Industry news

Inflexible contracts mean that businesses should now seek "transformational deals" from their end-user workplace services (EUWS) providers through 2008, says a leading analyst

Research by technology and business process outsourcing analyst NelsonHall finds that EUWS is now a "fairly mature market" in the US and Western Europe, with "widespread buy-side [customer] interest" in remote management, offsite support and self-help portals.

The findings are within NelsonHall's latest global research paper, Assessing The End User Workplace Services Market The strongest service growth in EUWS will come from network-centric or unified communications-based services, which will grow from four percent of the overall EUWS market in 2007 to 20 percent by 2012.

However, customers should use their negotiating muscle the secure better deals, advised Dr. Katy Ring, Information technology outsourcing (ITO) research manager at NelsonHall. She said, "Most of the current installed base for end-user workplace services has in place inflexible contracts that are not well-suited for the changing workplace policies of buy-side organizations or for remote services delivery.

"The global device estate for end-user workplace services is changing in terms of requirements for the way functionality is accessed by devices. Because of the technology and workplace policy changes happening in the EUWS domain within organizations, there are benefits to seeking outsourced transformational deals in 2008 and beyond.

"Key challenges for the development of the EUWS market are moving end-users away from reliance on on-site support, negotiating new pricing models, and developing flexible contract structures," continued Ring.

"In the traditional EUWS model, a significant proportion of on-site support and/or local field services personnel are required. This is the main cost component that is reduced with a virtualised service delivery capability."

On average, the field services component can contribute 40-50% of the total cost of the traditional EUWS contract, said Ring. "This cost is not eradicated by a virtualized model but it can be reduced by 30% so that it comprises around 15 - 20% of total costs."

The mature market for outsourced EUWS means that many customers are on their second contract in this area, or expecting to renew between 2008 and 2010. There is widespread interest among customers in taking advantage of cost savings from increasing remote management of device estates, access to self-help portals and the use of lower-cost, off-site support staffing and help desks.

This makes interesting reading alongside an observation by Gartner analyst Ed Thompson at yesterday's Gartner CRM conference in London that increased demand for self-help portals is a classic hallmark of a serious economic downturn.

During such times, said Thompson, organisations cannot afford to experiment with new technologies and business models and tend to focus on cutting costs rather than pursuing new business.

By 2012, EUWS revenues will move from a managed service installed base dominated by traditional offerings to an installed base dominated by remotely managed offerings, said the NelsonHall research.

Movement to remote management within existing contracts is unlikely to occur until those contracts are ready for renewal.

The European market is slightly ahead in the adoption curve for remotely managed EUWS because some key local vendors such as Getronics, Siemens, and Fujitsu Services have been active with more advanced service offerings for longer than the large global providers that dominate the American market.

The research also found that green IT audits and advice will become a standard component of EUWS offerings as increasing numbers of organizations wish to market themselves as environmentally aware.

This is a challenge for many providers, said Ring. "Many vendors currently lack a green IT advisory service within their EUWS portfolio," warned Ring, "and yet this will become an increasing buy-side requirement. Particularly as the ability to offer green IT audits and advice for EUWS clients will also assist organizations looking to adopt low cost thin-client solutions."

Indian outsourced services providers are casting around for ways to bill their customers more, while avoiding obviously inflating costs, says research published today.

Analysts at Forrester Research have cautioned that a dose of economic reality is entering the offshore services market in India as labour costs in that country rise, skills are increasingly in demand, and the Rupee appreciates against the spiralling dollar.

Indian service providers are struggling to maintain profit margins, and although providers were initially more focused on finding ways to insulate their clients from local inflation, says Forrester, today they are equally focused on finding ways to charge clients more for similar services.

"Sourcing and vendor management professionals must understand the insulation techniques as well as the newest pricing tactics in order to negotiate the best deals today," advises chief author of the report, analyst Stephanie Moore. While rates themselves have been subject to fairly minimal increases, "important price increases are often embedded elsewhere", she concludes.

The report advises CIOs to pay particular attention to rates for onsite visits by offshore specialists, which often escape close scrutiny, together with definitions of the working week, and clauses referring to currency inflation and travel.

