Industry news

The countdown has begun to the launch party for sourcingfocus.com, which takes place in London next week on the evening of 30th April, at the Polka Bar in Poland Street, Soho. I very much hope to see you there at the official launch of what is, after all, your community, your portal, and your homepage for sourcing news, analysis, and opinion.

sourcingfocus.com will launch with some specially commissioned research into attitudes to outsourcing, which we will exclusively reveal next week. I can promise that it will make for a challenging read in these uncertain times.

Sourcing is in the mainstream news every week, as the economic downturn shifts many opinions away from the strategic, innovative and economic advantages of outsourcing to an exclusive focus on the threat from offshoring to local jobs.

It is rarely far from the lips of US presidential candidates, and the downturn means that outsourcing companies themselves are not immune to the political and economic turmoil that follows the slashing of local jobs to fund the expansion of an offshore workforce.

As Logica has discovered once again this week, in the wake of a restructuring announcement that sees 1,300 jobs being lost in Europe (see today's News Analysis), the vital element in a flatlining economy is the vision thing. Businesses – like markets, like countries – don't just need the steady hand of a prudent economic administrator; they need someone who can inspire and lead.

Logica's announcement has been dismissed by Ovum as a plan, not a strategy; one with a sound and grounded analysis, maybe, but lacking in vision.

See you next week.

Small and medium-sized businesses across the UK now have access to a range of corporate-grade business applications from a single supplier, says BT, with the announcement of BT Business’ partnership with two software as a service (SaaS) suppliers, NetSuite and SugarCRM. The announcement follows hot on the heels of NetSuite's OneWorld launch in San Francisco last week, as reported in last week's Editor's Blog.

With the trend of the rapid adoption of on-demand and SaaS software in the SME market worldwide, BT is taking steps to embrace the SME market in the UK by essentially reselling both companies' business applications.

BT's track record in this type of venture is not strong, but the demand for Internet-delivered business applications is growing, despite cultural resistance in some quarters to hosted, rather than on-premise, solutions. CIOs in particular see SaaS as a threat rather than an advantage, although the cost attractions in an economic downturn are leading many to reassess their attitudes and concentrate on business innovation rather than systems maintenance.

BT says that working with NetSuite and SugarCRM will allow the service provider to offer its small and medium-sized business customers software for their specific needs, coupled with service and support from a single source. The companies plan the integration of both NetSuite SugarCRM with existing data systems.

Recent research by BT Business revealed that client relationships are the most critical factor to the success of UK SMEs (43 percent), and both suppliers target the SME sector with a range of applications that aim for more transparent business process management.

BT is also currently looking at a range of best-of-breed business applications from leading vendors and is set to make further partnership announcements in the near future. Bill Murphy, managing director at BT Business said: “We have looked across the market and developed these partnerships with best-of-breed companies delivering innovative applications to meet the needs we know our customers have. This programme builds on the work we’ve done to date and will allow us to deliver a tailored approach for customers, so they can get what they need to manage their customer relationships, examine processes, deliver efficiencies and ultimately drive their business – all from a single supplier they trust.”

Zach Nelson, CEO of NetSuite said: “This commitment to the software as a service revolution will mean more and more SMEs in Europe have the chance to embrace NetSuite, enabling us to deliver capabilities to SMEs that some of the world’s largest companies have failed to achieve – even after spending millions of dollars.”

John Roberts, CEO of SugarCRM said: “This alliance strengthens our global reach and further exhibits SugarCRM’s momentum as a global provider of business applications.”

In an exclusive interview in San Francisco last week, NetSuite's Nelson issued a warning to the major services and outsourcing providers that as SaaS companies drive down the cost of enterprise business systems, customers would no longer be prepared to pay hundreds of thousands of dollars for services and consultancy, and that there would be an opportunity for what he called a "mid-market Accenture" that might emerge in the near future.

Clearly BT has a strong brand presence in the UK, and a decent reputation among smaller enterprises; however it will need to raise its game in the reseller business if it is to succeed as a mid-market services giant in the on-demand world.

Logica, the global IT services company, has announced plans to slash 1,300 European jobs, including moving some 500 UK jobs move abroad.

The £110 million restructuring plan will see Logica develop its Indian workforce and expand its nearshore offering.

With the move, Logica aims to drive its blended delivery model which combines onshore and offshore outsourcing, while saving £80 million a year from 2010.

Andy Green, CEO of Logica said: “We will be increasing our investment in growing the Logica business, funded by a cost-cutting programme that will reduce overheads [and] allow us to revitalise Logica, delivering sustained value for shareholders, customers and employees alike.”

See News Analysis for more.

Luxoft, a global provider of high-end software application and product development services, has opened a new delivery centre in Ho Chi Minh City, Vietnam. The opening marks the first time an Eastern European software service provider has established a presence in Vietnam. It also makes Luxoft Eastern European provider to offer a truly global delivery model.

“Companies today are looking for effective ways to cut costs and improve their bottom line without sacrificing quality,” said Dmitry Loschinin, CEO and President of Luxoft. “By enhancing our global footprint, we are proactively mitigating our clients’ cost pressures while preserving the culture of innovation, rock solid execution and engineering excellence that customers have come to expect from Luxoft.”

With delivery locations across EMEA, North America, Central and Eastern Europe, the addition of the Vietnam delivery centre further enhances Luxoft’s ability to provide clients with a full range of delivery. By opening an office in Vietnam, Luxoft is allowing clients to diversify their sourcing geography portfolio and lower outsourcing costs. It will service both ISV and enterprise customers and will offer a comprehensive set of application and product development services.

Luxoft’s clients will benefit from Vietnam’s relatively untapped skilled labour force, solid education system, high English proficiency, low attrition and competitive cost structure. NeoIT ranked Vietnam's Ho Chi Minh City as the top non-Indian city in its 2006 review of the most competitive cities for outsourcing, based on the available labour pool and infrastructure.

“Vietnam’s economy is booming and we offer a skilled workforce, a fast growing education system, political stability and lower costs,” said Mr. Truong Gia Binh, head of the Vietnam Software Association. “Luxoft is perfectly poised to take advantage of all we have to offer and deliver tangible benefits to its customers worldwide.”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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