Industry news

Gartner forecasts released early this week will have confirmed what most CIOs knew and have been struggling with over the last year and a half. The recession has truly hit the IT industry with global spending down six percent to $3.2 trillion in 2009 compared to $3.4 trillion in 2008. When you put it in decimals the change seems small but it is highly significant. The collective fall in spending is the result of a lot of stress and wide scale efficiency initiatives being made by CIOs around the world. Prudence is forcing companies to look at cost cutting across the board and IT budgets have not escaped the spotlight. Gartner predicts IT spending to pick up slowly in 2010 but recent Ovum research provide a bleaker picture until 2013. In short, IT departments are likely to be under pressure for some time yet.

"The full impact of the global recession on the IT services and telecommunications sectors is still emerging, and forecast growth in these areas has been further reduced significantly,” commented Richard Gordon, research vice president and head of global forecasting at Gartner.

While no executives like budget reductions, it appears a forced reassessment of IT efficiencies could turn out to be a good thing. Richard Barker, MD of Sovereign Business Integration, an outsourcing company, sees the downturn as a wake-up call for IT.

“The past decade has been defined by conspicuous consumption across the board. The cheaper goods have become, the more the nation has bought. And the IT department has been one of the biggest culprits in encouraging this ‘pile it high’ culture. Cheap servers, network bandwidth and storage have encouraged inept practices and allowed users to treat the corporate network as an extension of their personal online presence,” commented Barker.

Of course, not all IT departments will have taken this approach, but where it has occurred this kind of profligacy will no longer go on unchecked. Those CIOs that have always erred towards prudence in their IT strategies, will happily continue down their well-planned paths. However, as budget reduction targets hit those less-prepared organisations, big changes will be necessary. So, what are the options for CIO’s to make the changes that matter?

The experts sourcingfocus.com spoke to were adamant that indiscriminate cost cutting is not a sustainable approach. A slash and burn mentality may bring significant cost reductions now but will not stand a company in good stead for the future.

“In past recessions, the ‘soloist’ CIO rapidly cancelled contracts, cut headcounts and really cut into the bone of IT. Companies quickly realised that this was damaging the core of businesses,” comments Myron Hrycyk, CIO of Severn and Trent, the utilities company. “IT is just too central to business for this approach to be viable now,” he adds

Indeed, approaching cost cutting now that IT is so central to the way a company runs, is a highly sensitive task. It seems that the approach can no longer be to simply reduce overheads but must be more of a balancing act of canny expenditure and efficiency in operations.

“CFOs and CEOs are facing a heightened challenge in identifying where to scale back and where to keep investing. This is particularly the case as stringent compliance requirements and cost of failure means cut backs in the wrong areas could be catastrophic,” comments Steve O’Connor, VP of IT transformation at BMC, an IT services provider.

He adds, “As IT is the only integrated function underpinning the entire organisation, it is crucial for business success that CIOs can clearly demonstrate to the board exactly where IT investment is needed, and where the fat can be cut. By doing so the CIO is able to strengthen his/her position as a business leader and can ensure that the business runs as lean as possible, whilst still maintaining success.”

With IT providing the backbone for most large organisations nowadays, it appears the CIO’s moment to truly shine has finally arrived. Clear, decisive and strategic actions could help consolidate his or her rightful place at the board table.

Balancing act in mind, the opportunities for cost cutting are many and a large number of them fairly simple to enact. The budgetary pressures may actually provide an opportunity in disguise, allowing CIO’s to ultimately create a more efficient and effective IT-driven organisation.

sourcingfocus.com asked the industry their top tips on how CIO’s can make positive cost cutting measures:

Consulting costs:

• “n good times, consulting companies made a lot of money from your company. Now it is time for them to share some of the pain. Request a ten percent to 20 percent rate reduction. Make it clear this is temporary – but also that companies who participate will continue to be long-term partners when economic conditions improve with the implicit understanding that not participating in the rate reduction will directly impact the long-term partnership with the consulting company.” Rich Murphy, Executive in Residence, Planview (and ex-CIO at Deutsche Bank).