When oil giant Royal Dutch Shell made ill-judged announcements about outsourcing thousands of IT jobs on unfavourable terms, it left skilled internal IT staff feeling devastated and undervalued... the same staff who might be outsourced if plans go ahead. This was an object lesson in how not to do it.

This month Shell's CEO has again been talking up the need to cut costs and outsource technology innovation. At the same time oil prices have soared to $110 a barrel, profits are in the tens of billions, and he is on record as saying there is no problem with global supply.

What a strange time, then, to let the story slip out that its outsourcing strategy seems to be shrouded in uncertainty.

A story has broken that Shell is locked in talks with suppliers and now seems undecided on the fate of the major IT outsourcing plan that it revealed earlier in the year.

In January Shell courted controversy and union protest when it emerged that it planned to strip out or outsource up 3,200 IT jobs, on severance plans that were significantly poorer than those for other professionals within the company.

However, in a document sent to staff today, and reported by The Register, Shell said: “At this stage it has not yet been decided if Shell will actually outsource all or part of its global IT infrastructure activities, if so who the supplier(s) will be and how the outsourcing will be structured.

“However, if the outsourcing is to be implemented it will undoubtedly have an impact on the employees working in the relevant part of the IT infrastructure activities in the UK.”

This would seem to be a significant backwards step by a company that earlier in the year said that staff would be dismissed who were superfluous to any successful outsourcer's requirements.

Suppliers in the frame to date have included EDS, T-Sytems and AT&T.

Like any company, Shell would like to reduce its costs but it is doing so within the very public global context of over $110 per barrel of oil (Monday this week), potential fuel protests, and 2007 profits of some £13.9 billion ($27.4 billion). Not a sector being torn asunder by recessionary forces, it seems.

If, as seems likely, the US is in recession (judging by the downward plunge towards zero of interest rates) then some energy speculators are betting that, far from falling, oil prices will remain in triple digits for as long as five years (with short-term falls and corrections).

Prices would be kept aloft by commodity investors and producers as a hedge against political instability, uncertain long-term supply, and the downturn in other economic sectors such as property and banking. A possible scenario, then, is energy ceasing to be a utility, and becoming the new gold dream of the decade: something the environment would happily sustain, no doubt.

In such a global energy economy where cheaper oil currently only exists along the sharp political knife-edges of Iran, Iraq and Venezuela (two of which can trade with their allies how they wish) oil giants are going to have to maintain a public face of cost-cutting, care, and innovation, while also struggling to satisfy the West's oil addiction at whatever price it can afford to pay.

Shell CEO Jeroen van de veer said: "From the physical point of view there is no high alarm. It's difficult to understand why the oil price is where it is. No tankers are waiting in the Middle East, there are no queues for the retail stations here."

In Shell's annual report, the CEO said: “Operation excellence, technology and good project management remain central to our efforts to produce more energy from conventional oil and gas and unconventional sources such as oil sands.

"If we do not develop the right technology or do not have access to it or do not deploy it effectively, it may affect delivery of the strategy as well as our operational performance and financial position."

He then suggested that technology outsourcing was a cornerstone of the company's strategy moving forward: “more reliance on global systems, relocation of information technology services and increased regulation” were the challenges, he said.

So once again a global company finds itself on the horns of a number of (self-inflicted) dilemmas, as regards the politics of outsourcing.

The first concerns the sourcing of innovation versus the stated need to make cost savings at a time when business in its sector, at least, seems to be booming for investors.

The second concerns the PR implications of making sweeping announcements about sourcing strategies that leave vital, skilled internal staff feeling threatened and undervalued – before being asked to move to a new employer, perhaps.

And the third concerns the fact that in the always-on, mobile world of social networking, you can be the story, but you can no longer manage the news.

In conclusion, when you outsource, do it for strategic reasons that free you up to do what you do best; involve staff; play fair; and proactively tell a good story – not boast of your power in a downturn.

