Industry news

The buzzword ‘outsourcing’ has been a much talked about trend in global business for decades and it’s more prevalant than ever. Faced with an increase in globalisation and the need to cut costs while ramping up productivity, organisations are moving services, processes and product development abroad – or simply out of house. One core function being outsourced more and more is application development.

For many, outsourcing development will be the best decision they ever make because it promises cost savings and increased profits. Others are not so fortunate. Roughly 47% of outsourcing projects are being cancelled before they’re completed, according to research from Diamond Technology Consultants. Once you bring in a team of outside developers and consultants to take on specific areas of your application development, daunting challenges can appear, not least of which is maintaining communications and cohesiveness among the entire development team.

Since you can’t rely on an outsourced organisation to share your IT culture or understand your rules, it’s imperative that you have systems in place to ensure everyone is communicating well and moving in the same direction. Fortunately, Application Lifecycle Management (ALM) solutions are designed to help meet this challenge. With ALM you gain control, processes, visibility and accountability at each stage of the development cycle.

DECIDING TO OUTSOURCE – THE BENEFITS

What if someone told you that you could double the size of your application development organisation without increasing cost; or that you could take advantage of a pool of skilled engineers in a wide variety of technologies without having them all on your payroll? Now more than ever, businesses understand that linking technology with best practices is the way to gain and maintain competitive advantage. Successful organisations are responding with outsourcing strategies -- understanding that evolution and adaptation of business processes are essential for survival.

Outsourcing promises a list of benefits that you could probably find on any CIO’s wish list:

• Add high skill/low cost resources to your development team

• Add new areas of technical competency

• Increase delivery predictability

• Increase productivity

• Rapidly access additional staff resources in response to shifts in demand or for specific project needs

• Increase flexibility in managing staff budget

Taking advantage of the significant benefits offered by outsourcing while maintaining communications and cohesiveness across teams will ultimately be the difference between success and failure.

DECIDING TO OUTSOURCE – THE MUST-HAVES

Keeping control in your court

Maintaining management control is a critical factor for successful outsourcing. If you lose control of the processes, the promised benefits of outsourcing will never be realised. You need visibility into the project backlog, resource allocation, and current status. You need confidence that the process you defined is enforced and automated, regardless of where the development is occurring. If you’re subject to compliance or best-practices audits, you must ensure that the appropriate tracking and reporting is in place for all development locations. All of these can be addressed by ALM.

Process visibility

One of the most important ingredients of your ALM solution is that it puts everyone involved—IT managers and developers, whether outsourced or in-house—onto the same solution. IT managers gain the much-needed visibility into the development processes—who’s doing what, how they’re doing it, how long it takes, and when goals are being met or missed. Developers gain a clear view into what they need to do next and, most importantly, what's been done by other developers, whether they’re in the next cubicle or in India. This eliminates any wasted duplication of efforts. And this visibility is critical to the management of outsourced software development processes because without it, neither process definition nor measurement can occur.

Traceability for compliance

We all know regulatory compliance is no easy exercise for organisations large or small, so when you add a team of consultants across the globe into the mix, you have a whole new layer of complexity. But with ALM it doesn't really matter. Since the outsourced team works from your ALM solution, you have a built-in, structured, repeatable, and auditable software development process. Compliance is simply a matter of setting up the appropriate processes and generating the necessary reports. The solution enforces your compliance strategy and stores the necessary historical information, regardless of the location of the users.

Managing access

ALM solutions are absolutely essential for remote, outside development teams to successfully work with the organisation. With ALM, you can carefully restrict access and ensure that only those parts of your code base that you wish to make available are accessible. A sophisticated ALM solution has both access control of software components and control for application releases. It provides the ability to grant access to a particular release of code or to create a specific release just for outside exposure. This limits exposure of the code base to outsiders and limits access to proprietary software.

In addition, a complete ALM solution can combine task management with access control and release management for efficient, managed outsourced development. A development manager can specify tasks for code that’s released to remote developers and manage geographically distributed developers as easily as in-house developers.

