Chancellor George Osborne put flesh on Wednesday on the bones of some 80 billion pounds of cuts that he announced in an emergency budget in June.

Average spending by government departments will fall by 19 percent over the next four years -- slightly less than the drop of a quarter expected for most departments.

But the cuts will come at a cost of almost half a million public sector jobs and a squeeze on welfare that is nearly two thirds bigger than what was promised in June.

Job cuts on this scale will go beyond efficiency savings and require scaled back or reduced quality services, piling pressure on the government to renege on its plans.

Welfare savings are even harder to bank with certainty as they hinge partly on the long-term unemployed finding jobs, and government growth forecasts for when the cuts start to bite next year are more upbeat than those of many other economists.

Osborne was clear that he believed Britain's budget deficit of 11.1 percent of gross domestic product (GDP), the largest in the G7, left him no option to such drastic action if the country was to avoid a Greek-style fiscal meltdown.

JURY OUT

However, economists said the jury was still out on whether he would achieve this goal with his current plans, which rely overwhelmingly on spending cuts rather than tax rises.

"It depends on political will," said Andrew Smith, chief economist at accountancy firm KPMG.

Such determination could not be taken for granted, despite the Conservatives campaigning in May's election on the promise to reduce the budget deficit faster than the Labour government.

When a Conservative administration last had to make cuts in the early 1990s, they ended up balanced roughly equally between spending cuts and tax rises, Smith said.

"That was partly because when push came to shove, it became very difficult to make the spending cuts. Until you see it happening, it's slightly questionable."

The National Institute for Economic and Social Research expressed a similar view on Tuesday.

Cuts are not distributed equally across government. While health and schools spending is largely protected, day-to-day funding for the ministries in charge of police and prisons is due to fall by a quarter.

"It will be interesting to see how the Ministry of Justice will manage a 6 percent a year cut with upward pressure on prison populations," said Jon Sibson, head of public sector at accountants PwC.

Ultimately there was too much political credibility at stake to avoid the 490,000 job cuts that Osborne forecast.

"If people are determined to get headcount down, the machine will do this," Sibson said. "The extent and quality of some services will go down, there is no question."

However, while the government has direct control of the 395 billion pounds of departmental spending this year, it has less influence on the more than 200 billion pounds it spends each year on debt interest and welfare payments.

Welfare costs in particular could balloon if official forecasts for growth of around 2.7 percent over the next four years prove too optimistic -- whether due to an underestimate of the impact of the spending cuts or because of a global slowdown.

"The resumption of robust growth is crucial to the deficit reduction arithmetic. But the Chancellor is making some rather heroic assumptions," said KPMG's Smith.

"Households may continue to save and pay down debt rather than spend, businesses may remain reluctant to invest and export performance could suffer from a lacklustre global recovery."

"PAPER CUT" OR "AMPUTATION?"

Economists polled by Reuters in September -- when the scale of the fiscal tightening was clear if not its precise make up -- forecast Britain's economy will grow by 1.6 percent this year and by 1.9 percent in 2011.

The CBI and the British Chambers of Commerce said reductions in infrastructure investment were less severe than feared and that tackling the deficit was a top priority.

Others were much more pessimistic.

PwC forecast that a total of 943,000 jobs in the public and private sectors will go by 2014/15 because of the spending cuts, which will damage private sector suppliers too.

This is equivalent to 3.4 percent of jobs nationwide, but regions more reliant on government money such as Northern Ireland and Wales may suffer job losses of 5.2 percent and 4.3 percent respectively.

The worst hit sector is likely to be construction, where PwC forecasts a 5.1 percent loss of output due to a reduction in government capital spending. Business services will be the next biggest victim, with output taking a 3.9 percent knock.

Regardless of these figures, Osborne is likely to draw comfort from the most important audience for his spending review -- the ratings agencies whose threats to downgrade Britain's AAA credit grade is driving the rapid pace of deficit reduction.