In any project, from a school project to the most detailed software development project, you will know more about it at the end than the beginning. It’s hardly rocket science. So why, when thinking about the implementation of detailed software development projects, do so many companies plan every micro detail at the very beginning of the project? Surely it makes sense to perform the first part of the project, define short-term requirements, examine results and conclusions, and then plan again for the next stage. Agile software development, producing software in short iterations, is the common sense approach to software development. It minimises the planning at the initial stage with the realisation that a more fluid approach, with planning at each stage of the development, would guarantee the best results. By constantly testing and integrating the results at each stage, the final product can be released earlier if it is ready, or changes can be made that will lead to an implementation that is both rapid and successful.

The more traditional ‘waterfall’ approach to software development is a process-led approach. The stages of the project are well defined and the requirements are set in stone at the start by analysts – the design at the outset, followed by blueprint documents, then the construction, integration, testing and finally deployment to customers. As any software developer will know, this is the traditional way that software is developed. But it is an approach that lacks the flexibility that would allow the project to evolve with the changing needs of the user.

The agile approach is different; the philosophy is based on the idea that if projects are developed in short iterations (two to three weeks), at the end of which the user can see a working version of the software for sign-off before progressing to the next iteration, then the overall project will be much more flexible. The methodology advocates that the best way to measure progress is through the constant development of working software. At the outset of a project, everyone knows that the requirements will change. No-one knows exactly how the software will work and the agile methodology embraces change and uses it to progress. By predicting only a few weeks in advance, this minimises wastage in terms of time spent on document writing at the outset. It also takes into account the everyday variables that can affect any project, for example personnel changes or problems, technological developments and regulatory changes (particularly in the financial services sector).

The strengths of the agile development methodology are based on the flexibility of the agile offering. Deciding what a project will look like a year prior to its completion does not take into account the industry changes or the changes within the customer organisation that could affect the project. If the customer changes its mind after nine months, this might require a complete project re-think under the waterfall methodology, but the adaptability of the agile methodology allows change to be made based on the requirements of the customer. Also, the fact that a client can assess the development and suggest future plans and changes after each iteration, thereby developing a deeper understanding of the project’s requirements, means that changes can be made throughout the project’s lifespan.

Another advantage of the agile methodology is the constant testing and integration. The test-driven environment - the project will be tested during each iteration - ensures that any faults can be corrected on a regular basis. Therefore after each iteration, progress can be viewed and measured and the next stage can correct any faults, whereas testing towards the end of a ‘waterfall’ project may find a huge problem with the system that needs widespread correcting. This can prove very costly and hugely inefficient. Alongside this is the advantage of an integration of teams (both teams at different supplier locations and integration between end user and supplier teams) – the constant testing and development will mean a close collaboration between end user and supplier who will meet face-to-face on a regular basis to ensure that the next stage of the project is a success.

But it’s not all advantageous - there are limitations to the agile development methodology. For one, it is very dependent on the structure of the client organisation. The customer has to have an agile organisational structure, with internal process that have the flexibility to allow for constant change in a project. If a customer has a rigidity of structure, whereby all projects are strictly planned (and therefore predictable) from beginning to end, then attempting to put in place a methodology that embraces constant change and development is likely to cause internal confusion and consternation.

The need to get customer buy-in at every stage can be a potential difficulty, particularly for customers who are inherently used to the waterfall methodology. Whereas in the waterfall methodology the customer involvement is limited to two stages – beginning and end - the requirement for on-going participation and input in the agile methodology may prove problematic for some organisations. If the supplier is trying to develop software using the agile methodology, but the customer is not getting involved, the benefits are immediately lost. It can also prove costly if the customer is continually suggesting changes – the project can quickly grow larger than its original scope. Suppliers have to take this into account when costing projects of this nature.

Another drawback of agile is that if one part of the project does not work, the whole project can become bottlenecked. This is especially problematic if the issue is within the development team, who are central to rapid progress. If a bottleneck does occur, it wastes the time of everyone involved in the whole project.

