Industry news

The Government's largest IT suppliers have been told the era of "mega IT contracts" is over as the Cabinet Office unveiled "horrifying" public procurement practices.

Francis Maude, the Cabinet Office minister, told an audience of chief executives from 31 key government suppliers including BT, Hewlett Packard, IBM and CapGemini, that costly IT mistakes like the £12.7bn NHS national programme would not be repeated.

Instead future contracts would be cheaper, "smaller" and "off the shelf" rather than expensive, bespoke systems, he said.

"Government will no longer offer the easy margins of the past. We will open up the market to smaller suppliers and mutuals and we will expect you to partner with them as equals, not as sub-ordinates," Mr Maude said.

"The days of the mega IT contracts are over, we will need you to rethink the way you approach projects, making them smaller, off the shelf and open source where possible.

"We will expect you to be transparent in all your dealings with us and for the terms of the contracts we sign with you to go up online."

Mr Maude, who oversees £45bn of central government spending each year, revealed that some government purchases took 77 weeks from first publication to the award of a contract.

He said on average public buyers took "twice as long" to agree deals as their private sector counterparts.

"This is just wasted time and money on both sides of the equation and it is something we urgently need to address," Mr Maude said.

Government buyers had to cope with "some 6,000 pages of guidance on procurement", Mr Maude added.

"This is at the root of much of the bureaucracy, duplication and confusion in this area," he said.

The knock-on effect was that supplying the public sector was unnecessarily expensive, Mr Maude said.

"You will have had to deal with contracts where the specification changed 10 times before you were through, where your employees were manmarked by civil servants and where the individuals you were working with constantly changed," he told his audience.

"You will all have experienced procurements which seemed to go on forever, cost millions of pounds and took countless hours of your employees' time and energy. I know how frustrating this all was and I can promise you here today that we will do things differently."

The Cabinet Office has already secured £800m of in-year contract savings from its largest 19 suppliers by demanding rebates and changes to the scope of services they supply.

Serco, the FTSE 100 outsourcing giant, tried to pass on these cost savings to its largest suppliers in October by charging them an 2.5pc retrospective rebate. Following reports in The Sunday Telegraph it reversed the decision and refunded suppliers.

The Government's botched IT projects have cost taxpayers more than £26bn, it has been estimated. Four of the most notorious include:

National Programme for IT (NHS) – overran by 450pc, costing in total £12.7bn

Defence Information Infrastructure (MoD) – 30 months late, more than £180m over budget. Cost at least £7bn

Libra system (courts management for magistrates) – Fujitsu bid £146m in 1998. Final cost more than £400m

Single Payment System (for paying farmers' subsidies) – cost £350m, already "potentially obsolete"

Bindi Bhullar, director of HCL said:

“This is the clearest indication yet that the era of bloated IT contracts is coming to an end, and not before time. These unpredictable economic times will naturally lead to a new dawn of shorter term contracts where risk is shifted from the customer to the IT supplier. For example, an IT service provider may offer to pay the customer projected savings up front in cash before starting work. There is nothing like putting your money where your mouth is.”

Source: http://www.telegraph.co.uk/finance/newsbysector/supportservices/8174715/No-more-mega-IT-contracts-Government-tells-suppliers.html

The US government has revealed details of its latest IT procurement strategy, which includes the introduction of a “cloud-first” policy from 2012.

“We are reducing our data center footprint by 40 percent by 2015 and shifting the agency default approach to IT to a cloud-first policy as part of the 2012 budget process,” Jeffrey Zients, deputy director of the Office of Management and Budget, wrote in a blog post earlier this month.

Other reforms to the government’s IT procurement strategy include introducing a formal career track for “program management” and “aligning the IT acquisition process to the technology cycle”.

Zients also outlined how the Office recently cut $1.6 billion in cost from US government IT projects.

This involved cancelling two projects but also “pulling forward meaningful functionality in two other projects, “resulting in almost $230 million in budget reductions”, and decreasing the scope of three others.

