Industry news

Hello - it's been a while since I last blogged, but I've been travelling a great deal and, in some cases, in regions where Internet access remains a big challenge. I recently got the opportunity to visit Rwanda, for example. While there, I visited a small but interesting new outsourcing business - but more about that in my next blog.

Last week, I was in London and had lunch with BG Srinivas, who heads up Infosys Technologies' European operations. It was a while since I'd visited London and even longer since I last saw Mr Srinivas. Our last meeting was way back in 2007, at a dinner he hosted in Greenwich. Attending this dinner were 25 UK university graduates from 12 different universities, who were off the next day to the company's Mysore campus for a six-month stint on the Infosys Global Talent Programme.

This time around, I was keen to get BG Srinivas's perspective on how Infosys would navigate the tricky path of global economic recovery. "The good news is that customers are starting to make decisions again," he told me. Across its global operations, Infosys has seen positive signs of recovery over the last three to five months, particularly in the US over the past two quarters.

But what about Europe? "We expected the European recovery to lag behind by around three to six months, and that has proved true, to some extent," he says. But he has been pleased, he says, to see a robust response to the European debt crisis within the region. "I'm glad it's being viewed as a collective problem, with all countries making sure that they are helping one another."

That said, Infosys has little if any direct exposure to the countries in the most serious trouble - Greece, for example, or Spain. Its major territories here are strictly northern European: the UK, Germany, France, Switzerland, Benelux and the Nordics. Nor need Infosys worry about the effects of the UK's Emergency Budget on its business - the company has "no real focus" on the public sector in this country.

But, says Srinivas, organisations in both the public and private sectors currently face the same challenge of "doing more with less", and for him, that's the guiding principle that is reshaping Infosys Technologies' approach to pricing.

"As clients and prospects start to experience the recovery for themselves, they're looking for ways to boost internal productivity while keep costs low - and not to get stuck with a whole lot of fixed cost, but to pay only for what they use," he explains. "To some extent, cloud computing is driving that change and customers are beginning to expect the same approach from a whole range of service providers. So in future you'll see Infosys moving more and more to pay-as-you-go and outcome-based pricing models."

As for the UK, Srinivas is seeing "definite positive signals, but we're still cautious. This certainly isn't a time for exuberance." Does he still host dinners for new graduate recruits and pack them off for a six-month Mysore training adventure, I wonder? UK students didn't get that opportunity in 2009, he confesses, but Infosys is considering reinstating the programme in 2010. And with our lunch over, he makes the dash from restaurant to office, across a blustery Canary Wharf.

There has been much speculation around the emergency budget announcement due today and it is already raising concerns among the general public. Further spending cuts are likely to affect social programmes and the unemployment rate.

The repeated call for more effective use of resources has led to increased talk about efficiencies and cost-savings being achieved through outsourcing.

To add to the fear already present among public sector employees, some media sources have taken to publish reports of millions of private sector jobs which would also be at risk. These would be outsourced jobs serving the public sector. Such speculations often lack substantiation and may suffer from inflated figures.

Indeed, exactly what impact the emergency budget will have on the country’s unemployment rate remains to be seen.

Outsourcing is not new to the government; it has been outsourcing various functions and services for some 20 years. Although as an experienced user, it could do with improving how it manages its outsourcing relationships.

“The bad press that surrounds the cost-effectiveness of some past public outsourcing projects not withstanding, I would expect a well thought through outsourcing contract to provide effective and cost-effective delivery of services,” observes Danny Jones, partner in charge of UK public sector at advisory firm TPI.

It may be that more outsourcing contracts are awarded in which can result in the creation of new (on-shore) jobs among the outsourcing community.

Equally, it may be that the outsourcing industry is negatively affected. Indeed, we have seen how proactive luxury contracts are put on hold or scrapped altogether (like the National ID). And while essential money saving projects will continue to go through, the impending budget cuts will impact existing relationships, as evidenced by recent budget cuts.

“Suppliers are already feeling the squeeze particularly when it comes to negotiating contract extensions; and they expect this to continue”, notes Jones.

This is confirmed by findings from a recent report published by KPMG. It discovered that outsourcing appears to have fallen off the CIO agenda. Indeed, more than two-thirds of CIOs surveyed indicated that they now expect to pay more attention to the price to quality ratio they currently experience.