Milestone checking

Since outsourcing contracts typically contain service-level agreements, it’s necessary to have solutions in place to check compliance. What better way to ensure you’re getting what you paid for than to have an ALM solution tracking every project and every piece of code that’s touched by the outsourcer? IT managers can track and manage every task throughout its lifecycle and proactively manage the outsourcing relationship. The solution provides the accountability necessary to enforce the terms of the contract and to facilitate the productive use of the outsourcing resource.

INDUSTRY EXAMPLE

One of the world’s largest international insurance companies is outsourcing a significant number of application development projects, and is using the Aldon application lifecycle management technology to ensure all involved - IT managers and outsourced or in-house developers - are on the same solution. This means that the communication, coordination and visibility of the applications being worked on in different areas is manageable.

With developers knowing what they need to do next and what has been done by developers around the world, duplication of efforts is eliminated and management can define and measure progress.

Another additional benefit that this insurance house has seen is being able to track the costs of performing a particular service. The technology maintains information about the benefits that the organisation expects to receive and what they actually receive, which allays the business’ overall greatest fears – that the effort won’t pay off.

OVERCOMING OUTSOURCING FEARS WITH ALM

According to the London School of Economics, by 2012 over half (58%) of the average corporation’s IT budget will be spent on outsourcing. To ensure success, the requirement for improving the management of outsourced development is becoming more apparent. By adding an ALM solution to the outsourcing formula you can address the development needs of developers, IT managers and CIOs alike, as they embark on new development initiatives like Web 2.0 and service-oriented architecture. Appropriate use of the solution allows IT organisations to take advantage of the flexibility, productivity and cost savings offered by outsourcing without sacrificing management control. At the same time it will help organisations remain competitive in their quest to evolve with trends in the industry.

IT executives are less likely to take advantage of the business strategy opportunities created by globalisation than c-suite counterparts according to the recent findings of an in-depth study by leading business process and IT advisory firm, EquaTerra.

The findings have indicated a surprisingly reserved approach to globalisation from top IT executives from around the world, despite the sector continuing to benefit from substantial investment caused by its effects.

The ‘EquaTerra Globalisation Study’, conducted by the Economist Intelligence Unit on behalf of EquaTerra and World 50, a knowledge sharing community for C-level executives, assessed in detail the perceptions of global competition and the challenges of expanding one’s global footprint, according to over 200 leading executives and senior managers from the Americas, Western Europe and the Asia Pacific.

The study revealed close to 90 per cent of study participants viewed globalisation as an inevitable but positive business challenge. However, IT related respondents were 14% less likely to indicate that their organisations favoured globalisation and 17 per cent less likely to see it having an overall positive effect on their company.

Interestingly, when asked what their main concerns were for their businesses in the light of globalization, 31 percent of respondents cited cost reduction. Slashing overheads was a more pressing concern than driving business innovation, transformation and even developing new business. However, in an ominous result for the outsourcing industry, when asked how their companies planned to react to the pressures of globalisation, relatively few respondents cited moving operations to lower cost markets (29 percent) or outsourcing/offshoring (11 percent) as a primary response.

A possible reason for the apparent outsourcing aversion felt by respondents was the perceived ‘loss of control’ experienced through the impact of global sourcing, cited by many as a major worry.

“Whilst some of the sector’s concerns about bearing the brunt of major change are valid, the industry has also been presented with a golden opportunity to lead the way and the IT sector should really view itself as the front of the globalisation ‘arrow’ rather than shying away from the opportunities being presented” said Phil Morris, Managing Director of EquaTerra Europe. “Globalisation is a broad and multi-faceted area, often requiring expert input in order to understand and utilise it to best effect,” he continued.

The survey was conducted amongst 217 C-level and other senior executives across 19 industry groups worldwide. 85% of respondents were from North America and Western Europe

Spring Global Mail, an international mail delivery company, has awarded Logica a global contract to provide Finance and Accounting BPO services.

Spring Global Mail is a joint venture company, formed in 2001 by three of the world’s leading postal organisations – TNT of the Netherlands, Royal Mail Group of the United Kingdom and Singapore Post. Spring provides business solutions for international business mail. Currently all Finance and Accounting (F&A) processes are run from Spring offices in Amsterdam (The Netherlands) and Emmerich (Germany).