In January 2010, US government CIO Vivek Kundra introduced a scheme called TechStat, in which ongoing projects are reviewed by agency heads and staff from the Office of Management and Budget, along with “input from the American people”.

“TechStat sessions enable the government to turnaround, halt or terminate IT investments that do not produce dividends for the American people,” Kundra wrote at the time.

“We’ve held dozens of TechStat review sessions,” Zients wrote this week, “resulting in faster deliverables, terminations of projects that didn’t work, and most importantly turned around projects that were in trouble.”

Wokingham Borough Council has signed what’s been described as an “innovative partnership” with Northgate Public Services.

The five year, £8.5 million, contract, will see the services company manage the Council’s ICT, and focus on a range of issues including improving customer service, reducing cost, and improving ICT governance.

A two year extension is also an option under the terms of contract.

A relationship already exists between the two organisations, and it’s claimed Northgate’s experience in local government will enable “rapid improvement while managing risk through a phased approach to transformation”.

“Transformation is integral to delivering the efficiencies that the Council has pledged to make,” commented Graham Ebers, general manager of business services at Wokingham Borough Council said. “We believe that our partnership with Northgate will not only provide us with a stable and secure platform on which to operate, but will also be pivotal in enabling our residents to get wider access to improved service delivery by maximising our use of new technologies.”

Ian Blackhurst, managing director at Northgate Public Services said local authorities and public services in general face “challenging times”.

“Now more than ever, we need to focus on delivering better services for less. How organisations manage their people, processes and cost to provide this is an essential part of any forward looking strategy,” he added. “We are delighted that our relationship with Wokingham Council has now entered this exciting new phase and we look forward to working with it in serving the residents of Wokingham with efficient and effective services.”

Source: http://www.publictechnology.net/sector/local-gov/wokingham-signs-five-year-ict-partnership

Microsoft has begun rolling out test versions of several new add-ons and services to its Azure cloud platform

The new enhancements are designed to deliver: improved remote desktop functionality; Window Server 2008 R2 Roles, which allows users to take advantage of IIS 7.5 Applocker among other features; multiple service administrators – Windows Azure now supports multiple Windows Live IDs to have administrator privileges on the same Windows Azure account; and a better developer and IT professional experience.

At the Professional Developer's Conference earlier this year, the company said it would deliver these services by the end of 2010.

However, some services that Microsoft promised would be available have yet to be released.

These include server application virtualisation, SQL Azure Reporting and SQL Azure Data Sync. Microsoft said these services will be made available this month.

Microsoft said that the new enhancements are designed to make it easier for customers to run existing Windows applications on Azure, and enable more affordable platform access.

The new functionality is now available through the Windows Azure SDK and Windows Azure Tools for Visual Studio and the new Windows Azure Management Portal.

Source: http://www.computing.co.uk/ctg/news/1929280/microsoft-releases-add-ons-azure-cloud-service

Business as usual for companies using remote working via Cloud computing

Temperatures expected to drop below -20 with severe weather warnings for the next two weeks issued by the Met Office. More and more companies are struggling to keep their offices open and it couldn’t come at a worse time as the UK economy gears up for Christmas.

Small companies hit hardest by loss of productivity

With over 4 million SMEs in the UK (97% of UK businesses) productivity will drop at a time when business is ramping up for Christmas, and the figure could exceed the £12bn loss figure reached during last January’s bad weather. SMEs are highly vulnerable in the current economy.

There is a major trend developing this winter as more companies have geared up to enable remote working for their workers as the cost of the technology has started to fall. However many small companies are still not geared up for staff to work from home, which means their productivity suffered.

Piers Linney, joint CEO of Outsourcery which services 10,000 SMEs in the UK said, “In our business work is something you do not where you go! The disruption caused by the recent snow has created immense problems for thousands of businesses across the UK with many employees not being able to make it into work. With more snow predicted, the current cold snap will only further underline how businesses need to find alternative ways to keep their company running regardless of the weather conditions. With large numbers of workers having to work away from the office in the harsh weather conditions, businesses are finding that they need more effective ways to stay in touch with important stakeholders in their businesses.”