There is no doubt that the agile methodology is gaining popularity. In the early twentieth century Henry Ford revolutionised the automotive industry with the invention of just-in-time production, a methodology implemented to improve the ROI of a business by reducing in-process inventory and its associated costs. Just-in-time was a methodology whereby a series of signals, or Kanban, automate the production process into making the next part of the car. Although the progress and development of agile is not perfectly analogous, the philosophies do have similarities; each element of the agile software development is done in small iterations, each iteration self-contained but having a knock-on effect on each other. The take-up of agile seems to be following a similar trajectory to just-in-time too. Just-in-time has proved a tremendously successful and popular methodology, although for several years it was only taken up by very few manufacturers – mainly Ford and then Toyota. However, like agile, sceptics needed very clear proof of its benefit before its more widespread adoption.

Agile is becoming more widespread and sceptics are being won over. The realisation that you have the most information at the end of the project, as opposed to the beginning, is infiltrating into mainstream software development methodology, whilst doubters amongst end user organisations are realising that a shift in internal ideology can create a more rapid and successful deployment of software. Although many organisations are tied to the more traditional waterfall methodology, whose main benefit remains the predictability of delivery, agile – the challenger methodology – is becoming ever more popular due its (potentially) more rapid delivery and the greater involvement of the end user at each stage in the development process.

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Back last autumn, admitting defeat, IT services company Accenture called time on the £12.4 billion NHS IT project, terminating the £2bn-worth of contracts it was working on to deliver new patient and GP systems. The decision wasn’t taken lightly, but Accenture was suffering financial losses – the company had suffered a reported 67 percent profits drop after losses incurred on the contract. And disputes in outsourcing are not uncommon – there have been any number of problematic deals over the years.

Outsourcing disputes cost a great deal of time and money and are generally a loss maker for all concerned. It isn’t only cost – it can also seriously damage reputations. Brand damage and loss of shareholder confidence can arise from the perception that organisations are unable to handle outsourcing arrangements effectively.

So how do disputes arise in the first place? Invariably, the fundamental problem is down to money. Often the end user company will be inclined to negotiate very tight terms and conditions, whilst the supplier underbids to win the business. An outsourcing partnership based upon the agreement of unrealistic delivery terms for a price which leaves little profit for the supplier, is a relationship that is almost destined to fail. This combined with the fact that no outsourcing project is cut and dried at the requirements stage and will almost certainly involve change of some sort means that conflict is bound to arise. Understandably, the customer will try to hold the supplier to the bargain, whilst the supplier will need to do everything it can to stay in – or get into - the black. These entrenched positions will ensure the two sides stay at loggerheads, until the dispute can be resolved

These unshakable attitudes to outsourcing that customers and suppliers can nurture, can be seriously detrimental to the success of the project. Both organisations and their suppliers need to be aware they need to have a flexible, positive approach, where there is give and take on both sides. The cost and inconvenience that it causes to change supplier, step in or in-source the business process or IT system, means that it is highly preferable to do as much as possible to make these relationships work.

So how can such conflicts and disputes be successfully avoided or else resolved once they start?

In the past, lots of organisations bent on outsourcing signed up to very long term contracts. Long term contracts can be viable, but in deals of this longevity, the parties need to pay careful heed to dispute resolution clauses. The ways in which disputes are resolved are essential in keeping the relationship on an even keel and making the project a successful one.

The starting point is to use a mechanism that requires the parties to talk to each other. A proper process for escalation is essential. Irrespective of polarised views, people are generally more amenable to seeing the other side's point of view when they meet face to face. Communication restricted to letter or email is a recipe for bravado and threat.

The next is the use of adjudication – a form of rough justice – whereby a dispute is resolved quickly, outside the courts. There is no reason why the outsourcing contract can not specify a number of adjudicators in specialist fields, each of whom has confirmed at the outset their willingness to accept an appointment as an adjudicator if asked. The contract can then provide that particular disputes be referred to one of the panel of specialist adjudicators, who have been pre-agreed. The adjudication can proceed quickly. Decisions are often made within 6-8 weeks of appointment, before the matter has really "festered” between the parties. The decision is binding, unless overturned by some higher authority, such as a court or arbitration, if the parties take it that far. It is a method of dispute resolution used widely in the construction industry and there is no reason why it should not apply to all outsourcing contracts.

