Industry news

Services giant Hewlett-Packard has confirmed it is purchasing Electronic Data Systems (EDS), the oft embattled ITO player with major public sector contracts.

The Wall Street Journal first reported the possibility of a deal on Monday, citing figures of $12bn to $13bn from unnamed sources. HP has today confirmed the deal to an expectant market.

Confirmation of the purcahse sparked a rapid change in shareprices on the NYSE with HP dropping six percent and EDS up 27 percent. EDS issued a statement on the deal after close of trading on Monday.

While the move is being hailed by some commentators and analysts as HP’s bid to take on IBM in the corporate market, others are not convinced – including sourcingfocus.com's Chris Middleton (See Editor's Blog for more).

VoiceStream, a little known UK telecoms company, has acquired 75 percent stake in Indian-based BPO player, Helios Outsourcing.

VoiceStream will invest around £1.5m to help the company grow. By focusing on niche markets VoiceStream expects Helios to be worth approximately £45m within three years.

VoiceStream chairman and managing director Paul Kopec said, “We wanted to secure our UK revenues and have more control and hence we bought into our service provider Helios Outsourcing. In-house processing is a huge area”.

Fujitsu Services, the leading IT services division of the Fujitsu brand will create 120 jobs in Northern Ireland.

The company will invest £8.8m in a partnership with Invest Northern Ireland (Invest NI) which will contribute a further £2.2m to establish an Applications Services Centre of Excellence at Fujitsu’s Timber Quay site in Londonderry where the majority of the jobs will be based. A further 30 jobs will be created in Belfast.

This is the third investment Fujitsu Services has made in Northern Ireland in the last 18 months. The first, an £18 million investment in June 2007, created 402 jobs in Managed IT operations in Derry and Belfast, while a £3.2 million expansion of its Centre of Excellence for Oracle created a further 30 jobs in Belfast in August 2007.

Leslie Morrison, Invest NI chief executive said, “The fact that this is Fujitsu’s third project in only 18 months sends out a strong message that this region has the infrastructure and skills to secure high-value investment from global companies. Following last week’s USNI investment conference, this is further evidence of the confidence international companies have in Northern Ireland as a premier investment location.”

The Ministry of Defence has awarded EDS a contract to implement an enhanced supply chain system as part of its Management of Material in Transit (MMiT) project.

The project hopes to provide more accurate information on supplies and accelerate delivery whilst reducing costs. The MOD hopes the system will also improve the confidence of those on the front line due to enhanced delivery reliability.

Col. N. I. Barsby, Materiel Flow Project Team Leader, MoD, commented: “Past operational experience has shown that the MoD urgently needs the MMIT capability in order to make best use of the physical supply chain. The positive impact on user confidence of knowing exactly where things are and when they will be delivered will be immense. We look forward to working in close co-operation with EDS, SAS and Supply Chain Consulting to achieve the delivery in the middle of next year. The introduction of MMiT will mark a step change in the way the MoD manages its materiel in transit and will be significant milestone in an overall programme that will revolutionise the Joint Supply Chain programme. We can't wait to get MMIT out to Front Line users.”

The MMiT is expected to be used in the field by the middle of 2009.

Virgin Atlantic, one of the world’s leading long haul airlines, has renewed its managed services contract with Tata Consultancy Services (TCS), the IT services subsidiary of global conglomerate, Tata Group.

Under the renewed agreement, which will last until 2011, TCS will continue to manage Virgin Atlantic’s global end-to-end IT systems including a 24x7 service desk, infrastructure and application support services. The deal also entrusts TCS with the management of Virgin Atlantic’s other third party IT suppliers.

Mike Cope, IT Director of Virgin Atlantic, said: “Today, airlines need to effectively exploit IT more than ever to be successful in a very competitive marketplace. Thanks to our ongoing partnership with TCS we have the right partner to enable this.”

Interestingly, the travel and transportation sector is emerging as a key vertical for TCS, generating 4.0% of the company’s total $5.7 billion revenues for fiscal 08.

TDC, the largest telecommunications company in Denmark, has signed a $413 million outsourcing contract with the Computer Sciences Corporation (CSC). The seven year contract expands upon existing agreements signed in 2003 and another seven year $330 million deal signed in 2007.

The deal significantly extends CSC’s application support for TDC including the management of TDC’s legacy application portfolio, provision of application development and maintenance services for more than 500 applications and support for approximately 17,000 users. CSC will also appropriate around 220 TDC employees to take place in June.

Jørgen Jakobsen, TDC Chief Information Officer said: "We already have an excellent relationship with CSC in several areas and are pleased to expand it further to include the management of our legacy application portfolio. The new agreement will enable us to further modernise and consolidate our applications so they deliver the capabilities our business requires.”

ELEXON, the not-for-profit organisation created to balance UK electricity supply, has awarded Logica a five year BPO deal worth £40m.