Logica will take over responsibility for the main Finance and Accounting functions such as billing, accounts payable and general accounting. Spring’s F&A experts joined Logica in the Netherlands on June 2, 2008. Dutch employees will transfer to Logica’s F&A shared services centre in Amstelveen. The German employees will transfer to the Arnhem office of Logica.

Logica will deliver the F&A BPO based on blended sourcing by performing activities in the most suitable and cost-effective locations whether onsite, offsite, nearshore or offshore.

Iain McLure, CEO Spring Global Mail: “Logica provides us with the opportunity to mitigate continuity risks in our F&A process without increasing costs and with the benefit of increased quality. The contract also provides our transferred people access to a more professional F&A environment and enhances career prospects for them”.

Paul Schuyt, Chief Executive of Logica in The Netherlands: “The contract with Spring Global Mail is key to our strategy to focus on long-term, flexible partnerships with our customers. The agreement is part of a new wave in business process outsourcing, which seeks to achieve cost savings for customers through the ideal mix of a more effective and efficient organisation, innovative technology and moving activities to countries with lower labour costs.”

HP’s purchase of EDS may have hit the rocks after invoking the ire of the Intermountain Ironworkers Trust Fund (IITF). The fund, based in Utah, has brought a lawsuit through Dallas-based law firm Baron & Budd, P.C. claiming that the terms of the sale agreement are unfair to EDS shareholders.

A statement from the law firm highlights various parts of the agreement that may constitute ‘beach of fiduciary duties’ including fixing of the stock price at $25 a share and guaranteeing HP a $375m pay out if the deal does not go through.

“This deal leaves EDS shareholders out in the cold“, said Russell Budd, managing shareholder of Baron & Budd. “They had no say in the transaction, and the company directors who are charged with protecting their interests looked the other way.”

This move marks is the second time the proposed deal has drawn criticism in one week after EDS shareholder, Joseph Villari, sued to declare the sale unenforceable until EDS holds an auction to seek a higher price.

However, Joe Vafi, of analyst firm Jefferies & Co., said that the current offer from H-P seems fair and that the suits won't go far without the participation of larger shareholders.

Vertex has entered into a contract with Service Birmingham, the joint venture between Capita and Birmingham City Council, to extend its current contract to deliver contact centre services to the Council until March 2012 in a deal worth £40 million.

Since March 2002, Vertex has provided contact centre services on behalf of the council at Waterlinks House, Birmingham, where it employs 300 staff.

Under the new extension agreement, Vertex will be responsible for a wider range of contact centre services, handling contacts for Council customers including citizens, businesses and visitors. Vertex will manage the day-to-day operations and deliver new improved service levels.

The Vertex contract extension will be managed by Birmingham City Council and Capita through the joint venture, 'Service Birmingham', and it integrates the contact centre with Birmingham City Council's 'Customer First' transformation programme, creating easier ways for Council customers to access services.

Andrew Warren, Vertex MD of Public Sector and Retail Financial Services said, 'Vertex's contract extension demonstrates our deep understanding of the customer experience coupled with delivery of an outcomes based contract. We are pleased to be part of an innovative and strengthened partnership with Capita and Birmingham City Council."

The global carbon footprint of IT is equal to that of the airline industry, warned Gartner today, and green IT will become a key differentiator for outsourcing providers over the next two to three years.

“What you will see as you place your IT and business process bets is that this increasingly becomes an element of the jigsaw you need to consider,” said analyst Ben Pring in his address to the annual outsourcing summit in London.

Pring explained that as CO2 emissions from IT usage match those of the airline industry (with each contributing two percent of the total), we are beginning to see how this reflects itself in our industry with the rise of green consulting services and benchmarking. “Being a good corporate citizen will become more and more important, he said, and a key differentiator for providers between now and 2010.

Despite the downturn, global services spending is on the cusp of a substantial increase and CIOs must learn to grasp the opportunities this presents, said Gartner analysts at today's Outsourcing summit keynote address in London.