Adjudication can also iron out disputes over the scope and interpretation of requirements in IT contracts. Take the example of a local government IT project. The requirements said that if employees were off sick for more than three days, they must be advised that they need to provide a doctor’s note. The supplier decided that it was sufficient for the system to generate an email to the employee's work email address. The council pointed out that not all employees had access to email (cleaners etc) and if employees were absent due to illness, they wouldn't be picking up emails anyway – therefore the system would need to generate a letter to the home address. An adjudicator would decide where the obligation lay. Quick binding decisions can help keep a long term relationship on as even a keel as possible. The contract needs to be capable of dealing with issues, no matter how large or small.

Another means to settle disputes is the use of mediation. This is where all relevant parties get in a room to hammer out the issues, with the assistance of a mediator. This form of shuttle diplomacy tends to work very well. As mentioned, both parties can get very entrenched in outsourcing agreements – and it is much easier to be belligerent on email or over the phone. When sitting down at the table together, or engaged in the same process, it usually becomes easier to move towards a resolution. It can also provide a means of saving face for the different people who are involved – often the mediator is blamed for any concessions that were made in reaching settlement.

To avoid disputes, sensible management of the contract is also needed. This may seem an obvious point to make, but it is often the case in public sector outsourcing, that the people who are involved in these deals, may never have been involved in an outsourcing project before. The team that signs up to the contract is not necessarily the same team who runs it. The people who are involved in the management of the outsourcing need to be up to speed on the main contract provisions and understand where the real risks lie. Many an IT project gets delayed through no fault of the customer. It's a natural thing to ask the supplier for an explanation and be presented with a plan B. The client team may not realise that each time they agree to work to the new project plan it often becomes the new contractual timeline against which claims for delay will be assessed – even if by the end the supplier is years behind the original schedule. Risks like this need to be understood. It is one of the reasons why client delivery teams are encouraged to undergo contract management training at the outset of a project.

Despite the conflicts and disputes that arise, there is no doubt that the technology and outsourcing projects that abound in the UK’s private and public sectors are amazingly innovative and essential in the UK’s evolution. But in order for these projects to succeed and to limit potential failure, client companies need to be aware how to limit dispute fall out. They need to sit down at the outset, work out objectives and develop a contract which will form a protective layer around the project. And is must be remembered that all the measures described above – adjudication to mediation – are just a means to an end, not an end in themselves.

Over half of public sector organisations have signed up to or renewed their existing contracts under the Payroll Services framework agreement with OGCbuying.solutions. Logica now provides payroll services to half of Central Government employees. In the last five years, the original membership of 13 organisations has grown to nearly 80 members.

The new public sector organisations to sign up to a fully managed payroll service are the Civil Nuclear Police Authority, the National Lottery Commission and the Office of Rail Regulation. Communities and Local Government (CLG) has also signed a new contract for a fully managed payroll service for 3,455 employees and Government Offices for England has chosen Logica to run a fully managed payroll service for 2,800 employees.

In July 2007 Logica agreed an expansion to its exclusive Catalist framework agreement with OGCbuying.solutions to provide public sector shared services for payroll and related HR processes. Since then the framework agreement has expanded even further, enabling Logica to provide outsourcing services across a number of integrated HR and payroll software platforms including Oracle, SAP and Logica Interact.

The agreement allows public sector and publicly funded organisations to benefit from a best value, proven shared-service, which provides ongoing savings as more organisations participate. Benefits of the framework agreement include reduced costs of the payroll function by as much as 30% using a shared-service model, increased efficiency via automation of processes and the integration of HR and payroll functions through the creation of a single database of employee information and streamlined processes.

Matthew Jones, Financial Controller at OGCbuying.solutions commented: “Since we signed the exclusive agreement with Logica eight months ago, we have been delighted with the level of support and consistent delivery that Logica has executed to make this framework agreement the success it is today. It is a credit to Logica that there are now nearly 80 members of the framework agreement and we hope to boost this to over 100 in 2008. The new members have also helped to drive down the payslip price further, making it even more attractive to those yet to join the shared service.”

