Industry news

The Flemish Public Employment Service (VDAB) agency has selected EDS as its new partner to manage its information communication technology (ICT) infrastructure. The contract has a six-year term and is worth approximately €50 million (US$74 million).

Under the contract, EDS will provide a range of infrastructure services, including user support, user infrastructure management and maximum availability of the ICT environment for the agency's customers and partners. EDS will provide desktop support to more than 5,000 users in 200-plus locations and manage approximately 100 servers.

“An open infrastructure that allows efficient collaboration with the various partners is crucial to support VDAB's steering role in the Flemish labor market,” said Fons Leroy, managing director of VDAB. “In the coming years, the challenge is to bring about innovation and synergy with the Flemish government, and VDAB has chosen to take on this challenge together with EDS.”

“Together with my team we negotiated a transparent and flexible outsourcing model that allows change and encourages a competitive pricing,” said Paul Danneels, CIO of VDAB. “We are looking for innovation in support of further strengthening VDAB's pioneer role in career guidance and education infrastructure. This contract will also allow us to cooperate with the Flemish Government in various areas.”

“For this contract EDS has established a balanced cooperation with local subcontractors,” said Jan Cleeren, sales manager for the Belgium public sector. “Together with Belgacom and Econocom, we will deploy the best experts to be able to meet the high execution demands typical for this agreement.”

Telecoms firms are increasingly looking to outsource their IT departments so that they do not have to maintain in-house IT teams, it has been suggested.

Industry commentators feel that they have come to this decision because IT is not their core business, according to livemint.com.

New telephony groups including Datacom Solutions are currently in talks with IBM about outsourcing their technology requirements, as these young businesses are looking to streamline their operations to allow them to provide their communications networks more efficiently, reports the news provider.

Vivek Gupta, director for communications sector at IBM India, said: "These companies are not looking at maintaining large in-house IT teams because it is not their core business. We have had an initial round of discussions with all of them."

The news follows reports last week by ZD Net that Gartner has predicted increasingly technologically literate clients will shape the future of the IT outsourcing industry.

Infosys has reported quarterly revenue of $1.14 billion. For the March 2009 fiscal year, the company has issued guidance of revenues of $4.97 billion to $5.05 billion, and profits of $2.31 to $2.35 a share, exceeding analyst expectations.

Infosys shares arose by more than five percent on the news. Other IT outsourcers stocks rose higher as well, with Cognizant, Satyam and Wipro all seeing similar single-digit increases.

Inefficient, out-dated management and analysis of customer data is threatening the UK banking industry's ability to support growing numbers of consumers falling into the downwards debt spiral, warns Detica, the business and technology consultancy. Many banks and building societies are likely to struggle to actively support these consumers under the requirements of the new Banking Codes which came into force at the beginning of April.

Under the new UK voluntary Banking Code, banks and building societies should provide more support to consumers heading into debt problems, including actively identifying and contacting those customers who may be at risk. Detica believes that a significant number of UK retail banks are not currently equipped to identify these customers under the new Code's requirements.

Maggie Scott, Executive Manager from Detica's Financial Services unit, says: "Due to a stream of recent regulatory requirements, banks actually have a great deal of data in place to build an accurate profile of their borrowers. Historically, however, banks have only used this data to assess their customers' financial circumstances when applying for credit. The challenge now is for them to apply this intelligence to identify financial stress and to act on the information to get in touch with customers to discuss ways to support them. If banks can't do this, then consumers won't benefit from the aims of the new Code and we risk debt spiralling further."

Scott adds: "Key to success for banks is creating the right organisational change. They need to put the insight developed by back office analytical teams at the fingertips of frontline customer service agents who are speaking to consumers directly."

Statistics suggest that a typical enterprise will spend between 6 and 15 per cent of its operating revenues on document production (Source: PIRA). When viewed at this level, it can appear that a simple document production service would be sufficient to improve performance compared to internal print and mail operations. However, there is a significant “iceberg” effect in understanding the end-to-end communication process, as opposed to looking simply at production. Estimates such as that from PIRA only consider the visible elements, from material costs and origination services through to production and postage.