"Today's Spending Review ... enhances the credibility of the deficit reduction plan by detailing the spending priorities and measures necessary to stabilise UK public finances and debt, and secure the UK's 'AAA' status," concluded David Riley, head of sovereign ratings at Fitch.

Source: http://uk.reuters.com/article/idUKTRE69J54G20101020?pageNumber=1

Working with any type of outsourcing company will mean relaxing the control you exercise over your brand image to some extent. But how far should an organisation allow this to happen and are there any real dangers inherent in it?

Outsourcing the recruitment process has the potential to cut both ways when it comes to brand values. Give candidates a good, well-managed experience and, even if they don’t get a job out of it, they can come away with a positive view of the client company. Give them a bad one and they may never buy that organisation’s products or services again. Telecoms giant Nokia seems acutely aware of this. Greg Allen, its EMEA recruitment manager recently told a conference that, “Our product brand is a very expensive thing and we are not going to give it to people who go out to the market with the wrong message. A terrible candidate experience falls back on Nokia and that is one thing we won’t tolerate. We won’t let anyone mess with our product brand.”

The potential for brand hubris or nemesis is bigger than ever today because of power of the internet. Online platforms such as LinkedIn and the seemingly ubiquitous Facebook are not just lightening fast communicators of information, they have also become vital sourcing tools for both internal and external recruiters, allowing them to target very specific groups based on their demographics and profile. However could this apparently legitimate use of publicly available data lead to accusations of covert or overt discrimination? For example, while no organisation would dream of advertising for ‘experienced’ people any more, why is it OK to post an advert on Facebook whose key demographic is 18 to 23 year olds. Taking it further, what is to stop recruiters using this same data, consciously or sub consciously, in their evaluation and selection of potential candidates? Does the fact that the individual has chosen to put this information 'in the public domain' (and believe me people - it really is public!) make the information any less sacrosanct?

It’s obvious that handing over stewardship of a brand in the HR and, very specifically, the recruitment space is to enter a veritable minefield. And, as a consequence, many HR directors and other potential commissioners of outsourcing services remain hesitant, like swimmers dithering around the side of an under-heated pool. But little was ever achieved through inaction. The key seems to be a truly rigorous tendering process when selecting an outsourcing firm and an insistence on a business relationship that is not just about client and provider but real partners. Because, as Ian Ruddy, Head of HR Operations at Telefónica O2, puts it, “The day you have to get the agreement out of the drawer is the day you don’t have an agreement.”

Chris Hornsby is business solutions manager at recruitment outsourcing and talent management specialist, Ochre House – www.ochrehouse.com

Surviving the first 100 days as a new CIO

Alex Blues, Head of IT Sourcing, at PA Consulting Group

In the second part of his series of blogs on his first 100 days as a new CIO, Alex Blues, Head of IT Sourcing at PA Consulting Group, discusses the need to demonstrate value for money.

Over the past five years, there has been an increasing focus on improving service and more recently, due to the economic downturn, on cutting costs. Unless you look at these two issues holistically and promote the prospect of creating Value for Money (VFM), you will end up promising a service you cannot deliver.

Traditionally, the board is always told to look at the big picture. However, with IT the big picture is always one large lump of money. The first step in creating VFM is to get the business to understand the detail around the IT budget and more importantly understand the costs that the CIO has control over. The IT budget is always the worst kept secret in any organisation. Everyone seems to be able to tell you the total spend, and that figure is ingrained in peoples’ minds.

However, it is typical for a CIO’s budget to contain over 60 per cent in capital expenditure and business-driven projects. These were not your choice but the business’, but it is your responsibility to ensure they are delivered efficiently. There are also likely to be long term investment items and depreciation – again decisions and commitments made before you arrived, an example of this is data centres.