Applications:

• “Retained support costs can often be reduced. We went to one supplier after realising we only used 60 percent functionality for one system. We proposed to pay them 60 percent of the existing retainer and they went for it.” Myron Hrycyk, CIO, Severn and Trent.

• “Pull together an inventory of your applications, their purpose, and the number of users. You can collect more information but start with the basics, which is easy and low-cost to obtain, and progress from there. This inventory of applications will allow you to identify duplicate, low usage, and low value systems.” Rich Murphy, Executive in Residence, Planview.

Hardware and software:

• “Normal cost reduction measures for hardware are to extend the useable life of the equipment and thus push off the replacement cost. While this works in many cases, it is not always the best alternative. What if the replacement hardware uses 50 percent less electricity requires little to no maintenance, can handle five times the volume, or runs two to three times more efficiently than the old equipment? The total cost may be lower if you decide on a replacement strategy. Plus, hardware providers are also impacted by economic forces, so you should be able to negotiate a reduced price.” Rich Murphy, Executive in Residence, Planview.

• “Look at storage costs and policies, because technology changes in this area over the last few years provides a great opportunity for cost reductions,” Rich Murphy, Executive in Residence, Planview.

Outsourcing partnerships

• “We are no longer ‘soloists’, more part of a band. Work with partners to come to agreements on cost reductions. Our suppliers have an appetite for ensuring Severn and Trent gets the best value from its IT investments. They understand the long-term relationship is more valuable than their short-term margins.

“There are possibilities for reducing blended rates, recalibrating contracts and account management costs. It’s also not unreasonable to ask suppliers to invest in proving the business case for new projects as they will benefit if deals come through,” Myron Hrycyk, CIO, Severn and Trent.

• “Organisations also need to consider options such as pragmatic overhaul of procurement models, redefining “risk and reward” based approaches to managing suppliers, shared services and outsourcing,” David Roots, MD, local government, Civica.

• “At Severn and Trent I have brought IT and procurement closely together so each can more easily adapt to the needs of the business. This is part of our vendor management strategy to enhance vendor relationships,” Myron Hrycyk, CIO, Severn and Trent.

• “I’m a strong believer in multi-sourcing to create the strongest partnerships. The benefits to be gained far outweigh the extra management time involved in such relationships,” Myron Hrycyk, CIO, Severn and Trent.

• “Hidden IT spend is an important area to look at. Those IT expenses that appear in different departments can add-up. CIOs need to get a handle on every IT cost across the organisation,” Steve Wathmought, MD, Xantus, an IT consultancy.

Amid the gloom, there are clearly many opportunities for CIOs to make bold, business enhancing decisions that not only drive efficiencies but also create long-term effectiveness. And, while projections on the arrival of IT industry ‘green shoots’ vary, it is important companies are ready when they do finally arrive.

“If there is one good thing to come out of the recession, it will be that organisations will become far more prudent when it comes to purchasing and managing technology. IT departments may be feeling the pinch. But a return to good, business based IT practices will not only enable organisations to address IT costs today but will stand them in excellent stead as the recession lifts and the economic outlook brightens,” says Richard Barker.

The University of Oxford’s Saïd Business School and Gartner Executive Programs, a unit of Gartner, Inc., will deliver their renowned CIO Academy in the Gulf Region.

CIO Academy is a popular management development programme for CIOs and IT directors. The programme has become established over several years at Oxford, helping many IT leaders to maximise the contribution of technology to their organisations.

The CIO Academy programme aims to equip IT leaders in the United Arab Emirates to combine the insight and experience of the world’s largest IT executive community and find solutions to address challenges and changing demands in today’s competitive environment.