The true cost of business communications which are printed and distributed is often hidden because there is no unified reporting of the cost to the organisation of all the process elements involved. In a landmark study carried out by InfoTrends and CAP Ventures, called “Cost of Business Communications: A Look at the Business Document Lifecycle”, it emerged that for every 1 Euro spent on print, 6 euros are spent on other functions.

It is easy to miss the deep truth of this finding:

• What appears to be a 1 Euro activity is in fact a 7 Euro cost.

Focusing solely on trying to squeeze additional cost savings from the visible part of document production - by looking to print management contracts, global print sourcing and the like - ignores the potential for dramatic performance improvements by focusing on the end-to-end process as a whole. With print margins falling by 4 per cent year-on-year (source: PIRA), there is little further room for savings. However, document processes have yet to undergo automation, lean management and efficiency improvements which will undoubtedly drive out costs.

Document Process Outsourcing (DPO) adopts a broader view of the cost to the enterprise of existing document management. In particular, the opportunity costs of failures in the existing process should be taken into consideration.

Consider the impact if an invoice print run cannot be scheduled due to systems down-time. Even a delay of a few days can have a major impact on cash flow, interest payments, even shareholder dividends if the error occurs at year end.

• Working with an external supplier which is able to guarantee a totally resilient service eliminates these risk factors and potential costs from the document process.

Return on investment for marketing communications is usually calculated as a simple ratio of value of sales achieved compared to cost of activity. Yet this ignores the impact on customer satisfaction which poorly targeted mailings, incorrectly addressed items or inaccurate statement/product holding data can have. Customer satisfaction directly correlates with higher profitability as a result of longer relationships, deeper product portfolio holding, and higher price premium tolerance.

• An outsourced process with full measurement and reporting from end-to-end can enhance the value created by customer communications.

It is estimated by Gartner that some 50-60 per cent of customer service queries in financial services require supporting documents to be sent to the caller, whether for marketing or for regulatory reasons. Delays or errors in sending these documents can lead to lost sales, lower revenues or potential fines for breaches of regulations.

• Outsourcing document processes with guaranteed service level agreements optimises the value of customer contacts.

Document re-engineering can yield added revenues from sunk costs in legacy documents and content. The time and cost associated with enhancing existing platforms and technologies to allow this are usually too extensive for in-house investment. Performance-enhancing capabilities from new generation document process environments include automated document tracking and reprinting, address pre-sorting and cleansing, repurposing from print to Internet, printing on demand documents that were previously pre-produced and stocked, introduction of colour and personalised messaging into transactional documents, leading to uplift in returns.

• DPO allows a “generation jump” from legacy systems to leading-edge process management technology.

DPO is in its infancy, but is set to grow exponentially over the next five years. That growth will arise out of a fundamental shift in business thinking about document production and its management. Critically, there will be a shift from viewing the business need as simply for a print and mail service for specific document types (transactional and marketing) towards a recognition that the entire end-to-end process can be outsourced.

Current levels of spending on document production are estimated at around 38 per cent of the amount spent on IT in any given year. That is a sufficiently large sum to demand top level attention on how to extract the maximum efficiency, achieve cost reductions and added value, while also improving overall management. This is what outsourcing of the document process can provide.

Garter has today claimed that within two years client decisions will account for half of all hardware, software and services purchases, reports ZD Net.

At a briefing in Singapore on Thursday, research vice president at Gartner Martin Gutberlet commented that clients are becoming increasingly technologically literate and making more specific demands of IT outsourcing companies, said the news provider.

He added that small and medium business enterprises (SMEs) are at the forefront of this trend and that this is especially true in India where there are a large number of "one-man businesses that are very open to trying out new technology".

The news follows reports last week that IT outsourcing budgets are consistent with last year despite the uncertain economic conditions.

Gartner questioned 1,000 chief investment officers and found that 62 per cent reported no change in their IT budgets.

EDS has acquired UK-based information assurance and managed security services firm Vistorm for an undisclosed sum.

EDS plans to combine its existing IT security capabilities in the UK with the new Vistorm entity, creating an organisation boasting 400 information security specialists in EMEA, backed up by its own tools, software platforms and methodologies. Vistorm will also be a direct channel for EDS's other slate of offerings in infrastructure, security and privacy.

