Industry news

  • 17 Apr 2008 12:00 AM | Anonymous

    The financial services technology market faces declining budgets and only offshore providers will benefit, according to new research from Pierre Audoin Consultants (PAC). Increased uncertainty in the UK economy is driving banks to reign back on IT spend, leading a market analyst to revise its growth forecast for this year. PAC said it is now expecting UK banks core software and IT services expenditure to drop to 4.6 per cent in 2008, from 8.4 per cent in 2007.

    Out of the winners and losers, PAC predicted that project based services including consulting services, systems integration, IT contract staff and IT training will feel the negative impact of shrinking IT budgets.

    But the analyst also said outsourcing is expected to see increased uptake as banks perceive this as an opportunity to enhance cost efficiency as they seek to do more with the same or less resources.

    Within the outsourcing segment, business process outsourcing BPO and offshoring activity is expected to rise, with a focus on closing some parts of existing UK operations and shifting these to locations like India.

    For instance, HSBC recently announced that it will be shutting down its Scottish payments processing centre, while credit card firm Capital One is axing 750 jobs at its operations in Nottingham and shifting most of the roles around account servicing to offshore locations.

    While in the past UK banks have slightly lagged in their adoption of BPO, PAC said it expected to see more activity in this space. Horizontal processing services such as payroll will be increasingly outsourced, with strategic business processes e.g. mortgage and loans processing being more seriously considered, it said.

    In response, it added that offshore players recognise the opportunities in this marketplace and are trying to penetrate and establish presence onshore to meet local needs. For example, it pointed to BPO vendor Cognizant opening an IT development facility in Canary Wharf this year.

    With BPO booming in the Insurance industry, IT services players are hoping that the banking sector will follow suit particularly as they become increasingly vulnerable to market pressures, PAC said, adding that increased competition will put pressure on prices, making outsourcing ever more attractive for businesses who need to address cost issues and focus on maintaining business in an evermore volatile market.

  • 17 Apr 2008 12:00 AM | Anonymous

    Corus, the steel manufacturer, has extended its IT outsourcing deal to manage its mainframe computers in a £26 million deal.

    The new five-year outsourcing contracts will run through to 2013, with some of the IT work being offshored to Capgemini's operations in India and Poland, as part of plans to significantly reduce mainframe running costs.

    Overall service management will be handled by Capgemini in the UK, with operational management done from its command centre in Krakow, Poland and additional technical support from a Capgemini centre in Mumbai, India.

    Under the terms of the new contracts Capgemini will retain responsibility for managing the mainframe computers that support core steel production, supply chain, stockholding, purchasing, sales ordering and invoicing at Corus' main UK manufacturing sites.

    Bruno Laquet, CIO at Corus, said in a statement: "The quality and efficiency of our mainframe systems is of key importance to our customers and employees in ensuring that we manufacture and deliver the right products with the right quality at the right time."

  • 17 Apr 2008 12:00 AM | Anonymous
    IBM has reported a 26% quarterly earnings jump to $2.32 billion, or $1.65 per share, exceeding the forecast of $1.45 per share. Sales also saw a two-digit increase, rising 11.0% to $24.5 billion, again significantly greater than consensus predictions.

    Technology services revenue was $9.67 billion, up 17.2 percent from a year ago, although there has been a small decrease year on year in new contract signings. All business units demonstrated increased profitability.

    IBM's global reach and services business make it one of the US bellwethers to benefit from a weaker dollar in many territories as deals done in other currencies, such as sterling and the euro, can double their money. IBM acknowledged this by saying sales would have risen just four percent without the benefit of the currency conversion.

    "IBM is a different company today, with a number of unique advantages: our global reach and scale, our strength in profitable growth segments, strong recurring revenue and profit streams, products and services that create real value for clients, and the discipline and financial strength and flexibility that enables us to adjust our business model as conditions require," said CEO Sam Palmisano.

    IBM CFO Mark Loughridge added that companies worldwide are prioritising IT projects based on efficiency and cost savings, a potential boon to services and outsourcing providers.

  • 17 Apr 2008 12:00 AM | Anonymous
    A number of claims have been made for software as a service (SaaS) in recent years: for example, that it spells the death of packaged software (true, in most cases); and that it will bring the major ERP and CRM vendors, such as Oracle and SAP, to their knees. This is unlikely, as Oracle's Larry Ellison is a major investor in both Salesforce.com and NetSuite.

    But NetSuite CEO Zach Nelson held the stage in San Francisco last night with a new claim on the decade-long roster of future promises: that it will disintermediate the management consultants and systems integrators that companies employ to bolt together all those disparate systems we buy, inherit, or have foisted upon us in the quest for global business insight.