Once you have identified what the ‘controllable’ aspect of your budget is, the next step is to give as much control of that as possible to the business units. This is where the VFM argument really comes in. Detail the services provided to each business unit, both in terms of volumes, quality and cost. Highlight which services can be changed and the corresponding cost and service charges associated with these choices. The idea here is to give complete transparency to the business and give them the levers which they can use to change their cost or their service levels – albeit recognising that certain changes may require involvement of more than one business unit; or even the whole organisation.

This ensures that the business unit is choosing the right level of service required, at the right cost. This can only be effective if the business unit receives the benefit of making changes, or feels the pain of not making changes. It is therefore vital for IT to be charged to the business units and not as a central overhead.

In the third of this four part series next week, Alex Blues will discuss the requisite sourcing strategy that needs to be put in place.

George Osbourne has announced 19% average cuts to departmental budgets, revealing some of the deepest cuts in public spending in decades.

The Chancellor outlined that the public debit interest repayments now total £120m a day, or £43bn a year and it is hoped the cuts will allow the government to reduce the public debts and trim debt interest payments by £5bn a year to 2014.

Mr Osbourne said: “Reform is one of the guiding principles of this Spending Review. It is a hard road, but it leads to a better future.”

The reduction in public spending means that savings need to be made which should present many opportunities for the outsourcing industry and its variety of expertise.

Martyn Hart, Chairman of the National Outsourcing Association, said: “It’s interesting to note that the chancellor’s announcement of the Government Spending Review followed a similar approach to that taken at the beginning of the most successful outsourcing contracts. By reviewing the performance of the public sector spending as a whole, and identifying core competencies in each department, the Chancellor has been able to determine where fewer resources need to be committed.”

The NOA believe that the announcement could fuel a surge in public sector outsourcing with many government departments outsourcing services which are not core to their business.

Outsourcing can provide a range of different services for the public sector, for instance large integrated companies will be able to offer public savings by offering just one point of contact instead of many and companies with a broad range of services should be able to adapt easily to meet specific demands.

Martyn Hart added: “Although the government have confirmed that nearly 500,000 jobs could be lost as a result of the cuts, it’s also clear that there could be a real opportunity for job creation in the private sector as a direct result of this afternoon’s announcement.

“The Chancellor’s decision to cut the Whitehall administrative budget by as much as a third is a key example of this. By cutting the budget to back-office functions such as accounts and data-preparation by £6 billion, there could be a real opportunity for Business Process Outsourcing (BPO) suppliers in the private sector to benefit.”

The review also saw the Department of Business, Innovation and Skills bracing itself for an annual cut of 7.1% a year - an annual budget of £21.2bn. Outsourcing opportunities may also arise as a result of administrative cuts of £400m.

HM Revenue and Customs are expected to find resource savings of 15% through from “new technology, greater efficiency and better IT contracts,” the Chancellor said.

Technology companies have benefited from the recession as organisations look to increase efficiencies and reduce costs.

Piers Linney, joint CEO of Outsourcery said, “As companies brace themselves for the spending cuts and come under intense pressure to cut costs, they are looking to new technologies to create efficiencies, and alternative ways to achieve savings while remaining competitive, resulting in an indelible change in the economic and business landscape.

“This is fundamentally changing the way in which companies are working as they take advantage of the cuts to drive change within the business which has included adoption of practices such as remote working and outsourcing – which is helping companies preserve cash which is still in short supply.”

Recently many county councils such as Barnet, Suffolk, Brighton and Hove have already committed to outsourcing contracts and more will do so in response to their cuts in funding.

Infrastructure services firm, May Gurney, has been a market leader in local government outsourcing and look after highway maintenance for Northamptonshire, Essex and Norfolk county councils, among others.

Chief executive Philip Fellowes-Prynne said: "We are well placed as the comprehensive spending review measures are announced. We have grown by 50% in the past five years, mainly through outsourcing services, and I expect that to continue over the next five years, hopefully doubling in size.”