The closing presentation identified the challenges that will determine the CIO's role over the next few years, and how these will impact on enterprise outsourcing strategies. Externalisation, the primacy of business, globalisation, the internet, legacy modernisation, green IT, and global sourcing will be the critical factors for all IT-enabled business, said analysts.

Gartner said that, despite the downturn, spending on external services will continue to increase until the IT services industry becomes the largest overall sector of the IT marketplace by 2011.

Analyst Ben Pring said that services – including outsourcing and consulting – will reach “the commanding heights” of the IT industry. “You may change as a customer what you buy within the mix of the differing services that are available to you,” he said, “you may buy more application outsourcing in the downturn of the economic cycle... and less innovative consulting, but in total, and in aggregate, spending on all IT services is set to increase substantially. There is no sign that spending on external services will reverse in this period of the business cycle.”

However, the strategic decisions that businesses make about their sourcing strategies cannot themselves be outsourced, he advised. “Lawyers make a very good living sorting out that complexity. You must learn and must continue to improve your understanding of the techniques of multisourcing,” he said.

Top of the list of critical factors will be business primacy, said Gartner analyst Allie Young, referring to projects that enable business growth, linking IT more and more with business strategies. Attracting, developing and retaining IT personnel will be at the heart of this, she added.

This contradicted statements made at Monday's fringe event hosted by Getronics, which strongly suggested that CIOs often leave the enterprise once outsourcing partnerships become established.

The Getronics event – chaired by sourcingfocus.com's Chris Middleton – discussed the fact that once CIOs lose departmental staff they find themselves managing networks of suppliers rather than a coherent internal function – a role for which they are not necessarily qualified, and which challenges the fabled notion of the 'chief innovation officer'. As a result, many switch sides to the outsourcing provider. (See Editor's Blog).

Of course, the reality of outsourcing in a downturn is that 'cost takeout' is the primary aim of many projects, and not strategic enhancement of the business. This was acknowledged by Gartner's Young. All too often “cheaper dominates”, she said, followed by “better and faster”, and it is this that dictates the buying decision. However, she warned that it should not be a cost takeout that is crippling to the company when the economy rebounds.

“What organisations need is growth, speed and agility," Young continued. "Sourcing decisions must align to business goals. We individually have to take responsibility to break down that separation of business and IT. We all must become business leaders to think and connect business and IT in all we do."

On the topic of globalisation, Young said the challenge of establishing globally integrated IT and business processes was what “kept CEOs awake at night”. A lot of companies get stuck in the immediate benefits of labour arbitrage, she said. However, the smart buyers will begin to balance cost imperatives with other benefits.

Core to the future of sourcing strategies will be the internet, specifically the promise of technology virtualisation, remote management, software as a service (SaaS), VMware, alternative delivery models, and enterprise virtualisation.

“Visionary business leaders exploit moments of change to innovate,” said Gartner's Ben Pring, who went on to describe the “double-edged sword of legacy IT”. He said: "All of your business IP is invested in that technology; you've made big bets in the past, you've got skills based on that technology, and processes are invested in that too; but maintaining and enhancing that legacy footprint is expensive and getting more expensive, and the lack of flexibility means that changing things is difficult and too expensive.

“Legacy is not dead, the legacy is not turned off overnight, but simply is in terminal decline,” he said.

The gradual switch to net-native, web 2.0, and 'cloud computing' -based applications is inevitable, and will form a larger and larger proportion of your spending, and of the overall marketplace, he said.

“You need to understand that this is not a project... not like buying a new suit so you can look as though you are in fashionable times; it is not another upgrade, and if you treat it as such you will fail.”

HR outsourcing (HRO) is one of the most popular forms of outsourcing. As a sector it's booming, with Everest Research Institute predicting that it will top $2.85 billion this year. It's no surprise: after all, the one thing that every company has in common is people, so people management needs to be on every corporate agenda.

But not everyone wants to go down the full outsourcing route, which is why there is such growth in the HR software as a service (SaaS) market. According to Forrester Research, among enterprises that use or are piloting SaaS applications, adoption of HR applications is running at 54 percent compared to CRM at 38 percent. "CRM used to be the poster child for SaaS,” noted Forrester analyst Ray Wang. “It's now HR apps areas like performance management and talent management, all these ancillary pieces, where people are using hosted applications.”