As companies take advantage of the falling costs of remote working and growing concern of the cost of disruption to their central operations, allowing staff access to mission-critical documents and emails means they are seeing the value that providing remote access brings to their businesses.

A significant driver of remote working is Cloud computing and as it gains momentum and acceptance, SMEs now have access to professional business applications, through a subscription payment model which allows IT to be ‘rented’ from an IT specialist, on a per user per month basis - turning it from a capital expenditure to an operating cost, making affordable for all sizes of organisations, and not just the large corporations as was in the past.

Linney continued, “Many firms are recognising the value of real time communications tools such as instant messaging, presence information, voice and video conferencing, Live Meeting for group discussions and document sharing can bring to their businesses. Employers can see the availability of all their employees – whether they are talking on the phone, in a meeting or online – and contact them in most time-efficient way and the benefits are really brought into focus during the current weather conditions.”

Source: http://www.freshbusinessthinking.com/business_advice.php?AID=7429&Title=SMEs+could+take+the+biggest+hit+as+big+chill+costs+economy+%A31.2bn+per+day

It’s been another busy week in the halls of power at Westminster, with the government’s decision to slash the number of migrant workers allowed to come to the UK causing a great deal of consternation.

David Cameron recently claimed that the immigration cap would be introduced in a way which would be ‘friendly’ to businesses - but it still seems that It seems that for many businesses, there is a fear that they will now not be able to bring in the skilled staff that they need. So what does this mean for the outsourcing community?

The announcement of the cap comes in the same week that a study was released estimating that outsourcing from the UK could increase by as much as 600 per cent by the year 2020.

Assuming we believe these figures, and accepting that many industry experts are forecasting a boom in outsourcing over the coming years, then surely there’s a chance that this announcement will create a large skills gap for British businesses to fill?

Perhaps the government would be better off changing its focus to examine how it can provide some of the 3 million British people who are unemployed in this country with the skills to add value where it is needed?

Indeed, it’s clear that if the government decides not to invest in training for its workforce and as Britain becomes increasingly dependent on skilled workers, there is a real danger that there will be none available in this country to perform their roles - a situation which could be even more damaging to the economy.

There’s never been a time when this country has been more dependent on foreign workers. A number of industries are highly dependent on workers from abroad, while the government’s spending review means that many public sector organisations are looking to those with specialist outsourcing skills as a means of managing their costs and allowing them to concentrate on their core competencies. But how will all of this be possible if there is a shortage of skilled labour?

It’s clear that the Home Secretary’s plan to allow intra-company transfers (ICTs) for staff paid more than £40,000 per year brings its own problems. Will organisations really be keen to pay an employee from abroad an inflated salary for coming into the UK do a specialised job?

The quality of staff is vital to the success of any outsourcing relationship. By not allowing businesses to make the decision as to whether or not they pay for the right skills, or develop quality skills, there is a real danger that business efficiency could suffer.

When it comes to launching new products like bonds, mortgages and private pensions, businesses in the financial services sector have two choices: they can either apply their own brand to an existing 'white label' product that's been produced by a third-party, or else they can create a product of their own, from the ground up.

The first of these options is attractive for many reasons. First of all, there are very few overheads involved with pushing out another company's product, since the team behind the product's inception will typically handle all of the regulatory requirements, product administration and IT systems behind the scenes. As such, all that's left for the vendor to do is add its logo, organise some marketing, sell the product and collect its commission.

However, these are of course pitfalls to this approach as well. For a start, the vendor in this scenario is wholly restricted in terms of the actual details of the product being sold. In other words: 'it is what it is'. The terms of the actual investment, the pricing, the potential returns, the commission and many other factors are normally set in stone at the beginning. As such, the vendor normally doesn't have the ability to modify any of these details, and so is therefore powerless to react to changes in the market or in response to customer feedback.

Despite these drawbacks, many companies – especially new players in this market like the large supermarkets and heavily branded firms like Virgin – may feel that it is easier to take this approach than to work with an outsourcer to develop a product for themselves. And for some of these new entrants to the market, that may be true – for the moment, at least.