It is clear that many sectors will now look towards outsourcing services in a bid to save money however the danger lies in outsourcing cheaply at the cost of improved service to achieve a quick financial gain.

However Martyn warned: “It’s obvious that any project initiated on cost alone, is more likely to end in failure. However if performed correctly, with the right due diligence, it’s clear that outsourcing can achieve real results for the public sector – not just as a short term solution.”

East European governments must cut deficits and repair banking systems to spur economic growth after the financial crisis that pushed some countries close to default, the International Monetary Fund said.

“Policy makers in emerging Europe face the difficult challenge of dealing with the legacies of the crisis, while not hurting the recovery,” the Washington-based lender said today in its regional economic outlook. The tasks include “reducing fiscal deficits to secure sustainable debt” and “repairing banking systems while reviving credit.”

The former communist countries in Europe and central Asia are recovering from their deepest recessions since switching to free-market policies two decades ago. Cheap credit helped growth average 5 percent annually in the boom years. At the height of the credit crisis, the IMF provided about $65 billion of loans to the region, making it the largest recipient of bailouts.

The IMF provided loans to Hungary, Latvia, Ukraine, Romania and Serbia as the countries faced defaults and struggled to refinance debt, often denominated in foreign currencies. The region received more than $100 billion in total, including aid from the European Union and World Bank.

The fund expects the region’s economies to grow 3.8 percent in 2010 and 3.9 percent next year after gross domestic product shrank 6 percent in 2009 as capital inflows came to a halt.

‘Healthy’ Balances

The financial crisis unmasked the underlying fiscal problems in east Europe, the IMF said. While increasing tax receipts led to “healthy” budget balances during the boom years, expenditures were growing rapidly, according to the IMF.

Budget deficits across emerging Europe averaged 6 percent of GDP last year compared with zero in 2008, the IMF said. Average public debt levels swelled to 30 percent of GDP from 24 percent. The average deficit will narrow to 5.2 percent this year and 4.1 percent in 2011, with debt climbing to 30.8 and 32.1 percent, respectively, the IMF forecasts.

“With deficits still at very high levels, and a permanent loss in revenues resulting from the end of the demand boom, it is clear that substantial fiscal consolidation is needed over the next few years,” even if it hurts growth in the short term, according to the report.

Countries with “high fiscal vulnerabilities” must move swiftly to cut deficits and avoid being punished by financial markets, because investors are more focused on public finances after the euro region debt crisis, the IMF said. Deficit-cutting programs that rely on reducing spending rather than increasing revenue will be less harmful for growth, according to the fund.

‘Credible’ Policies

Fiscal policies can help revive credit growth while banks are repairing balance sheets impaired by the growth in delinquent loans, the IMF said.

“Credible macroeconomic policies would also make it possible to keep policy interest rates low, which would not only stimulate demand for credit, but would also encourage bank funding” and limit the reliance on foreign currency financing, the IMF said. “Creditless recoveries in GDP growth are generally slow and shallow.”

The region also needs investment in manufacturing to shift growth away from services and construction, which propelled economies in the boom years, according to the report. Companies must develop new markets for manufactured goods and services, which will require a shift in government policies, the IMF said.

Source: http://www.bloomberg.com/news/2010-10-20/east-europe-must-reduce-deficits-repair-banks-to-nurture-growth-imf-says.html

Aberdeen City Council has chosen Atos Origin to provide managed datacentre services and a virtual desktop environment.

The £10m deal will provide 5,000 council staff with a virtual desktop environment as well as delivering managed datacentre services over five years. The council's IT was previously managed in-house.

Paul Fleming, head of customer service and performance at Aberdeen City Council, said the project will provide greater accessibility and a better service to internal and public users of council IT systems.

"It supports the council's strategy to create a more flexible and mobile workforce," added Fleming.

Chris Bingham, vice president for public sector at Atos Origin, said, "This is a significant win for us both in terms of scale and scope. We are delighted to have secured such an important piece of business in Aberdeen, in a market which is becoming increasingly important to our business activities in Scotland."