    The event was the global launch of NetSuite's OneWorld system in a hall in the Embarcadero region of the city. The idea of OneWorld – essentially a productised and well-branded version of NetSuite's latest upgrades – is that it promises a global, real-time, customisable view of all of your organisation's transactions and business processes, across all your subsidiaries, within each native language, currency, and taxation regime, and all within a single instance of NetSuite.

    That's a compelling proposition, especially for all those companies trying to unravel what Nelson calls the “hairball” of disparate, poorly integrated systems within each business – let alone each country, region, and worldwide.

    What most companies do when faced with the systems hairball is reach for the Gaviscon (other antacids are available), dial a passing management consultant and cough up a six-figure sum at him to make it all go away. On-demand computing and SaaS (Internet-based business insight systems with the promised ease of use of a Facebook or an Amazon) promise to tear up that six-figure cheque.

    Of course, all the big consultancies have responded by opening SaaS and on-demand practices, at least partly to explain what the terms mean to all those organisations and businesses who are also choking on the hairball of technology acronyms and buzzwords.

    So despite grappling with a dodgy mic, Nelson's message was intended to be clear: why not have one, easy-to-use business system at a fraction of the price? But what he actually said, before moving onto the important stuff, was: “The next catalyst for the company as you look through that timeline of history” he explained, is “cloud computing”.

    Rather than plumping, 'Call My Bluff' style, for linguistic clarity to match the simplicity of the OneWorld idea, Nelson (like Marc Benioff, Greg Gianforte and other SaaS luminaries) has adopted the term 'cloud computing' to mean anything delivered over the Internet as a service.

    Why? This is guaranteed to confuse the very business people that NetSuite, Salesforce.com, RightNow and other SaaS vendors need on-side to see off the threat of Microsoft's 'deliver everything via Outlook' approach to business insight. Most people like and use what they already know and are familiar with, while IT people do love to obfuscate.

    Cloud computing actually means devoting shared, peer-to-peer networked resources to solving large number-crunching problems, so why confuse it with SaaS and on-demand computing and send all those potential customers scurrying off to Wikipedia?

    SaaS companies already face organisational problems within some customer companies: CEOs like SaaS because it tells them what they need to know, and it doesn't mean rebuilding the business around some unwieldy enterprise app that stifles the will to live; many CIOs hate SaaS because they're supposed to tell the CEO what he needs to know, and the last thing CIOs want is a system that anyone can access and use; IT workers hate SaaS because it leaves them with nothing to do or render baffling, tedious and arcane; and the average knowledge worker loves it, for the same reasons as the CEO. That spells trouble at the heart of the business.

    For many customers, there are also risks in basing the business on a hosted solution – is there a back-up datacentre, and if so, where is it? For some organisations culturally, that is not necessarily better than betting the farm on a huge, on-premise enterprise system.

    Nelson loves the terms “the Fortune five million”, meaning those millions of organisations that aren't globe-straddling multinationals, but who drive the economy in all parts of the world. For those companies (and others), OneWorld is a compelling idea, and one that works – at least in the context of a live, staged demo. The best way to capitalise on that is to keep it simple, and resist the age-old urge of the software industry to mystify and entrance, just as the Church did in medieval times by conducting services in Latin.

    In this day and age one person's Internet-enabled big idea can pack a punch as powerful as a multinational, and Nelson would do well to play to those strengths. “In Germany you probably use something like SAP just to be patriotic,” he quipped, rightly going after the big targets. However, most of the SaaS players are taking shots at each other rather than at the alternative business model.

    So listen up Messrs. Nelson, Benioff and Gianforte: keep it simple, resist that preternatural urge of the software tycoon to baffle with irrelevant and poorly chosen buzzwords, and you might just win the custom of the Fortune Five Million.

  • 16 Apr 2008 12:00 AM | Anonymous
    Americans overwhelmingly want their next President to stem the outsourcing of jobs overseas, instead of making it easier for immigrants to live and work in the US, according to the latest America at Work survey by the Employment Law Alliance (ELA), an integrated global network of independent law firms specialising in employment and labour law.

    The poll, based on a sampling of 1,125 working Americans over a five-day period last week, is believed to be the only national survey to date focusing exclusively on the kind of workplace-related issues that will confront the next President.

    Among numerous findings, the results suggest that 86% of Americans want their next President to make it harder for companies to outsource US jobs to foreign countries. This high percentage suggests that similar sentiments expressed by both Democrat candidates, Hillary Clinton and Barack Obama, have found many willing listeners in the American heartlands grappling with the credit crunch in the wake of the sub-prime mortgage crisis.