United Arab Emirates, with its increased investment in infrastructure and ICT related development is one of the fastest growing regions in the Gulf. The awareness to embrace technology and best practice the in United Arab Emirates is unmistakable as businesses continue to take advantage of new technologies to overcome bottlenecks and increase their efficiency and growth.

His Excellency Rashed Al Mansoori, Chairman of Abu Dhabi Systems and Information Centre (ADSIC) will be a special guest speaker on the programme. ADSIC is the governmental body responsible for delivering the UAE’s acclaimed e-government platform to match the best in the world.

“Delivering this programme in the Gulf is an exciting yet natural step for the University. We have built valuable relationships with many prominent organizations and are pleased to further develop our commitment and offering to the region” said Professor Michael Earl, Acting Pro-Vice-Chancellor, (Development and External Affairs), University of Oxford.

CIOs interested in taking part should visit www.gartner.com/cioacademy or email dawn.gudelis AT gartner.com.

According to Indian Daily, the Economic Times, Nissan, Japan’s third-biggest automaker, is inviting tender for an application development and maintenance deal worth up to US$250 million. Interested companies include TCS, Wipro, IBM and Mahindra Satyam

Read the full story here.

Schneider Logistics, a global provider of logistics and transportation services, has signed a multi-year outsourcing agreement with ExlService Holdings, Inc. (EXL), a provider of outsourcing and transformation services.

Schneider Logistics, SRO in Olomouc, Czech Republic, currently provides transaction processing services to Schneider and its clients in Europe and the U.S. Schneider presently has approximately 200 employees that will transfer to EXL as part of the agreement. Through its delivery centre in Olomouc, EXL will have access to a talent pool with strong multi-lingual capabilities. The Czech Republic presents significant growth potential enabling EXL clients to leverage the labour pool in the Czech Republic to expand and diversify their outsourcing operations.

“As we operate the business, we are always looking for opportunities to be more efficient and effective,” said Jack Gross, Senior Vice President, International, Schneider Logistics. “This agreement positions us to continue to provide customers with excellent service while maintaining a competitive, low-cost position in the marketplace.”

According to Mr. Gross, the new relationship means Schneider Logistics customers will realise greater efficiencies in their business processes, including European freight audit and payment, logistics engineering, carrier contracting and brokerage business.

The Olomouc facility will serve as EXL’s third outsourcing service delivery location outside of India and The Philippines. With the acquisition of Schneider Logistics, SRO in the Czech Republic, EXL will have twelve delivery sites located across India, The Philippines and the Czech Republic.

emergn, a new intermediary and consultant to the outsourcing industry, has opened for business today. The new company has been launched to address what it sees at the IT outsourcing industry's pitfalls and the lack of cohesion between business and IT. The company also aims to provide an antidote to 'the failures of ad-hoc sourcing strategies for buyers and disconnected global delivery practices for providers'.

emergn plans to do this through offering both enterprise and provider with industry-leading agile enablement services, proven sourcing strategies and global delivery and fulfilment capability.

Through the company’s offices in New York, London, and Guangzhou, emergn’s consultants will seek to provide enterprise buyers with support of their requirements, validation, and creation of key business processes either internally or with vendor strategies. For sourcing providers, emergn will look to improve the quality of services through organisational efficiency, integrated processes, improved business models, and a better understanding of project requirements.

Curtis Robinson, senior analyst at IDC, commented that, "[emergn] is right on track, and if current market dynamics don't force companies to consider sourcing models that allow for more cohesion between business and IT, then I really think those companies are not giving themselves the best chance to succeed in the current (and subsequently future) business environment. As companies continue to bring their delivery capabilities closer to their clients, this approach just makes sense. I think current economic conditions, while challenging, present even larger opportunities for enterprises that are looking to deliver to clients in a more seamless, timely, and open manner.”

"Ad-hoc sourcing strategies are having a negative impact on the IT delivery industry and it's refreshing to hear emergn address these problems - and offering real solutions - tied to an executive team of experienced experts," said Erin Smith, managing director, Global Services, British Telecom Design. "Moving to adopt agile practices is key to supporting this view."