Atos Origin became the first IT supplier to sign a memorandum of understanding with the government under its new 'single-client' approach to IT procurement.

Source: http://www.computerweekly.com/Articles/2010/10/19/243413/Atos-Origin-to-provide-managed-services-for-Aberdeen-City.htm

In promising to “leave no stone unturned” in the search for efficiency savings, Cabinet Office minister Francis Maude has revealed the latest figures for cutting public sector IT spending.

Maude claims to have saved the public purse £402m this financial year by scrapping the controversial national identity scheme. He expects to save a further £800m by renegotiating contracts with major suppliers – many of whom are IT suppliers.

“Every pound wasted unnecessarily in Whitehall on operational overheads is a pound that can’t be spent on the services we all rely on,” Maude said in a statement.

These cost savings – potentially topping £1.2bn – address the notion that the government’s procurement of IT has been hamfisted and delivered poor value for money.

But stopping or cutting back projects does nothing to address the concern that the real problem with public sector IT is that billions have been spent, without delivering improvements in efficiency. As part of the effort to address that, Maude has promised to focus on delivering web-enabled public services.

“In an age when 96 per cent of all 25 to 34-years-olds are internet users, just 13 per cent of our contact with citizens is currently carried out online. We have to start looking at ways we can improve the way we communicate with citizens. But we also need to do it in a more cost-effective way than has been tried before,” he added.

Source: http://www.computing.co.uk/computing/news/2271825/government-save-2bn

Photograph gaffe reveals 490,000 public sector jobs will be lost while BBC is hit by a 16% budget cut

Haggling over the deepest public spending cuts since the second world war has culminated in the BBC being forced to accept a 16% budget cut that will see its licence fee frozen for six years and the corporation taking over funding of the World Service from the Foreign Office.

The negotiations left the BBC stunned, with insiders claiming that a licence fee settlement that would normally take years to thrash out had been imposed in three days. The extra financial burdens are equivalent to the cost of running the BBC's five national radio stations.

The news came as the Treasury finally backed off money-saving plans to remove child benefit from 17- and 18-year-olds, but went ahead with plans to cut the means-tested education maintenance allowance aimed at largely the same age group.

There was acute embarrassment for the government, meanwhile, as Danny Alexander, the Treasury chief secretary, allowed himself to be photographed with a briefing paper showing that the government accepts that 490,000 public sector jobs will be lost by 2014-15 as a result of the spending cuts, which will finally be outlined by the chancellor, George Osborne, today.

Osborne acknowledges that his unprecedented spending review will take Britain into uncharted social and economic territory as he announces £83bn of spending cuts over the next four years.

The cuts will involve the loss of thousands of jobs, massive cuts in university funding, wholesale reform of public housing and further cuts to the welfare budget.

The coalition will also announce the state retirement age is to be raised to 66 in 2016, 10 years earlier than previously planned and liable to save billions of pounds in the medium term. It is also expected there will be big cuts to the budget for sport in schools and the abolition of the specialist school network. Some departments including the Ministry of Justice, the Department of Communities and Local Government and the culture department will see cuts of 30%, involving multibillion-pound reductions in the prison programme and to legal aid.

Voluntary groups and private companies operating on a payment-by-results basis will be asked to take over the rehabilitation of released prisoners. As many as 10,000 national offender management jobs will be lost.

The briefing document warns that spending cuts "inevitably impact" on workers because the pay bill in Whitehall accounts for around half of all departmental spending. It also claimed the overall public sector pay package has been generous, with pay rises four times as high as those in the private sector. Each public sector employer will have to "determine the workforce implications of spending settlements", the document says. It adds: "Government will do everything they can to mitigate the impact of redundancies."

This will be done by creating conditions for private sector growth, encouraging pay restraint and reduced hours, and finally supporting employees facing redundancy so they can find work in the private sector.