Patricia Taylor, Director of Logica’s HR and Payroll business in the UK, commented: “It is really encouraging to see that public sector organisations are taking advantage of this ground breaking and innovative framework agreement and moving to the concept of a virtual shared service centre. The more departments that take up the service the better the price per payslip for all customers, making it a real win-win situation for everyone in terms of cost reduction and efficiency. The high number of renewals and new customers is testament to the solid working relationship we have built with OGCbuying.solutions.

“Shared services will remain high on the agenda in 2008 and will continue to require expert business consideration, ensuring that purposes and targeted outcomes are fully evaluated, costs are realistically assessed, time to delivery established and intended impacts measured against actual results.”

Bosch, the global automobile and appliance behemoth, has extended its relationship with T-Systems by signing a five year, Europe-wide corporate network deal.

The contract, reported to be worth eight-figures (€), will see the business customer segment of Deutsche Telekom controlling the company’s corporate network for the next five years.

With this agreement, Bosch is intensifying its global network strategy and increasingly relying on centralised infrastructure and services from a single provider, T-Systems said.

T-Systems has operated Bosch’s German network for some time whilst providing network-centric ICT services to over 200 locations in the Asian-Pacific region since 2006.

Q: In an economic downturn, some people will undoubtedly come to view the offshoring industry as meaning, in essence, sourcing former UK jobs more cheaply from overseas to a cheaper labour force. Is this any merit in this view? – it is one being whipped up as an election issue in the US, for example. More importantly, how can this be handled internally within companies who seek to offshore parts of their operations?

A: This is not entirely fair. Offshoring does not necessarily mean that UK jobs are being directly replaced and domestic workers are being made redundant. It is true in some cases, but the IT skills shortage in this country has been well documented by the likes of the British Computer Society, and many UK organisations are using offshore resources to fill in the gaps in their labour requirements. These gaps are appearing around both high-end skills – around high demand areas such as SAP and SOA – and also around legacy programming and management positions, where some senior workers are being lost through retirement.

It is also worth noting that offshoring is not just something that UK companies turn to when the economy starts to bite. The country has enjoyed a strong period of economic growth during the last five years, during which time the leading Indian outsourcers have enjoyed annual growth of 40% or more from their UK operations.

The decision to source skills from an offshore location is something that must be communicated clearly as soon as possible to all interested parties: management, shareholders and most important of all, employees and relevant workers’ unions. Even if the move will not lead to internal redundancies, it is much better for the board to be up-front about the decision and engage directly with the relevant groups. Recent history tells us that news of the decision will leak out soon enough anyway, and this will have a potentially damaging effect on the morale and productivity of the existing internal IT team. Unions and the UK business press will be quick to criticize those companies that try and push offshore programs through under the radar. It is much better to be open and to explain the thinking behind the strategy.

Q: Can the UK still compete on skills, given that IT graduate numbers are apparently falling here, whereas destinations such as India, China, and Vietnam, are producing more and more skilled graduates with good English skills. Skills were a problem at the turn of the millennium in the UK. They are surely a greater problem now...

A: Yes, the UK can remain competitive, but it will have to pick its battles more carefully. For example, there is little point in UK colleges and universities churning out thousands of entry-level legacy programmers in the future as India and China have a big cost advantage in handling the maintenance of ageing systems, and the risk of managing this type of work offshore is relatively low.

Where the UK needs to concentrate is on producing the type of skills that cannot readily be offshored, such as project managers and vertical industry experts – people who really understand the requirements of SAP or Oracle for the UK banking or transport sectors, for example. To illustrate this point, many of the larger Indian services vendors are currently recruiting these skills locally in the UK.

Q: As technology costs fall, the relative cost of technically expert staff rises, is it inevitable that many types of companies will become more widely distributed globally, with smaller strategic teams located in the UK, and technical and production departments increasingly located offshore. Is remote infrastructure management a likely major growth area, for example? What are the risks of this?

A: Yes – most large UK organisations take a global approach to IT sourcing, and it is no longer about simply using a partner in India to handle some small projects.

Large UK organisations want to offset the risk of relying solely on the overheating Indian labour market by tapping into emerging offshore sourcing locations such as China, Latin America and Eastern Europe. The disruptions caused to some of the Indian services vendors last month by faulty undersea communications links in the Mediterranean also highlighted the potential risk of solely relying on India.