However, simply selling the products of another company may be short-sighted for more experienced players, such as major banks and other established financial institutions. By adopting this approach, companies like these will be missing a chance to differentiate themselves with a unique product that would truly stand out in this crowded market. Not only that, but if these organisations are currently selling high volumes of white label financial products, they are also missing out on a significant amount of revenue, since their margins would be much larger if they were selling an exclusive product that they have created and launched themselves.

Most financial institutions are actually well set up to create these sort of products for themselves: they often just need a little support. A common fear among organisations in this sector is that they will need to build whole new systems and address large-scale administration and regulatory requirements in order to launch a new financial product of their own, but that is not always the case. By working with a specialist outsourcer, financial institutions can delegate the majority of this responsibility, and focus instead on creating an exclusive product that is in tune with its culture and brand, that is truly unique, and which will appeal to its own individual customers.

Tony Collins, CEO, OPAL

Businesses can cut their energy consumption by 91% by moving their on-premises applications to the cloud, research by US analyst firm Nucleus Research reveals.

The firm reached its conclusion after comparing the energy consumed by customers of Salesforce.com with the energy consumption of equivalent applications run in-house.

Salesforce.com customers saved the energy equivalent of 11 barrels of oil every hour, the study concludes. Businesses that move other applications into the cloud, could make similar savings.

"We looked at Salesforce because they have a diverse user base in terms of size, geographic location and how they use the application," said Rebecca Wetteman, Nucleus Research vice-president.

"Our view was that this was a good first proxy for customers looking at carbon consumption to estimate what the benefits of moving to the cloud would be," she said.

Cloud computing suppliers can get better deals on hardware, optimise their applications for the cloud, and load-balance so customers can gain access to computing power only when they need it, said Nucleus.

For organisations with a green IT mission, simply moving to cloud computing provides both a financial return and a tangible environmental benefit, the study concludes

Businesses need to identify what applications are best suited to the cloud, if they want to cut energy costs. Its best to avoid putting applications that have had a lot of customisation into the cloud.

"Those applications that are frequently used by a lot of users, those where you need remote or distributed access, those where you need a lot of flexibility to make changes, are likely to be candidates that generate green and economic benefits," said Wetteman.

Source: http://www.computerweekly.com/Articles/2010/12/01/244275/Save-90-on-energy-by-putting-applications-in-the-cloud.htm

Change is sweeping through the outsourcing sector. Often seen as the preserve of larger companies, outsourcing is being embraced by an increasing number of even the smallest SMEs as their recognition grows of its business benefits. Indeed, with the downturn and its lingering after-effects still weighing down on business performance, 2011 could be the year when outsourcing really comes of age among the UK’s four million SMEs. To reap fully the benefits though, SMEs need to have a keen appreciation of the pitfalls as well as the positives of outsourcing.

Business surveys, polls and research all point at an increasing take-up of outsourcing by SMEs. The IT sector, in particular appears to be benefiting. For example, a poll by online firm PeoplePerHour.com on IT outsourcing, revealed that close to 40% of small business owners plan to increase their use of contract/freelance IT professionals.

This marked change in attitude by SMEs partly reflects changes in the outsourcing sector. Traditionally, companies handed complete control of specific business functions to carefully vetted third parties on contracts that included detailed service level agreements and were of a long-term nature. This typically appealed to large companies as it required greater certainty, planning and commitment – and could also be expensive.

However, with the economic and business activity still depressed and corporate budgets tightening, outsourcing has become a more affordable, less structured, more flexible solution, which has increased its popularity among SMEs.

A small business owner’s time is often best spent on doing the tasks and implementing the actions that he is best suited to do rather than try and become a master of very single aspect of his/her business. And for growth businesses, constantly evolving and changing, outsourcing makes sense, as it allows them maximum flexibility to deliver on their expansion goals.