The contract, an extension of an existing arrangement until 2014, will see Logica provide the hosting and communications services of the central systems for electricity settlement and balancing.

ELEXON hopes the deal will drive efficiency and innovation whilst delivering significant cost reductions to the company.

Stuart Senior, ELEXON’s Chief Executive said, “Our main priorities were to secure value for money for our customers and ensure that any transition activities from the existing service to the new contract are delivered in a seamless and smooth way.” 

SMEs in the software and IT services sector are challenging gloomy economic projections, according to a survey from Intellect, the UK technology trade body. With 53% of respondents forecasting double-digit growth for 2008 compared to 49% that predicted double-digit growth last year, the mood among SMEs seems bullish, despite the global financial squeeze.

Outsourcing and offshoring are on the rise, says the report, but it appears that Asia is becoming less popular as a destination. The percentage of respondents outsourcing to Asia dropped to 44% from 55% in 2007. In contrast, both Western and Eastern Europe have seen an increase in R&D outsourcing.

Chris Barling, CEO of Actinic, a company profiled in the report said, “"We are currently saving about 40% in costs by developing overseas, mostly in Eastern Europe. We decided on Hungary because of the cost and quality benefit.”"

The survey, which contains case studies, as well as a variety of questions on performance, activity, pricing and development strategies, also shows that SMEs are embracing globalisation. In last year’'s survey, 59% of respondents identified globalisation as having a neutral or negative impact on their business. In 2007 respondents showed a marked turnaround in attitude, with 57% of respondents seeing globalisation as having a positive or very positive impact on their business. SMEs are today working on a global stage, identifying opportunities in the global market rather than focusing on home markets.

The Intellect survey, now in its second year asks software and IT services companies operating in the UK about their current and future performance. The SME software sector, in particular is an important contributor to the UK economy, and the survey aims to understand better the key challenges and opportunities of companies developing and selling software in the UK. The survey will be conducted annually to establish whether these findings are trends or blips, helping establish the most comprehensive overview of the SME software sector currently available.

Intellect is the UK trade association for the IT, telecoms and electronics industries. Its members account for over 80 percent of these markets and include blue-chip multinationals as well as early stage technology companies. These industries together generate around 10 percent of UK GDP and 15 percent of UK trade.

The software as a service (SaaS) model of IT deployment – whereby business applications are housed in a remote, third-party datacentre and accessed via your web browser – is becoming the de facto way of doing business.

That was the claim of Marc Benioff, CEO of on-demand firm Salesforce.com, the poster child for the SaaS movement. “The biggest customer relationship management (CRM) transaction of 2007 was at Citibank and all the usual vendors were involved. We were chosen.,” he said. “We have been speaking to some of the largest and most interesting CIOs in the world. They are all going through their stack of applications and looking to move to SaaS. Believe me, that train has already left the station.

“The IT department is evolving When I started in the industry, the IS or the MIS department was all about executives who would go out and make technical decisions. They were interested in working on computer and writing their own software code. Then we had the chief information officer, but it was still about hooking up the wires and writing the custom software. Now we see the chief innovation officer. The next generation of CIOs will be more focused on innovation and not on infrastructure.

“We have all been told or hypnotised or brainwashed into thinking that we need a ton of servers and databases and that we need to integrated them all in a stack to make it work. It's a lot of work and it's a difficult path. The Cloud empowers every developer. Web 3.0 leverages the infrastructure of the internet to run your applications. Software is over. The whole concept of traditional packaged software built on a vertical stack is gone forever. We will come back in 2019 and we'll talk about how far we've left those software-based platforms behind. Applications will be built on the Cloud. We are a driver of that change and an evangelist of that change.”

So despite the positive message, Benioff seems determined – like NetSuite's Zach Nelson – to foist the term 'cloud computing' on a confused business community, as Chris Middleton in our Editor's blog discussed the week before last, here.

Benioff was in London for the inaugural Dreamforce Europe, the company's brand of user and developer conference that has previously only been staged in the firm's home city of San Francisco. The move to launch a European version is indicative of the importance that Europe plays in the growth plans of firms such as Salesforce.com and as the next front in the war with the traditional software vendors, such as SAP and Microsoft. Some 2,200 people turned up on day one at the Barbican Centre in London, to hear keynote addresses – including from musician, technologist and human rights campaigner Peter Gabriel (see this week's Editor's blog) – and attend conference sessions from an agenda of 50-plus options.

It's an important milestone in Salesforce.com's evolution. Rival firms such as SAP have stalled with their own SaaS offerings, while Microsoft only makes their version available to customers with a US zip-code. Of the SaaS start-ups, RightNow has a much smaller scale user conference, but rival NetSuite still has no UK user conference (or a US one, come to that!). There is a good opportunity for Salesforce.com to establish the same thought-leadership and mindshare in Europe as it has in the US.