“The IT security market is a strategic priority area for EDS globally, and the strong information security expertise of Vistorm reinforces EDS’ existing capabilities in this critical and growing area,” said Bill Thomas, executive vice president of EDS in EMEA. “The combination of Vistorm’s industry-leading IT security portfolio of products and deep understanding of technology needs in security – together with EDS’ global resources and strengths in managing complex infrastructure and applications securely – will provide unmatched end-to-end security.”

Vistorm, founded in 1991, has annual revenues of approximately $100m and more than 200 employees across the UK, with a client roster that includes the Royal Bank of Scotland, Nationwide and Balfour Beatty. It's a good move for EDS to boost its security offering, according to analysts. “This deal is a prime example of EDS's goal to use acquisitions to increase its presence in specific geographic markets - in this case the UK - and to amplify its capabilities in areas with substantial potential growth - and security services are a current EDS priority,” said Ovum's John Madden.

“EDS signaled its interest in expanding its reputation and expertise with the appointment in February of a new global information security leader, responsible for coordinating the outsourcer's activities in this space. Such a move is a natural extension for EDS, with its long-time experience in running and securing large-scale infrastructure and applications environments. And with concerns about data breaches and privacy at an all-time high, it seems EDS is trying to stay ahead of customer demand.

“We should also note that maintaining Vistorm as a separate company, and folding EDS's existing security capabilities into Vistorm, could help reduce the need for a protracted integration of the two companies with limited impact on current clients or new sales; in any deal such as this there's always the risk of getting bogged down in acquisition inertia.”

Outsourcing the headlines? That seemed to be on the cards with speculation that US television network CBS is in talks with CNN about outsourcing its reporting operations to the all-news network.

A report on NYTimes.com had said that CBS News/Sports president Sean McManus and CNN International president Jim Walton were talking about ways the two networks could combine forces. This could include CBS paying CNN to use its newsgathering resources.

According to US media scuttlebutt, the plan is about "reducing CBS’s news-gathering capacity while keeping its frontline personalities, like Katie Couric, the CBS Evening News anchor, and paying a fee to CNN to buy the cable network’s news feeds."

But CBS News denied any such talks. "We are extremely satisfied with and proud of our newsgathering operation," a CBS News spokeswoman said Monday. "No outside arrangement is being negotiated."

The spokeswoman conceded that there had been discussions around the prospect of a pool arrangement between CBS and CNN in Baghdad, but these had come to nothing.

With outsourcing seemingly on offer as the universal scapegoat, it was only a matter of time before the trend to outsource the coding of applications was cited as a security risk.

According to analyst group Quocirca, which surveyed 250 IT directors and executives in the US., the UK and Germany on behalf of Fortify Software, ninety percent of the organisations that admitted to having been 'hacked' had also outsourced more than 40 percent of their applications to third parties.

It seems that security is an afterthought in an alarming number of such outsourcing deals with sixty percent of respondents admitting to not mandating security from scratch, while 20 percent of those surveyed in the UK failed to accommodate security at all in the outsourced applications. "These survey results help explain the recent, sudden rise in data breaches and should serve as a wake-up call to any executive whose company sits on a pile of mission-critical application code," said Fortify board member and former White House cybersecurity advisor Howard Schmidt.

Large organisations are increasingly relying on custom-made software to give their businesses a competitive edge, but this carries risks. "That organisations are increasingly reliant on bespoke applications to maintain a competitive edge, and are outsourcing a significant proportion of the coding for these applications to third parties, is an alarming trend," said the report. "The need to make business processes more efficient is leading them to expose more of their applications through the use of new programming techniques and technologies, some of which are known to introduce new vulnerabilities into applications, but which are not yet clearly understood."

But given that security awareness has theoretically never been higher, what's causing this lapse? The report mainly blames the way companies have become caught up in hype about new technologies, most notably Web 2.0 and service-oriented architectures (SOA), and their abilities to open up applications to customers and partners.