    Less than half of those polled said they are concerned about any focus on immigration issues. Percentages range from 40% favouring making it easier for professionals to work in the US to 25% granting amnesty for illegal aliens.

    The US, it seems, favours closing the door and battening down the hatches to weather the economic storm, and the public do not see closer alliances with Asian economies or importing skilled workers from overseas as having much bearing on economic prosperity.

    This contrasts with recent speeches by prime minister Gordon Brown who has stressed the importance of closer ties with India and China. At the same time, however, changes to UK immigration law have moved the UK closer to the Australian points system, which some UK employment lawyers believe could make the UK less attractive to skilled overseas professionals wanting to work in the UK

    Workers were split along racial lines regarding views on workplace issues and immigration reform. For example, 55% of non-whites support relaxing immigration laws for professionals versus just 36% among whites. Geographically, 46% of workers in Western states (the heart of high-tech America) thought the President should make increasing legal immigration a priority compared to a low of 25% among Midwestern workers.

    The survey was conducted prior to the Pennsylvania primary on April 22nd to help provide context to a broad range of workplace issues, so expect outsourcing and immigration to figure prominently in Clinton's campaign speeches in particular.

    Stephen J. Hirschfeld, CEO of ELA, said: "The President is the chief executive officer of the country and here we have Americans telling their next CEO what they think should be on his or her agenda when it comes to working men and women."

  • 16 Apr 2008 12:00 AM | Anonymous
    Communications and networking giant Cisco has announced the next phase of its corporate strategy for China, marked by outsourcing and new public-private collaborative programs. The announcement follows hard on the heels of the $16 billion multi-year China innovation and sustainability initiative that Cisco announced in November 2007, which includes research and development, education, procurement, investment and training.

    Included in the announcement is a Memorandum of Understanding (MOU) with China's National Development and Reform Commission (NDRC) with a focus on next-generation Internet and green research and development programmes, leadership training, best-practice sharing and business development investments, and a separate MOU with China's Ministry of Commerce (MOFCOM), providing assistance to Chinese businesses in the development of IT and business process outsourcing (BPO) capabilities within the country.

    Cisco also announced the establishment of the Cisco China Strategy Board, a cross-functional executive board of senior leaders across Cisco's global business, to evolve and drive the vision and strategy for Cisco in China. The impressively monikered Jim Sherriff will become chairman of Cisco China – and Chairman Sherriff is surely the perfect title for the head of such a close partnership of Chinese and US interests. As chairman, Sherriff is responsible for implementing the company's vision and strategy for China and representing Cisco's global business operations through direct engagement within the country.

    "The next stage of our strategy for China reflects the country's importance to Cisco's global growth strategy and to our long-term business model, built upon next-generation innovation in collaboration and Web 2.0 technologies," said the characteristically evangelical Cisco chairman and chief executive officer John Chambers. "Cisco's public-private collaboration within China not only helps accelerate these business efforts, but also helps the 1.3 billion people and growing number of entrepreneurs within the country gain access to social and economic opportunities afforded by the Internet."

    The memorandum between Cisco and NDRC aims to broaden and deepen cooperation in the areas of manufacturing and service outsourcing, next-generation Internet, venture investment, training and development, as well as environmentally-focused research and development including energy efficiency, emission reduction and network-based green urban development.

    Under the memorandum between Cisco and MOFCOM, Cisco will work with the ministry to help implement the Thousand-Hundred-Ten Project for China's business process operations industry. Through this program, Cisco says it will provide training to improve the skills of employees of China's business process operations companies. By helping to build a strong talent pool, Cisco believes it is contributing to a critical step in the development of the industry, with the goal of improving portions of Cisco's global business process services to the country over the next three to five years.

    Formally launched in early 2008 and overseen by Chambers, Cisco China Strategy Board is a cross-functional executive board of senior leaders across the company's global business aligning to drive Cisco's long-term corporate initiatives within the country. This includes oversight of the multi-year initiative in China, exploring further opportunities in public-private collaboration for social and economic development, Cisco's China business operations strategy, as well as small to medium-sized business and consumer IT market development programs.

    "One of the key drivers of Cisco's differentiated strategy is our ability to capture market transitions. China is very clearly a market in a dynamic state of transition. As we continue to evolve our innovation, education and sustainability programs within China, we are also focused on our goal of making China one of the company's top three world markets in the next five years," continued Chambers.

    Cisco first established operations in China in 1994 and now employs more than 3,000 staff in sales, customer support and service, research and development, BPO, IT outsourcing, Cisco CapitalTM programs, and manufacturing.