Remote infrastructure management is definitely going to be one of the big growth areas in the IT services space in the next five to 10 years. We are going to see a lot of UK companies that have realized cost savings in sourcing applications management and development work from places like India, look to apply the same delivery model to supporting their datacentre infrastructure.

Functions such as remote network and security monitoring and infrastructure helpdesk support can be readily offshored, but one of the challenges that customers will face is to make sure that these remote services are seamlessly integrated into the functions that need to be handled onshore such as onsite break/fix services.

Q: UK executives will gradually become extremely expensive relative to other parts of the organisation. What might the implications be of this? Surely if countries such as India will be able to supply good management as well as technology expertise, then offshore executive power is also likely to be sought from overseas?

A: The CIO at most UK-based multinational companies is already one of the best-traveled executives within the organisation, racking up a huge number of air miles to check on the status of offshore sourced projects and overseas partner relationships.

While we are unlikely to see the location of the UK CIO’s office shift to a permanent base in India or China, we will certainly see end users look to attract some of the best management talent from these locations – particularly as the successful management of global sourcing becomes an increasingly key component to the role of the CIO.

The power of Government spending must be harnessed to create demand for new innovative products and services, concludes a Government white paper published today.

Innovation Nation sets out the Government's aim to make the UK the best place in the world to run an innovative business or public service. It argues that innovation is essential to the UK's future prosperity and the ability to tackle major challenges like climate change.

The announcement comes after chancellor Alistair Darling's first budget budget, in which he said he would look into the practicality of setting a goal for small and medium enterprises (SMEs) to win 30 percent of all public sector business in the next five years.

The paper spells out how the Government creates demand and new markets through £150 billion in public spending on goods and services each year alongside its regulatory responses to global challenges such as global warming.

It sets out a number of practical measures to ensure that businesses and people in the UK are best placed to benefit from the new opportunities and prosperity created by the demand for innovation. Immediate steps include a commitment for each Government department to publish an Innovation Procurement Plan as part of its commercial strategy. This will set out how departments will embed innovation at the heart of procurement practices encouraging them to engage with businesses at an early stage.

The white paper also initiates work to review the role regulation can play in promoting innovation by the Department for Innovation, Universities and Skills (DIUS), the Department for Business Enterprise and Regulatory Reform (BERR) and the Business Council for Britain.

The paper considers how Government and society respond to changes in innovation across the public, private and third sectors. Other key themes are further supporting innovative businesses and research; increasing exchanges of knowledge; boosting the supply of skilled people; supporting innovative towns and regions and promoting innovation in the public sector.

Headline commitments include:

• Supporting businesses in tapping into the demands of new markets in the UK by bringing forward five new 'innovation platforms' to co-ordinate Government support and funding to firms and organisations involved in developing new products and solutions to global challenges - this builds on the innovative approach developed by the Technology Strategy Board (TSB) to successfully co-ordinate Government support for the development of low carbon cars, for example.

• A new initiative to provide at least 1,000 'innovation vouchers' every year by 2011, helping support and fund small and medium-sized businesses to work with a university, further education college or research organisation of their choice to develop a new product or service.

• Doubling the number of Knowledge Transfer Partnerships between businesses, universities and colleges to boost competitiveness and productivity alongside a greater exchange of innovation expertise between the private sector and Government led by DIUS and the TSB.

•Piloting of a new Specialisation and Innovation Fund to boost the capacity of further education colleges to unlock workforce talent and to support businesses in raising innovation potential.

• Expanding the network of National Skills Academies with one academy for every major sector of the economy.

• Piloting a new Innovation Index in 2009 to measure UK innovation managed by the National Endowment for Science, Technology and the Arts (NESTA) in partnership with the Office for National Statistics (ONS), the Design Council, the CBI and others. A fuller system will be in place by 2010.

•Sponsoring new Partnerships for Innovation bringing together venture capital with universities, business and other local partners to jointly develop innovative solutions to local and regional challenges. DIUS will publish a prospectus in the autumn.