The most successful of these HR SaaS firms is SuccessFactors which boasts 3.7 million subscribers in 2,000 companies worldwide. In fact, while companies such as Salesforce.com and NetSuite have been feted as the leading lights of the SaaS movement, SuccessFactors stakes a claim to be the most successful SaaS firm in the industry. “SuccessFactors leads the SaaS industry with pure organic revenue growth of 89 percent,” argues founder and CEO Lars Dalgaard. “Few companies have ever grown this fast organically at this size, which is the engine of long-term, sustainable value creation.

“One of the world’s largest retailers has become a customer of SuccessFactors with the world’s largest planned SaaS deployment with 300,000 initial users. We think that’s three times bigger than anything that’s ever been done before. Also a large insurance agency added 24,000 users. SuccessFactors has a history of delivering the largest on-demand SaaS deployments in the past years.”

Dalgaard has a stated ambition: revolutionising the future of work... one employee at a time. “How many companies are there out there who have employees who just check in and do what they have to do to collect a pay cheque?” he asks. “It's maddening on a human level that we have people who go to work and hate what it is that they do. Who is responsible for that situation? The employees are to a degree and the employers certainly are. If you are in a situation where half your workforce is not engaged with what they are doing and does not know why they're doing it, then you have a problem.”

His other mantra is earthier: "No assholes!" All employees at SuccessFactors have to sign a contract that obliges them to guarantee they will not (in his words) "act like assholes". “It's all about respect for the individual,” he explains. “I want no assholes, no jerks. The contract says that people will not talk behind other people's backs. No politics! Politics is the biggest stifler of personal performance.”

This week the firm held its user conference in San Francisco – a European event will follow later in the year – where more than 300 customers shared experiences of using SuccessFactors' SaaS offering. For some, it's been a long journey: Textron, a manufacturer of helicopters, aircraft, fastening systems, tools and components, and a provider of financing tools, began its deployment as far back as 2001, making it a veteran among SaaS users of any vendor in any business category.

“One of the major factors that made us take the plunge with SuccessFactors was that they could host this,” recalls Will Roth, director, organisational development at Textron. “The timing was right for us. At the time we were trying to outsource a lot of our IT infrastructure. Taking care of servers in-house wasn't something that we saw as bringing us strategic competitive advantage. So in terms of making the business case, it just fitted right in with our wider thinking.

“We talked about the idea of doing the whole human resource outsourcing [sic], but there is a certain level of control that we still like to have on the HR side of things. If you do some of this internally, then it also forces you to know what you don't know. That said, there are benefits to full outsourcing – and there are some applications that we dream about fully outsourcing – but you need to have a great deal of confidence and be comfortable with the level of customer support you're going to get.”

Companies like Textron are evidence that SaaS is a viable alternative to full-blown outsourcing for enterprise organisations, not just the mid-market where the model has been most commonly seen. Roth argues that some of the often-cited concerns about SaaS, such as service outages, just don't stand up to scrutiny. “I had experience of a downtime situation when I worked for Merck,” he notes. “We had a recruiting software application that was externally hosted, It usually worked beautifully I used to use it myself, checked it every couple of days and actually got a job through it. Then one Wednesday we came in and there was nothing there, the link was just gone. The company had gone bankrupt and it was a total disaster.

“The long and the short of it was that we had to decide to put our trust in SuccessFactors and that they had done their homework. Naturally, we audited them and there was nothing that we were doing any better than they could do. With IBM hosting the application, you're just not going to be able to duplicate their level of quality. We have had outages but the majority of times they've only lasted a matter of minutes. We also built a lot of guarantees into our contract so that if we're down for more than x amount of time, then the provider owes us money. But we've never had to get close to that.”

Gartner has revealed its top 30 destinations for offshore services, plus its 'ones to watch' for the remainder of the decade.