Industry players still maintain there are more opportunities than drawbacks to expect from today’s announcement. The government needs solutions that will not just deliver savings but it also needs solutions that deliver results quickly; this is often a key benefit of outsourcing.

However, when it comes to how quickly outsourcing can deliver solutions a word of warning is necessary; fast deliverability could come down to a matter of semantics. Certainly, it usually takes 18 months to two years for an outsourcing project to begin delivering following the signing of the contract. This could be a problem unless the government changes its outsourcing model to resemble that of the private sector.

“Typically, the government has awarded large contracts to a single supplier, but we will see a shift to a model where government breaks large projects into manageable blocks which are then awarded to suppliers according to expertise/service required. This will increase the effectiveness of delivery if it is well managed” says Jones.

There are pros and cons to everything but despite the many opportunities that may arise from the necessary measures announced today, economic policy is often a bitter pill to swallow.

Worldwide cloud services revenue is forecast to reach $68.3bn in 2010, a 16.6% increase from 2009 revenue of $58.6bn, according to advisory firm Gartner.

The industry is poised for strong growth through 2014, when worldwide cloud services revenue is projected to reach $148.8bn.

Gartner estimates that, over the course of the next five years, enterprises will spend $112bn cumulatively on software as a service (SaaS), platform as a service (PaaS), and infrastructure as a service (IaaS), combined.

Gartner is seeing an acceleration of adoption of cloud computing and cloud services among enterprises and an explosion of supply-side activity as technology providers maneuver to exploit the growing commercial opportunity.

North American and European markets represent the largest markets from a geographic perspective, and while other geographies around the world will experience growth, this growth will not notably alter the overall weighting away from the larger, more-mature regions over the course of the next five years.

The U.S. share of the worldwide cloud services market was 60% in 2009 and will be 58% in 2010, but by 2014, this will be diluted to 50% as other countries and regions begin to adopt cloud services in more-significant volumes.

Western Europe is expected to account for 23.8% of the cloud services market in 2010, and Japan will represent 10%. In 2014, the U.K. is forecast to account for 29% of the market, while Japan will represent 12% of cloud services revenue.

The financial services and manufacturing industries are the largest early adopters of cloud services. Communications and high-tech industries are also leveraging the cloud in significant volume, while the public sector is also clearly interested in the potential of cloud services and its share of the overall market.

The Metropolitan Police Service (MPS), the largest of the police services that operate in greater London, has extended its contract until December 2015 with its prime information and communications technology (ICT) partner, Capgemini UK.

The contract is expected to provide an estimated £43m savings in supporting the day-to-day work of London’s 55,000 police officers, staff and community support officers.

The contract extension covers the three-year period 2012-2015 and renews the existing seven-year IT support contract between the two organisations, signed in 2005.

The early renewal will enable the MPS to lock agreed cost savings in place and set budgets with greater certainty.

The agreement will also help Capgemini to better plan the resources required to fulfil the requirements of the contract.

Capgemini will continue its partnership with its main subcontractors, BT and Unisys. BT’s services include upgrading and rationalising the MPS’ voice and data networks, and Unisys supports application management, data centre hosting, desktop and server break fix.

The cost savings will be achieved from increased automation, improved joint processes and rationalisation of services.

There will also be closer collaboration to streamline management control and simplify reporting structures.

The movement of some Capgemini support services to centres in the north of Scotland will also deliver higher cost-effectiveness. All of Capgemini’s work under the contract will continue to be carried out entirely within the UK.

These are some of the findings from From Cost to Value, a report published by KPMG International.

The report, which surveyed 450 CIOs suggests that the new, post credit crisis, CIO agenda is dominated by securing value for money but that it also wants to focus on using IT to help transform the business in terms of innovation and productivity.

Outsourcing as a whole appears to have fallen some way from the top of the CIO agenda suggesting outsourcing is just business as usual to a typical CIO.

Other findings revealed that in the move towards a value-driven agenda, 81% of respondents feel that getting value from their IT must be their top priority.

Cost optimisation trailed in a distant second (58%), but ahead of portfolio management (51%) – although it could be argued that both of these could be seen as sub-sets of the overall theme of extracting value from IT investments.