• Establishing an Innovation Research Centre in partnership with the Economic and Social Research Council (ESRC), NESTA and the TSB. •

Boosting the ability of small firms to exploit their intellectual property by training Business Link advisors in IP management by the summer of 2009.

• A new Annual Innovation Review to provide a comprehensive annual assessment of promoting innovation in the public and private sectors. The first of these will be published this autumn.

Launching the white paper, John Denham, Secretary of State for Innovation, Universities and Skills, said: "We must make the UK the best place in the world to run an innovative business or public service, where innovation can flourish across every area of the economy.

"It is the British people who will create a world-beating innovation nation and that is why we must unlock talent at all levels by investing in skills, research and the exploitation of knowledge. But we can achieve much more if we harness the power of Government as the UK economy's biggest customer to create new markets and demand to benefit innovative businesses and people in Britain.

"Innovation will be the key to some of the biggest challenges facing our society, like global warming and sustainable development. We need to ensure that Britain contributes to the innovative solutions and that British business and the British people benefit from the new opportunities and prosperity they create."

The paper outlines how the nature of innovation, defined as the successful exploitation of new ideas, is changing. Traditionally, the UK's innovation policy has been concentrated on high-tech manufacturing. While this will remain vitally important, it is argued that increasingly innovation applies to a wider range of products, services, business processes, models, marketing and enabling technologies used by companies, organisations, industries and sectors.

Innovation Nation makes an assessment of the UK innovation system highlighting the UK's many strengths such as its research base, open economy, excellent universities and good levels of business innovation. However, it also outlines areas in which improvement is needed, for example in increasing business demand for skills, boosting skills to successfully innovate and increasing business investment in research and development and in non-technological innovation.

Iain Gray, CEO of the Technology Strategy Board, said: "This white paper presents a huge opportunity to address challenges through innovation, and for Government to be an exemplar of innovation across all Departments, in turn stimulating innovation and R&D investment throughout business.

"The Technology Strategy Board has a key role to play in addressing these opportunities and accelerating innovation. Working closely with partners, our initiatives and investments will make new connections and act as a catalyst for new areas of business innovation, making a real difference to the prosperity and global competitiveness of the UK."

Anne Glover, chief executive of Amadeus Capital Partners Ltd, who has been asked by the Chancellor to look into what barriers can be removed to allow SMEs to win more public sector business, said: "I'm excited to take on responsibility for advising Government on the greater involvement of SMEs in Government procurement. Many small businesses are highly innovative and by taking account of innovation in the public procurement process the Government can achieve both value for money and greater engagement with SMEs."

The strategy builds on themes around innovation raised in Lord Sainsbury's Review of Government's Science and Innovation Policies, published in October 2007. The Government has just published a progress report highlighting that the Government has or is in the process of implementing the review's recommendations.

The new IT systems in the NHS are on course to deliver better care and an estimated £1.14 billion in savings by 2014, according to the first annual benefits statement published by the Government.

It shows that since its introduction, the National Programme for IT has already delivered a total of £208 million in savings by providing quicker, more efficient and convenient patient care.

The report summarises information from one in five Trusts who have implemented new IT from the National Programme. It found that, of the £208 million in savings to 31 March 2007:

• £192 million had been saved through the delivery of the National Network for the NHS.

• £14 million had been saved from the use of digital imaging and scans (plus an additional £35 million per year of forecast recurrent savings now the system is fully implemented).

• £617,000 savings on software licensing and hardware maintenance costs had been achieved (plus a forecast £1.6 million of annual savings using evidence from 2006/7).

This provides a forecast of £120 million a year in annual savings based on information for 2006/7.

Health Minister Ben Bradshaw said: "Our use of computer technology in the NHS is becoming the envy of the world. It is saving lives, saving time and saving money. If you talk to health and IT experts anywhere in the world they point to Britain as example of computer technology being used successfully to improve health services to the public."

Chief executive of the NHS David Nicholson added: "This report shows that we've made really solid progress against delivering an integrated IT system for the NHS, which is not only making us more efficient, but is helping our clinicians and staff deliver better, safer services for patients."

A copy of the report can be accessed on the NHS Connecting for Health website from today:

http://www.connectingforhealth.nhs.uk/