Region by region, the top locations are (not in order of merit): Argentina; Brazil; Canada; Chile; Costa Rica; Mexico, and Uruguay; the Czech Republic; Hungary; Ireland; Northern Ireland; Israel; Poland; Romania; Russia; Slovakia; Spain; Turkey, and Ukraine; South Africa; Australia; China; India; Malaysia; New Zealand; Pakistan; the Philippines; Singapore; Sri Lanka, and Vietnam.

Countries to watch, which have the potential for elevation to the list, include: Colombia; Guatemala; Panama; Peru; Puerto Rico Venezuela; Indonesia; Mauritius; Thailand; Belarus; Egypt; Latvia, and Morocco.

In addition, Gartner has identified Cuba, Jamaica, Nicaragua, Bangladesh, and Madagascar as already offering some offshore services, although in some cases they remain hamstrung by political and other considerations, said the analyst firm.

Gartner's criteria for inclusion in the list include language proficiency and availability; government support in the promotion of IT-relevant education and the promotion of offshore services; cost; an educated labour pool; infrastructure robustness and pervasiveness, including transportation, communications, satellites, power, road, rail, ports and airports; the competitiveness of labour rates against other countries; and the political and economic environment, including currency volatility, corruption levels, and the risk of war or civil unrest.

More controversially, Gartner included the “potential for moving the legal system forward” and “a willingness to talk to Gartner” as being essential considerations – along with more familiar criteria, such as cultural affinity, data security and privacy. This was a refreshing dose of self-awareness and realpolitik from an organisation that is sometimes known for a paternalistic stance towards clients and prospects, and perhaps now even countries. (Not quite Naomi Klein's 'disaster capitalism', perhaps, but certainly on the same path.)

There were some words of caution from the conference platform as well. Maturing locations mean higher cost locations, while low-cost destinations such as Vietnam fare badly in areas such as IP security.

So the picture is vibrant and constantly changing, especially as some parts of the world seem immune from the downturn that plagues the West. For example, hundreds of companies are emerging in China and beginning to engage with Western European companies that have a presence in Asia Pacific. Meanwhile, Latin American countries (the Americas as a whole showed strongly) often use Spain as a bridge to move into western Europe. At the same time, Israeli company Ness has made acquisitions in Russia to enable it to expand into Europe.

So a buyer's market, perhaps, but one where it is essential that companies establish a framework for global sourcing.

Whether buyers are country led or vendor led, it is imperative that they do not just “seek the leader”, said analyst Ian Marriott, but determine which is the right organisation for the business.

Asked about ethical and human rights considerations, Marriott claimed that the kind of sweatshop and child labour issues that afflict the clothing and textiles industries do not apply to IT outsourcing, because workers typically have a much higher standard of living and are “upper middle class”. Nevertheless, he conceded, human rights issues remain a matter of conscience – for both individuals and companies.

In a packed week for me at the Gartner outsourcing conference, Dutch vendor Getronics was kind enough to ask me to chair a Monday afternoon discussion about the future of the CIO at a fringe event.

Getronics (which is busy divesting parts of itself and rebuilding around a "narrower but deeper" strategy, according to Jos Schoemaker, chief operations officer Global Services) saw the event as an opportunity to talk about itself in the context of new opportunities for the CIO in the great, globally multi-sourced future that has become the lingua franca of all such events.

A few days previously, I chaired a similar discussion at a European Outsourcing Association event nearby, where the idea that 'CIO' now stands for 'chief innovation officer' got the biggest laugh of the day. As one delegate said, "We haven't got to grips with the information bit yet". So what is going on?

Perhaps the answer emerged at the Getronics event this week. One member of the panel was Albert Sprokholt, director Europe for EquaTerra. The problem, he said, is that CIOs quit once an IT programme has become outsourced, because they find themselves no longer inside the information, as it were, but instead at the thin end of a chain of suppliers which they are now being asked to manage. Not only that, but they have responsibility for the contract, while not having any direct operational involvement in its workings.

In other words, the bits of the job they are good at are taken away, they are not necessarily qualified to be supplier managers, and they are liable for the success or failure of a contract but without getting involved in the fun stuff. In those circumstances, innovation is perhaps not top of the list of achievables.

So what did Mr Sprokholt do when this happened to him? He joined the outsourcing provider, and now earns his keep in business development, marketing and delivery.