  • 16 Apr 2008 12:00 AM | Anonymous

    Indian IT services vendors have had several reasons to be nervous of late – well, as nervous as one can get when your company’s revenue growth is north of 25% and your operating margin exceeds 20%.

    Rupee appreciation, domestic salary inflation, pressure in the US banking market and mounting anti-offshoring rhetoric from the US Presidential candidates have sent jitters through the stock prices of the top Indian suppliers, and prompted some to write rather premature obituaries on the Indian IT export market: http://www.forbes.com/technology/enterprisetech/2008/02/29/mitra-india-outsourcing-tech-enter-cx_sm_0229outsource.html

    And another issue that is keeping some awake at night is whether the Indian Government will extend the IT sector’s tax breaks that are due to end in 2009. One of the major factors behind the Indian IT sourcing phenomenon was the development of Software Technology Parks of India (STPI) in 1991, in which companies operating in designated areas qualified for a ten-year income tax exemption.

    Debate has raged in India as to whether a country with such a huge need for public infrastructure investment, can afford not to tax some of the most successful multi-billion dollar enterprises doing business in its cities.

    There was no mention of an STPI extension in the Government’s latest budget, announced earlier this month. But the vast majority of the vendors I have spoken with in the last couple of months are cautiously optimistic that the Indian Government will extend the tax breaks within the zones beyond the current deadline.

    Industry association NASSCOM continues to push hard for an extension, and representatives from the Ministry of Communications and IT has been making positive noises about it in the Indian press and at recent conferences

    This is partly because the Indian Government has become anxious that the country’s national champions may up sticks, and take their business out of India to alternative sourcing locations.

    It will be a long time before China’s IT services export industry achieves the same scale and maturity as that of India. But already, Indian and Western services vendors have set their sights beyond the over-heating labour markets in Bangalore and Mumbai, and are setting up in cities such as Chennai and Gurgaon: http://www.reuters.com/article/rbssTechMediaTelecomNews/idUSDEL5984620080325

    And of greater concern to the Indian Government is that all of the country’s tier-one vendors are setting up secondary sourcing centres in Latin America, Eastern Europe and Eastern Asia. Countries such as the Philippines and Vietnam have learned from India’s success and are offering tax holidays of their own.

    NASSCOM believes that the non-extension of the tax break would land a crippling blow to the Indian IT industry, resulting in the loss of some 400,000 jobs in the medium term.

    This is a tough call for the Indian Government to make, and one that echoes the recent crackdown by the UK Government on non-domicile taxation. With less than two years to go before deadline day, it doesn’t have much time to make up its mind.

    Offshore gains a foothold in UK public sector

    Government has long been seen as the last sector that would open its arms to global sourcing.

    Offshoring is a sensitive issue for any business, but stir in public data protection laws, strong unionization and the close scrutiny of the national media, and it is easy to see why the government space does not account for a significant chunk of the Indian suppliers’ revenue – less than 2% for the top five players in the UK.

    But while we are very unlikely to see any public sector bodies enter into deals that would cut UK public sector jobs and replace them with offshore labour, there are increasing opportunities for both offshore specialists and Western companies to use their global sourcing capabilities on government projects.

    This was highlighted when Indian vendor HCL Technologies recently won a $4m deal with Wiltshire Police Force to build a remote working system to enable officers to access vital information while in the field. HCL is implementing the system and will provide ongoing support over the next five years, but will not handle any sensitive data as part of the contract.

    Cash-strapped government organizations are becoming more open to utilizing global delivery, particularly on the ‘build’ part of IT projects. In public healthcare, TCS and Infosys have both worked for the NHS for several years, and TCS has just been named as one of the health service’s approved ASCC suppliers.

    Don’t be surprised to see offshore services vendors in the hunt for future government sector business. They aren’t going to oust the likes of EDS, Fujitsu from IBM on public sector outsourcing engagements, but there is enough project work out there for it to represent a pretty big growth opportunity.

  • 16 Apr 2008 12:00 AM | Anonymous

    Last week BT announced that Ian Livingston will take-over as CEO of BT Group from 1st June. What do we think should be on Ian's 'to-do' list?.

    In our view Ian has five challenges to address:

    - Top-line growth: BTs recovery from the abyss peaked in Q3 two years ago with growth (year-on-year) of 8%. The corresponding figure was 5% twelve months ago, and 1% in the results announced in February this year. Any growth for what is a fixed-only business is highly credit worthy, and yet the feeling is BT should have done better. Ian's challenge is to repeat the success he has had in turning around BT Retail across the Group.