It is clearly a big business opportunity as SaaS implementations in Europe are set to boom. For example, overall growth of on-demand CRM applications is expected to grow by 41 percent over the next three years, with Europe and Asia leading the charge. According to a new report from Tier1 Research, the on-demand CRM market is expected to grow by a compound annual rate of 41 percent over the next three years, driven primarily by small and midsize businesses (SMBs).

Salesforce.com passed 7,000 customers and nearly 140,000 subscribers in EMEA in the first quarter of 2009 with new customers including the likes of The Christie Group, CODA, COLT Telecom Group, DSV, Rentokil Initial and Wartsila. Globally Salesforce.com has 41,000 customers, so EMEA is still a relatively small contributor in real terms, but the growth potential is enormous. “Salesforce.com EMEA out-paced industry growth rates with 69 percent year over year revenue growth and 70 percent Q4 08 revenue growth compared to the same quarter a year before,” said Lindsey Armstrong, co-president of Salesforce.com EMEA. "Business decision makers are realizing that this is the era of SaaS. It's also the case that two of the biggest customers – Japan Post and Misys – are non-US customers.”

The firm has allied itself closely with Google in its growth, almost too closely at times perhaps as rumours that Google will buy Salesforce.com pop up with mononous regularity. But as Benioff quips: “The enemy of my enemy is my friend – and that makes Google my best friend.” The enemy in this case is Microsoft and its office productivity software such as Office, Excel and Outlook. Earlier this year Salesforce.com signed a deal with Google to resell GoogleApps, giving the free 'Office-alternatives' a channel into the corporate environment. “In two weeks, we have seen 2,000 Salesforce.com customers turn on the GoogleApps option,” said Benioff. “At Salesforce.com we have now decommissioned Office and Outlook and so on and are moving over to GoogleApps.”

For its part, Google clearly sees an alliance with Salesforce.com as being advantageous. “We are in the position of being a generation in the middle of a transformation,” said Nikesh Arora, European president of Google. “It's sometimes difficult to see where you are when you are in the middle of an reinvention. I remember back in 1995 getting a broadband connection from AOL and the biggest innovation that we had in business was that I could now send email to someone outside the company. That was new. Now we couldn't live without email.

“When Google started, there were 350 million people connected to the internet, with 30 million of them on broadband. Now we have 420 million connected to broadband. How many people could live for a week without broadband at home? When something goes from being nice to have to have to have, that's when you understand that something has become ubiquitous. The trend of cloud computing is inevitable.”

Inevitable? Probably. From the point of view of 2,200 people this week, it's certainly a compelling proposition. It's also - theoretically - a relatively recession-proof technology option. Some of the main selling points for SaaS are ease of deployment, coupled with ease of use and reduced upfront cost as you pay as you go for your software usage. So not only do you not have to cough up a huge amount of money upfront for software that you might not end up using, but you can also switch it off and stop paying if you don't need it any more. That kind of flexibility is very enticing in a time of tightening budgets and uncertain economic conditions. For the hard-pressed CFO at UK Plc, the idea of a flexible SaaS implementation as opposed to a high cost, rigid outsourcing deal must look very interesting.

A new study published today shows that UK colleges are responding to the huge demand for education from China, India and other booming economies.

53,000 international students study at UK colleges - with Chinese and Indian students topping the league.

The Warwick University Study shows that the majority of students taught by UK colleges are from China (3,500) and India (3,300).

Julian Gravatt, director of Funding and Development for the Association of Colleges, which commissioned the report, said;

“The growth for the world’s fastest growing economies is outstripping their ability to teach their workforces. UK colleges are actively responding to this need. They’re forming new partnerships in the world’s most important markets, taking our own expertise in skills training to areas of the world where it is most needed.”

UK colleges around the globe:

* London Beijing Colleges partnership - London colleges providing skills training and curriculum development for the Beijing Olympics.

* Preston College providing knowledge exchange and staff training in Omsk, Russia

* Blackburn College developing expertise and skills training for the textile industry with South Delhi Polytechnic, India.

The report says:

• There is huge demand for education and training in India and China.

• China is seeking help internationally to expand and overhaul its further education system.

• Expenditure of GDP on education in India set to rise from three to six per cent.

• 50% of colleges see foreign expansion as a key future opportunity

• UK colleges’ key exports are English Language teaching, Business administration, Engineering and IT.

• UK education is most attractive for having a good international reputation, offering all teaching in English and being quality assured.

• UK Further Education’s strengths are its qualifications - that reflect industry’s needs, innovative curricula, a wide range of courses, flexible course delivery, a strong emphasis on independent learning and a good track record in international activities

Key recommendations:

* There needs to be better marketing and promotion of UK colleges, skills training and qualifications in foreign markets.

* There needs to be better joined-up working between government and UK colleges, to increase economies of scale and support expansion abroad.

* The recommendations of the Foster and Leitch reviews should be implemented to give UK colleges parity with their EU counterparts.

* UK qualifications need to be made more transferable and more widely accepted around the world.