In perhaps the single most radical public service reform to be announced today, families stuck on council house waiting lists are to be offered a new form of shorter-term tenure at near-market rents as a way of freeing up social housing and filling a near-£4bn cut in the social housing budget, due to be announced.

The coalition hopes the new form of tenure, dubbed affordable rent, involving less exacting accommodation, will make it easier to build more social housing since the tenants will be asked to pay up to 80% of the market rent, well above the current rent levels in social housing. Ministers will also withdraw security of tenure for new council house tenants. The government hopes that as a result institutional investors will become more active in the social housing market.

Nick Clegg, the deputy prime minister and Liberal Democrat leader, urged his MPs to rally to the standard last night in the face of what is likely to be a storm of protest at his party's "collaboration" in the spending cuts. He told them: "The comprehensive spending review will involve some difficult decisions, but I am more convinced than ever it is the right thing to do. I want you to go out there and argue to every single person why these are the right decisions to build a fairer and more liberal Britain."

The specific negotiations over the future funding of the BBC took place secretly for weeks, with the Treasury demanding the BBC take over the estimated £556m cost of a free TV licence fee for over-75s.

David Cameron had pledged in the general election to protect the pensioners' free TV licence fee. The BBC fiercely resisted taking responsibility for the cost, saying it was an open-ended drain on BBC resources, but this morning succumbed to demands that it take on the cost of the BBC World Service and the Welsh language channel S4C from 2015.

It also confirmed the BBC will take responsibility for the rollouts of broadband and digital radio, and accept a six-year freeze in the £145.50 licence fee until 2016-17. The total cost is a minimum of £340m by 2014-15.

Source: http://www.guardian.co.uk/politics/2010/oct/20/spending-review-cuts-bbc

George Osborne has announced another £7 billion of welfare curbs in a cuts package he promised would bring the British economy “back from the brink”.

Unveiling the Spending Review that allocates Government spending from 2011 until 2014/15, the Chancellor said the extra benefits cuts meant he could cut departmental budgets less than Labour would have done.

Mr Osborne had already set out plans to cut the welfare bill by £11 billion by 2014/15.

Today, he said he would cut another £7 billion. He also claimed to have identified an additional £3 billion in Whitehall waste that can be eliminated.

In the biggest change, many claimants of Employment Support Allowance, the main incapacity benefit, will have a one year time limit put on their claims. Around 1 million claimants will be affected, the Treasury said.

The £7 billion of welfare cuts include the controversial decision to take child benefit away from families where one person earns more than £44,000.

Previously, the Treasury had said that would cost families £1 billion a year. But today, Mr Osborne said the measure will actually take £2.5 billion away from parents.

New restrictions on the Working Tax Credit will cut £1.4 billion of spending by 2014/15.

There will also be cuts to Council Tax Benefit (cutting £490 million a year), Disability Living Allowance (worth £135 million a year).

“Today is the day when Britain steps back from the brink,” Mr Osborne told MPs.

He insisted the Coalition will keep to its plans for cuts. “To back down now and abandon our plans would be the road to economic ruin. We will stick to our plans,” he said.

Allocating departmental budgets, Mr Osborne confirmed that health and aid will grow in real terms. All others will have cuts.

Among the biggest losers will be the Ministry of Justice, which faces a 23 per cent cut and will have to close prison places and slash the legal aid budget.

The Home Office is also cut by 23 per cent, raising questions about police numbers. Mr Osborne said he “aimed” to avoid any reduction in the “visibility and availability of police on our streets.”

The environment department will lose 29 per cent and culture will be cut by 24 per cent.

The education department will be relatively protected, taking only a 3.4 per cent cut over four years.

Source: http://www.telegraph.co.uk/news/newstopics/spending-review/8075932/Spending-Review-2010-George-Osborne-announces-further-7bn-welfare-cuts.html