Similarly, the survey found that while in a hangover from the recession, financial sector CIOs are still heavily focused on operational IT concerns while manufacturing CIOs are looking towards innovation and transformation.

Consulting, technology and outsourcing services specialist Capgemini, has acquired Strategic Systems Solutions (SSS), a global IT services and business process outsourcing firm (BPO) focused on the financial services industry.

This acquisition is set to strengthen Capgemini’s capabilities and presence in the capital markets, while expanding its client base to comprise some of the largest and better recognised financial institutions in the world.

In addition this acquisition will provide Capgemini added strength in the Asia-Pacific region with IT and BPO platforms in China and the Philippines and will reinforce its presence in Singapore.

Prior to the completion of this acquisition, Capgemini owned 49% of SSS, and now Capgemini will fully integrate SSS with its existing capital markets unit in the Financial Services Global Business Unit.

Founded in 1995 and headquartered in the UK, SSS employs 670 professionals across the United Kingdom, United States, Singapore, China and the Philippines.

Global telco Ericsson has signed a five-year agreement with Tata Consultancy Services (TCS) to deliver application maintenance and development services for Ericsson’s internal IT operations.

TCS will offer the IT enabled services through its global network delivery model GNDMTM, a single global service standard, which is recognised as the benchmark of excellence in software development.

TCS has been investing heavily in localising its Nordic operations, expanding its services portfolio and aggressively adding new clients.

Indeed, this is the second time this week TCS is awarded an outsourcing contract by a Nordic company.

Earlier this week Telenor announced it had selected TCS and Capgemini for the modernisation of its IT application portfolio; a project worth between NOK 400-500m (€50-63m).

Outsourcing specialist Cognizant has acquired Galileo Performance, a Paris-based provider of information technology (IT) testing consulting services.

Galileo will expand and complement Cognizant’s fast-growing global testing practice, currently among the world’s largest with more than 10,000 testing professionals, while strengthening Cognizant’s existing business presence in France.

The company supports French companies in the optimisation and extension of business performance through IT system measurement, management and testing.

Outsourced testing services have been growing significantly, not only for their value in lowering the cost of quality assurance and software maintenance, but also for ensuring tighter alignment of IT with business objectives, greater operational effectiveness, and improved governance and risk mitigation.

Media reports have indicated that several private equity firms are in the run for a minority stake in Dubai’s payment processing business Network International, owned by local bank Emirates NBD.

Bids have been tendered by TPG, Abraaj Capital, the Emirates Investment Authority and Silverlake and are now being considered by the bank, which is thought to be looking for between $1bn and $1.5bn.

Royal Bank of Scotland’s (RBS) payment processing business, WorldPay has also elicited the attention of buyout houses.

TPG and Clayton, Dublier & Rice were said to have attempted to place a joint bid, however failure to agree on it has left the Advent International and Bain consortium as top runner for the deal, which is expected to reach a hefty £2.5bn price tag.

The majority of companies (60%) around the world are hosting up to 50% of their applications in a cloud environment, according to the 2010-2011 World Quality Report, produced as part of ongoing collaboration between Capgemini Group and HP Software & Solutions.

Along with an increase in applications deployed in the cloud, organisations are also deploying agile IT delivery in their applications and infrastructure as they look to streamline operations.

The report also reveals the effects of the economic downturn on enterprise software development and quality assurance.

It finds that new projects are being initiated but IT investments are shifting from a daily operational focus towards building new applications that bring competitive advantage for business.

The shift has seen both developers and testers come under increased pressure to provide greater efficiency, more consistent quality assurance methodology and better reuse of automated software.

Organisations are increasingly turning to agile and cloud based delivery methods to modernise their applications.

Benefits cited include cost reduction (50%), increased agility (33%) and improved time to market (14%) for cloud computing. Time to market (37%), quality of application (26%), resource utilisation (23%) and cost savings (14%) were cited as the main benefits of agile IT delivery.

As requirements for IT delivery change, the report finds that the requirements for future quality assurance engineers are changing as well.

Testers of tomorrow will work in smaller teams that are expected to deliver executable code within 4 to 6 weeks. Tight deadlines and smaller teams are likely to lead to a future where members of quality assurance teams will possess robust quality assurance (31%) and business domain (22%) skills, database knowledge (14%) and scripting skills (10%).