The United States Postal Service has renewed its customer service contract with global relationship management specialist, Convergys Corporation. Since 2003 Convergys has provided the Postal Service with customer service support at three U.S. contact centres. This extension is the second two-year renewal of the contract.

Convergys will provide the customer service support by leveraging its relationship management solutions portfolio, which includes ‘Customer Service Solutions’ (live agent support), ‘Multichannel Automation Solutions’ (automated speech, e-mail) and Back Office Solutions. Convergys will also continue to answer the popular US (800) ASK-USPS toll-free number and provide analytics for a customer intelligence program that constantly measures customer satisfaction.

“Convergys has provided customer service support to the Postal Service for the past six years with an end-to-end solutions portfolio that meets the needs of today’s consumer for both self-service and live agent support,” said Paul Colangelo, Vice President of Government Solutions for Convergys.

Worldwide IT spending is on pace to total US$3.2 trillion in 2009, a six percent decline from 2008 spending of US$3.4 trillion, according to Gartner, Inc. Continued weak IT spending because of the economic situation combined with the effect of exchange rate movements has resulted in Gartner lowering its 2009 forecast from its 1Q09 projection. In March of this year, Gartner had forecast 2009 IT spending to decline 3.8 percent.

"While the global economic downturn shows signs of easing, this year IT budgets are still being cut and consumers will need a lot more persuading before they can feel confident enough to loosen their purse strings," said Richard Gordon, research vice president and head of global forecasting at Gartner.

"The forecast decline in spending growth for the hardware and software segments in 2009 has almost stabilised, and only minor downward revisions have been made to these forecasts this quarter," Mr. Gordon said. "However, the full impact of the global recession on the IT services and telecommunications sectors is still emerging, and forecast growth in these areas has been further reduced significantly. Moreover, the rise in the value of the U.S. dollar against most currencies in recent months will have a material downward impact on 2009 IT spending growth, which by convention we report based on U.S. dollars."

All four major segments of IT — hardware, software, IT services and telecommunications — will experience declining revenue, something that did not happen in the 2001 downturn. The computing hardware segment will experience the steepest decline in 2009, with spending projected to decline 16.3 percent. The software segment will show the slightest decrease in 2009, with spending forecast to drop 1.6 percent.

Additional information is available in the Gartner report "Gartner Dataquest Market Databook, June 2009 Update." The report provides detailed regional data for worldwide IT spending through 2013.

Under the agreement, EDS is managing the American Express end-user desktop computing environment and its global voice and data networks. In addition, EDS will provide on-site services for about 60,000 employees in more than 130 countries around the world.

Matthew Robinson, Chief Technology Officer of American Express, commented, “Our goal is to drive American Express’ growth, innovation and customer service using secure technology that enables a more productive, efficient and collaborative workplace.”

Mark DeBenedictus, Vice President of financial services at EDS, an HP company, added, “American Express was looking for a partner to manage and transform its technology environment for better business outcomes. To do this, we’re combining EDS’ financial services industry knowledge with workplace and network services expertise.”

The Illinois Department of Human Services (IDHS) has signed a five year ITO deal with Affiliated Computer Services Inc (ACS) for the deployment of an electronic payment card (EPC) system. The new system will be designed to improve the distribution of state payments to child care providers and specialised personal assistants.

It is hoped that with the EPC program, IDHS will be able to accelerate payments to recipients by using a reloadable MasterCard(R) debit card accepted by thousands of retailers and at ATMs nationwide. The card will be offered as an option to traditional paper checks for payments to service providers participating in the state's Child Care Assistance Program, which offers quality, affordable child care to families. Additionally, it will be available to personal assistants who help with household tasks and personal care to people with disabilities.

