Industry news

Last week BT announced that Ian Livingston will take-over as CEO of BT Group from 1st June. What do we think should be on Ian's 'to-do' list?.

In our view Ian has five challenges to address:

- Top-line growth: BTs recovery from the abyss peaked in Q3 two years ago with growth (year-on-year) of 8%. The corresponding figure was 5% twelve months ago, and 1% in the results announced in February this year. Any growth for what is a fixed-only business is highly credit worthy, and yet the feeling is BT should have done better. Ian's challenge is to repeat the success he has had in turning around BT Retail across the Group.

- Customers and services: BT needs to evolve its portfolio to suit its customers, not technology. For example, approximately 19,000 graduates will join the UK job market in 2008 (Source: Association of Graduate Recruiters). This generation of students are compulsive communicators (good for the industry), and use a mix of direct (voice, email, but also Instant Messaging and texts) and indirect (social networking sites, on-line message boards, second-life etc) means to communicate. BT needs to provide these new workers with the direct and indirect communications services they need in the workplace.

Central to achieving a greater understanding of customer needs is marketing. BT needs to ensure that its brand is spontaneously linked to the communications services it provides to the market segments (both decision makers and users) that matter most to it. Ian needs to bring customers and marketing more to the fore in BT.

- Networks and technology: Last week in EuroView I referred to BTs need to refresh its 21CN story and address the issue of fibre in the access network. In The Sunday Times two days ago Ian was reported as laying down a challenge to regulator Ofcom on FTTP (fibre to the premises) and the USO (Universal Service Obligation). I doubt he issued a challenge as such, but the point is BT feels it should not have to pay the billions it would cost to provide FTTP across the UK, as it is no longer dominant, and the concept of USO is outdated.

FTTP is the issue in the UK telecoms market in 2008. Resolution of this is important for the UK economy (or it will get left behind), and BT has to be part of the solution if it is to happen. But it has to be sorted quickly, oddly enough because of the 2012 Olympics. Can you imagine the furore if UK citizens were unable to watch the Olympics in HD over broadband (but overseas customers could) because Ofcom and BT were unable to sort this out? BT is, of course, also the official communications partner to the 2012 London Olympics to add another twist to this.

- Strategy and structure: Some weeks ago we said that BT's strategy needed updating. The strategy (to defend traditional services, grow the new wave and transform the business through 21CN and IT) remains valid, but is now well-worn. We would like to see its strategy expressed more in terms of customers, services (not products) and customer service.

Last year BT re-organised to create Design and Operate functions within Andy Green's Group Operations and Strategy division. This includes both the BT network and IT systems. Since Andy left, it has been unclear to us who (other than the CEO) leads this division. Aligning structure to strategy is a popular business school idiom, but it also happens to work. This needs to be sorted out.

- People and processes: Communications is a services business, so the service that customers receive is largely dictated by those that deliver it. Ian needs to continue to invest in the integrated, automated and rationalised IT systems, but also in the people that are central to making customers happy. Investing in the former should lead to great improvements in efficiency, but one (process) without the other (people) is flawed. As Openreach has shown, investment in people can make a big difference. People not systems deliver service excellence, and become the embodiment of the brand.

Ian inherits a stable ship, but the company needs to kick-on from here. Addressing these challenges will go a long way (in our view) towards achieving this.

Logica has inked a four-year IT development and support deal with the Home Office for the Independent Safeguarding Authority (ISA) and the Criminal Records Bureau (CRB), which will investigate people seeking to work with children and vulnerable adults.

The company will design, build, host, and support application services and also provide vital data assurance and disaster recovery capabilities.

According to Ovum, while Logica's commercial sector business suffered major revenue falls in 2007, its UK Government business grew by 10% to £372 million, predominantly boosted by its DISC application services contract win with the Department for Constitutional Affairs in 2006.

Like the DISC contract, this latest win plays to Logica's strengths, says Ovum. “Application management services is considered to be one of the company's core competencies and it also has a strong track record in the 'justice and home affairs' market (other clients include the Crown Prosecution Service and the Office for Criminal Justice Reform).

“In addition, while the application development and support market in the UK is under particular pressure from the Indian vendors (with Logica some way behind its peers in developing its offshore capability), this remains less of an issue in data-sensitive areas of UK government such as 'justice and home affairs'.”

NorthgateArinso, the HR division of Northgate Information Solutions, has announced a business process outsourcing (BPO) agreement with German giant SAP AG.

The deal will enable NorthgateArinso to deliver additional services further up the HR value chain, expanding provision of payroll and employee administration services to offering customers full human capital management outsourced solutions, using its preconfigured euHReka HR services platform.

This agreement builds on over a decade of providing HR integration, consultancy, and outsourcing expertise in support of SAP solutions.

Monica Barron, VP of research at the Everest Research Institute, said: “Talent management is proving to be a significant component of human resources outsourcing, with increasing numbers of buyers looking to include processes such as recruiting, learning, and performance management in HRO transactions.

"Buyers are looking for a combination of process expertise, technology and tools to support talent management, and the blended offering and delivery capabilities of both NorthgateArinso and SAP should help to meet a growing demand in the marketplace.”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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