SMEs are in an excellent position to capitalise on the changes in the outsourcing market at a time when the focus on finance and service levels has never been higher or more intense. Outsourced services for SMEs can certainly deliver a range of business benefits, such as:

- specialised professionals committed to delivering a high-quality service;

- greater levels of efficiency as non-core services are outsourced;

- lowering of direct staff costs;

- transparent pricing structure on particular services for greater budget certainty.

For many SMEs, having the dedicated professionals and support teams that outsourcing firms can provide on particular functions and services is a luxury that they cannot afford internally. The greater level of expertise typically leads to greater efficiency, which also allows direct costs savings from reduced full-time staff and more flexible working arrangements.

Clear, standard pricing, which a outsourcing functions or services can deliver, is also of great benefit to SMEs, which are typically less equipped to manage volatile price moves from suppliers and core goods providers. A good outsourced offering can also minimise such things as errors on contracts, which can often incur penalty charges.

The more sophisticated way in which outsourcing firms offer their services is also more appealing to SMEs. Best-practice outsource companies now have more varied offerings, that allow companies to be at a modest level and then build up the level of service that they require as their business grows and becomes more complex and sophisticated.

As much as the positives are appealing, SMEs need to be aware of potential pitfalls too. For instance, SME CEOs need to be very clear about what they want the outsource company to do otherwise the process could complicate tasks and increase costs rather than the reverse. And even though a service may be outsourced, SME managers should not totally abdicate any role as there is still a need to monitor and ensure standards are being met and work is being done to the agreed level.

Overall, in such a challenging economic and business environment, outsourcing could help many SMEs simply just to survive as well as help underpin their future expansion plans. Like all business processes though, it needs to be carefully thought through, risk and rewards assessed and objectives and outcomes carefully considered. Just opting for the cheapest quote from a beauty parade of outsourcing companies, for instance, is not necessarily the best way forward even if superficially it may seem the easiest and most attractive. Cheap can often be expensive, in business as well as in life.

Source: http://www.outsourcemagazine.co.uk/articles/item/3647-smes-should-not-be-shy-of-embracing-the-business-benefits-of-outsourcing

Finnair has threatened to outsource some operations to lower cost countries after cabin crew launched a strike that left thousands of passengers stranded and ended the company’s hopes of returning to profit this year.

The Finnish airline, known for its strong long-haul network between Europe and Asia, grounded more than 100 flights on Tuesday, with a further 200 cancellations expected on Wednesday, after cabin crew walked out in a dispute over pay and conditions.

Mika Vehvilainen, chief executive, warned union leaders that Finnair’s current cost structure was unsustainable.

“It is tragic that parties are striving to hold on to old terms and conditions in an industry that is changing dramatically and irrevocably,” he said.

The airline had launched a strategic review to determine if some operations could be carried out “in locations with a lower cost level,” he added.

Analysts said the comments were intended to increase pressure on unions to compromise as Finnair tries to strike a favourable deal with cabin crew that would set a precedent for crucial negotiations with pilots planned for next year.

Finnair is one of several European airlines facing labour problems as the industry struggles to reduce its bloated cost base. Cabin crew leaders at British Airways this week announced plans for a fresh strike ballot after a series of costly stoppages this year.

Finnair said it would lose up to €2.5m ($3.2m) a day during its strike and warned investors to expect a full-year operating loss, having previously forecast a small profit.

Analysts said this indicated the airline was expecting protracted disruption.

The Finnish cabin crew union said one of the main sticking points was time off after long-haul flights and accused Finnair of making “unreasonable” demands.

The airline, 56 per cent owned by the Finnish government, has invested heavily in its long-haul network to promote its Helsinki hub as a gateway to Asia. By next summer, Finnair plans to fly 74 flights a week to 10 Asian cities.

There have been signs that the strategy could be working, with revenues up 26 per cent from last year in the third quarter to produce the company’s first quarterly profit for almost two years.

Pasi Vaisanen, analyst at Nordea, said the challenge was to maintain a competitive European network to feed its long-haul routes.

Source: http://www.ft.com/cms/s/0/26e65f4c-fcaf-11df-bfdd-00144feab49a.html#axzz16qyWZ7yU