US companies outsource software development the most, with 61 percent of those surveyed reporting that they outsourced more than 40 percent of their programming. Financial services companies were found by the survey to be the most likely to outsource their software development. In that sector 72 percent of surveyed companies said they outsource more than 40 percent of their software development.The strength of the UK's financial services industry and its regulatory regime means that outsourcing systems development is not as prevalent although the UK's take-up of Web 2.0 is closer to that of US firms. "Outsourcing of code development is widespread. However, given the lack of visibility into coding practices, it is fundamentally insecure," said the report

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Companies are also up against a new type of hacker, the report noted. "Hackers are becoming more sophisticated, no longer looking to launch widespread attacks for notoriety – instead they are launching stealth attacks against specific targets for financial gain," it said. "New types of attack are becoming more common that target areas where defences are the weakest - the software applications that run on computer networks. New types of hackers are emerging that look for insecurely written code and hunt for vulnerabilities in software applications that will allow them to steal information generated by those applications."

Overall, it's clear that security is not being taken seriously enough, said Fran Howarth, principal analyst at Quocirca and author of the report “The findings of this report indicate that not enough is being done by organisations to build security into the applications on which their businesses rely," said Howarth. "Not only that, but they are entrusting large parts of their application development needs to third parties. This creates an even greater onus for organisations to thoroughly test all code generated for applications — without which they could be playing into the hands of hackers.”

While business strategy is driven largely by innovation, it seems that corporate responsibility for the innovation process is highly fragmented.

That's according to a survey of 601 senior executives in the US, UK, Germany and Canada by Accenture which found that innovation is cited as a top corporate priority, but found that more senior-level accountability, greater CEO involvement and improved speed-to-market execution is needed to help companies deliver on the promise of innovation and boost competitiveness.

The survey also found that companies that are successful with innovation are likely to have a chief innovation executive. Specifically, 40 percent of respondents who said their company's level of innovation is much stronger than that of their competitors also said that the person primarily in charge of innovation is a chief innovation executive. While nearly two-thirds (62 percent) of respondents said that their organisation’s business strategy is either totally or largely dependent on innovation, only 21 percent of respondents said their companies have a chief innovation executive and only 11 percent have a C-suite executive in charge of the process. Nearly half (48 percent) of respondents said that multiple executives are responsible for innovation in their companies.

As is so often the case, deeds are not matching up to words and good intentions. Only 15 percent of respondents said they are very satisfied with their company’s ability to convert ideas into service offerings, and only 13 percent said they can do it repeatedly. High on the list of innovation challenges cited by respondents are transforming ideas into marketable goods and services, cited by 29 percent of respondents, and creating a proper execution strategy, cited by 26 percent of respondents.

While 59 percent of executives said that the level of support their CEO gives to innovation is greater than the level of support of CEOs at their closest industry competitors, a majority (57 percent) of respondents admitted that their organisation’s speed of innovation was slower than that of industry peers while 55 percent said that their frequency of innovation was less than that of their industry peers.

“The role of the CEO in the innovation process has grown dramatically in its importance and needs to evolve from vision- and direction-setting to enabling and driving execution,” said Dan Chow, a senior executive in Accenture’s Strategy practice. “CEOs need to properly align resources and action with the innovation vision and performance goals. However, simply having a vision for innovation and naming an executive to head innovation is not enough to make it work. Senior management must look at innovation as a core process to be actively managed; avoid a quick-fix approach; and focus their energy on execution.”

There is a geographic difference in perception of innovation within organisations. While respondents regard North America as the most innovative region, they also considered Asia to be more innovative than Europe. Only 22 percent said that Western Europe is highly innovative. This view was shared by respondents in the UK where only 21 percent of respondents said that Western Europe was highly innovative, compared with 39 percent of UK respondents who said the same about the Asia Pacific region.

“The results of this survey validate Accenture’s research into a phenomenon we refer to as the multi-polar world, in which economic power once largely embedded in the United States, Japan and Western Europe is being dispersed much more broadly around the globe,” said Mark Spelman, global lead of Accenture’s Strategy practice. “Emerging-market multinationals are becoming increasingly adept at innovation, and their presence is being felt everywhere. In order to achieve high performance and remain competitive in this new environment, global companies must emphasize collaboration in innovation – with consumers, suppliers and within their own companies across borders.”