    - Customers and services: BT needs to evolve its portfolio to suit its customers, not technology. For example, approximately 19,000 graduates will join the UK job market in 2008 (Source: Association of Graduate Recruiters). This generation of students are compulsive communicators (good for the industry), and use a mix of direct (voice, email, but also Instant Messaging and texts) and indirect (social networking sites, on-line message boards, second-life etc) means to communicate. BT needs to provide these new workers with the direct and indirect communications services they need in the workplace.

    Central to achieving a greater understanding of customer needs is marketing. BT needs to ensure that its brand is spontaneously linked to the communications services it provides to the market segments (both decision makers and users) that matter most to it. Ian needs to bring customers and marketing more to the fore in BT.

    - Networks and technology: Last week in EuroView I referred to BTs need to refresh its 21CN story and address the issue of fibre in the access network. In The Sunday Times two days ago Ian was reported as laying down a challenge to regulator Ofcom on FTTP (fibre to the premises) and the USO (Universal Service Obligation). I doubt he issued a challenge as such, but the point is BT feels it should not have to pay the billions it would cost to provide FTTP across the UK, as it is no longer dominant, and the concept of USO is outdated.

    FTTP is the issue in the UK telecoms market in 2008. Resolution of this is important for the UK economy (or it will get left behind), and BT has to be part of the solution if it is to happen. But it has to be sorted quickly, oddly enough because of the 2012 Olympics. Can you imagine the furore if UK citizens were unable to watch the Olympics in HD over broadband (but overseas customers could) because Ofcom and BT were unable to sort this out? BT is, of course, also the official communications partner to the 2012 London Olympics to add another twist to this.

    - Strategy and structure: Some weeks ago we said that BT's strategy needed updating. The strategy (to defend traditional services, grow the new wave and transform the business through 21CN and IT) remains valid, but is now well-worn. We would like to see its strategy expressed more in terms of customers, services (not products) and customer service.

    Last year BT re-organised to create Design and Operate functions within Andy Green's Group Operations and Strategy division. This includes both the BT network and IT systems. Since Andy left, it has been unclear to us who (other than the CEO) leads this division. Aligning structure to strategy is a popular business school idiom, but it also happens to work. This needs to be sorted out.

    - People and processes: Communications is a services business, so the service that customers receive is largely dictated by those that deliver it. Ian needs to continue to invest in the integrated, automated and rationalised IT systems, but also in the people that are central to making customers happy. Investing in the former should lead to great improvements in efficiency, but one (process) without the other (people) is flawed. As Openreach has shown, investment in people can make a big difference. People not systems deliver service excellence, and become the embodiment of the brand.

    Ian inherits a stable ship, but the company needs to kick-on from here. Addressing these challenges will go a long way (in our view) towards achieving this.

  • 16 Apr 2008 12:00 AM | Anonymous
    Logica has inked a four-year IT development and support deal with the Home Office for the Independent Safeguarding Authority (ISA) and the Criminal Records Bureau (CRB), which will investigate people seeking to work with children and vulnerable adults.

    The company will design, build, host, and support application services and also provide vital data assurance and disaster recovery capabilities.

    According to Ovum, while Logica's commercial sector business suffered major revenue falls in 2007, its UK Government business grew by 10% to £372 million, predominantly boosted by its DISC application services contract win with the Department for Constitutional Affairs in 2006.

    Like the DISC contract, this latest win plays to Logica's strengths, says Ovum. “Application management services is considered to be one of the company's core competencies and it also has a strong track record in the 'justice and home affairs' market (other clients include the Crown Prosecution Service and the Office for Criminal Justice Reform).

    “In addition, while the application development and support market in the UK is under particular pressure from the Indian vendors (with Logica some way behind its peers in developing its offshore capability), this remains less of an issue in data-sensitive areas of UK government such as 'justice and home affairs'.”

  • 16 Apr 2008 12:00 AM | Anonymous
    NorthgateArinso, the HR division of Northgate Information Solutions, has announced a business process outsourcing (BPO) agreement with German giant SAP AG.

    The deal will enable NorthgateArinso to deliver additional services further up the HR value chain, expanding provision of payroll and employee administration services to offering customers full human capital management outsourced solutions, using its preconfigured euHReka HR services platform.

    This agreement builds on over a decade of providing HR integration, consultancy, and outsourcing expertise in support of SAP solutions.

    Monica Barron, VP of research at the Everest Research Institute, said: “Talent management is proving to be a significant component of human resources outsourcing, with increasing numbers of buyers looking to include processes such as recruiting, learning, and performance management in HRO transactions.

    "Buyers are looking for a combination of process expertise, technology and tools to support talent management, and the blended offering and delivery capabilities of both NorthgateArinso and SAP should help to meet a growing demand in the marketplace.”

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