"Our goal with the debit cards is to expedite the delivery of monthly payments to licensed and licensed-exempt child care providers and bi-monthly payments to personal assistants," said Grace Hou, IDHS assistant secretary. "This process will heighten security associated with transactions, and provide easier and less costly access to funds for those who may not have checking accounts."

ACS already serves four million cardholders with 24 EPC programs for state and federal clients, disbursing payments for programs such as child support, Temporary Assistance for Needy Families (TANF), unemployment insurance, disability and state employee payroll. The addition of child care providers and personal assistants will significantly expand the use of EPC services. EPC is also available to healthcare providers as a more convenient method of payment delivery.

Businesses across the globe are under severe pressure to decrease their carbon footprint and make their operations greener and more sustainable. But, with cost pressures stronger than ever, will the current economic climate dampen the enthusiasm for IT companies to proceed with sustainability initiatives?

A recent report by carbon market analyst New Energy Finance (NEF), suggests so. It highlighted that although reduced economic activity due to the financial crisis will decrease levels of CO2, in the long term a lack of funding for carbon-reduction initiatives is likely to have an adverse effect on emission levels. Nevertheless, the importance of reducing carbon emissions is an issue that will not go away, regardless of how the economy stands. As we’re frequently reminded, we need to act now. Worryingly, at the March 2009 Climate Change Summit in Copenhagen, scientists predicted that sea levels could rise by a metre by the end of the century - endangering 10 per cent of the world's population. This new estimate illustrates the crucial need for organisations to take accountability for the environmental impact of their operations.

Businesses are already facing an urgent requirement to comply with upcoming environmental legislation as governments across the world look to reduce humanity's impact. To help them, governments will provide much needed support for sustainable business practices through tax-breaks and incentives. For example, in the United States the green stimulus package recently signed by President Obama, includes $71 billion allocated towards energy and environmental initiatives and another $20 billion for green tax incentives. The aim is to stimulate economic demand and at the same time make it greener, cleaner and more sustainable. Britain, Germany and China are all using stimulus bills to make huge new investments in clean power and drive growth in smarter, more efficient and more responsible ways.

As a knowledge-based industry, IT outsourcing is not considered a major contributor to greenhouse gases compared with greenhouse gas intensive industries. However, the industry’s major players often have huge numbers of employees (over 63,000 in our case) who are distributed throughout the world, so there are opportunities to generate significant internal carbon reductions. At Cognizant, our aim is to reduce waste and improve natural resource productivity to reduce operating costs and green house gas emissions. These savings that can be passed onto customers, and lay a foundation of return-on-green-investment to prepare companies for upcoming regulation.

In addition to being green themselves, IT service providers now have to be prepared for environmental measures to be included in contract negotiations. Providers and their customers – the end-users – need to be clear on exactly what they want to achieve. Consider the following example; a company is trying to run its business as sustainably as possible. It decides to outsource a portion of its IT function, which currently contributes 100,000 tons of green house gases (GHG) per year. When it moves the work to the outsourcer, ideally they should meet the company’s business’s Service Level Agreements (SLAs), and should also be able to perform the work at a reduced level of GHG emissions, say 80,000 tons. If the outsourcer is less efficient and does the work at 110,000 tons, then the decision to outsource has actually increased the overall GHG emissions and is contradictory to their sustainability goals.

By collaborating to formalise targets at the planning stage, all parties can make sure that any goals set out in the SLA are tangible and realistic. This means that progress can be easily measured, reviewed and redefined as required.

In the public sector this has been formalised, with the UK government announcing last year that sustainability would be a factor in all procurement decisions. However, it remains an important issue in the private sector too. Government regulation and concerns about corporate accountability mean companies need to pay attention to sustainability, even if the recession has pushed it down the agenda. A survey conducted as part of The Brown-Wilson Group’s Black Book of Outsourcing revealed that 21 per cent of European and American companies that outsource have already added green elements to their contracts, with a further 36 per cent wanting to switch to a greener IT partner over the following 12 months. With this in mind, outsourcing providers who ignore the environment do so at their peril.

An effective first step in any sustainability process is to focus on reducing the demand for energy through conservation efforts; this yields the highest immediate environmental benefit and return-on-green-investments for both individuals and corporations. A McKinsey study has estimated at a global scale that there is $900 billion in energy savings, which could be captured with $170 billion in efficiency investment. Energy efficiency is now frequently referred to as “the fifth fuel” since it represents such a tremendous opportunity to reduce the consumption of the other four primary fuels: coal, oil, natural gas, and nuclear.

When Gartner included Green IT in its Top 10 Technologies for 2009, it suggested that shifting to more efficient products and approaches can allow for more equipment to fit within an energy footprint. Gartner also warned that organisations should consider the impact environmental regulations will have on the business and consider alternative plans for data centre and capacity growth. Outsourcing firms present a more sustainable option here, since they will generally use more efficient data centres and can exploit economies of scale.

Virtualisation also appeared in the Top 10 Technologies for 2009, both in terms of server virtualisation and virtualisation in storage and client devices. While virtualisation isn’t a panacea for carbon reduction, and if poorly managed can create a complex IT environment, it’s also a major tool in driving down overall IT costs and environmental impact. Cognizant has virtualised over 450 servers in its data centres to reduce energy consumption, virtualising eight per cent of current servers with the goal to reach 80 per cent over next three years. As a result of virtualisation, Cognizant reduced server procurement by 35% in 2008, despite growing by 32%. We’ve used our knowledge in this area to directly help our customers. We worked with a major PC peripherals manufacturer to reduce its number of servers by more than 50 per cent through server virtualisation. We also implemented a programme to help a major publisher reduce its data centre energy consumption by 40 per cent, resulting in comparable energy savings and a big reduction in carbon emissions.

There are, of course, less complex measures that can also be taken, such as individual power consumption, paper use and travel. These projects are often relatively simple to implement but provide dual benefits – a reduction in carbon emissions and significant cost savings. Service providers can also put these into practice within their own organisations, generating further savings that can be passed onto customers.

One such project Cognizant has implemented is a power management program that puts desktop PCs in hibernation mode after-hours. It’s a simple step, but one that will save Cognizant an estimated 18.75 million kWhs of electricity annually, resulting in $2.5M annual cost savings and an estimated 17,500 metric ton annual reduction of carbon emissions – the equivalent of flying back and forth between New York and India over 5,500 times (according to The Carbon Neutral Company).

When it comes to paper, any company irrespective of size can re-evaluate the need for printing and introduce simple measures that make vast differences. For example, Cognizant implemented a green BPM solution for a large pharmaceutical company, helping it save 1.2 million pages annually and resulting in a CO2 emissions reduction of approximately 20 metric tons annually.

Business travel in a global company can also be a major source of emissions. Along with others in our industry, we are working hard to reduce this. Cognizant is focussed on reducing its travel by encouraging the use of collaborative tools such as online meetings and telepresence. For example, we hold an annual IT management meeting in India to formalise plans for the coming year. This year, we conducted a virtual offsite meeting instead, using Microsoft Live Meeting to virtually bring together 25 of the management team from around the globe. Achieving a 10 per cent reduction in travel would lower our carbon emissions by 2,800 metric tons annually.

Environmental legislation will only increase over the next few years as the effects of global warming become more apparent. As legal requirements become more complex and far reaching, demand for green outsourcing partners and engagements will increase.

The business community needs to understand that going green and cutting costs are not mutually exclusive. Implementing a green initiative can be difficult as it requires a new mindset across an entire company – but often even simple steps can reap significant financial benefits, and the best outsourcing firms can often help. As inherently globalised businesses developing best practice across many fields of IT, outsourcing providers can draw on their experience of working with blue-chip IT firms and instil the knowledge and process developed internally within their client base. With increasingly demanding legislation expected over the next few years, companies should prepare now and let IT lead the way in their green programmes.