Industry news

Earlier this year, advisory firm Gartner released figures which projected that 2010 would see global cloud services revenue reaching $68.3bn; a 16.6% increase from the $58.6bn recorded in 2009.

But that is not all; the industry is poised for strong growth through 2014, when worldwide cloud services revenue is expected to reach $148.8bn.

Indeed, according to Gartner estimates, enterprises will spend $112bn cumulatively on software as a service (SaaS), platform as a service (PaaS), and infrastructure as a service (IaaS), combined over the course of the next five years.

With such forecast and figures on the line it is no wonder HP and Dell are both keen to increase their share of the cloud computing pie as the bidding for data storage firm 3Par over the last week has illustrated.

However, raising the stakes on 3Par is not the only thing HP is doing as it looks to position itself in the cloud computing segment.

The company has also announced the launch of HP CloudStart, the industry’s first all-in-one solution for deploying an open and flexible private cloud environment within 30 days.

Built on HP Converged Infrastructure, HP CloudStart simplifies and speeds private cloud deployments. Consisting of hardware, software and services, HP CloudStart empowers businesses to deliver pay-per-use services reliably and securely from a common portal, and offers the ability to scale and deploy new services automatically. Furthermore, real-time access to consumption and chargeback reports allows clients to operate their private clouds in the same fashion as a public cloud.

Currently, North American and European markets represent the largest markets from a geographic perspective, and all have seen an increased adoption of cloud computing and cloud services among enterprises.

However, emerging markets – like Asia – are likely to see an increase in growth over the medium term.

Indeed, according to Gartner, the US share of the worldwide cloud services market is likely to be diluted to 50% by 2014 (down from 60% in 2009), as other countries and regions begin to adopt cloud services in more-significant volumes.

Perhaps anticipating the rise of commercial opportunities in other regions and markets, Japanese electronics company NEC decided to set up a joint venture with Neusoft, China’s largest IT outsourcing provider, to offer cloud computing services in the country; NEC’s first move to offer such services outside its home market.

According to NEC’s projections, the cloud computing market in China to grow to $2.3bn by 2012, expanding at an average pace of 30% each year.

In meantime, cloud computing still raises strong concerns to issues such as security, availability of service, vendor viability and maturity. But this may not be deterrent enough in the war over 3Par, which according to analyst may see HP victorious.

In the midst of the budget adjustments, the re-shaping of the NHS model, talks on immigration and the PM’s visit to India it has been an interesting few weeks for the outsourcing community.

So what do we (think we) know? The government will make the necessary cuts and suppliers will take them onboard. As it is unlikely either side wants to spend time and resources on costly legal battles suppliers are likely to get concessions from the government.

And while some suppliers like Connaugh seem to be suffering from price-pressure, most are looking at these budget cuts as an opportunity. This was certainly the position Steria’s chairman and CEO, François Enaud, expressed during a recent interview.

Enaud has good reason to be optimistic. As July turns to August, and financial results are published, many vendors are reporting encouraging figures for the first half of the year.

Indeed, Steria’s half year figures seem to have been positive across most European geographies – Spain was perhaps the exception as their results were ‘close to flat’ but given the difficulties the Spanish economies has faced in recent months, this is still good news.

While results for HCL, Wipro and Patni also showed a positive trend.

Curiously enough vendor outlook seems to be fairly optimistic while data recently published by TPI in its Q210 Index indicates a preference for a more cautious approach as there are still too many variables out there for there to be any certainty. I wonder who has got it, right?

In the meantime during his first visit to India as PM, David Cameron had his work cut out as he tried to dispel fears of curbs on IT outsourcing by the country’s government departments.

This is far from an obvious task as the question of immigration crept on to the agenda, adding to already existing unemployment concerns. A tough act: to balance public expectations, trade and international relations, and a public purse strained by a 3 year old financial crisis.

My guess is the PM’s rich brown hair won’t stay that colour for long!

Figures: we are inundated by them. Constantly bombarded with interpretations and statistics, sometimes it can be hard to make sense of it all.

For example, figures from the US point to a very plausible double dip recession, whereas the messages from the UK have been mixed, to say the least.

Certainly, there is the issue of exams and results and between incredible (I would stress the ‘in-’ prefix) A-Level and GCSE results, and talk of an exam-driven culture, the concern many have is how well prepared for the future are pupils leaving school – especially where IT is concerned.

But this is just the tip of the iceberg. The education question leads us down an equally troubling (from the UK public/government perspective) path.

Indeed, the diminishing number of pupils taking IT means that while the demand for IT-related skills is on the up, the domestic offer is on the decline. As IT companies try to fill the 500,000 new IT jobs that, according to experts, will be required over the next five years, they are much more likely to look into sponsoring skilled foreign workers.

This brings us to immigration. The coalition government promised to cut net immigration by over 150,000 each year to l00,000 or less. Non-EU work visas have already been capped.

So what is it going to be: satisfying the domestic demand for IT jobs which may see immigration cuts be revised or reverted? Or sitting back while discouraged IT firms move elsewhere – and I don’t know how well that would fair for the economy long term.

Certainly, the Office for National Statistics may have put out figures indicating a 1.2% quarterly rise in GDP between April and June; apparently demonstrating the fastest growth in nearly a decade. But, is the growth indicative of an improving trend? Is it sustainable or is it misinformed optimism?

It’s funny how although economics is a science many of the factors that contribute to it and its indicators are subject to ‘confidence’ and its presence or lack thereof.

And while GDP figures show a recovery gathering speed, economic commentators have surprisingly discovered that the less privileged in society are likely to be hit the hardest by the budget cuts.

Talk about mixed messages?!

In the second of a three part series, Tim Palmer, the lead in HR Transformation at PA Consulting Group, begins to answer the two fundamental questions that must be satisfied before embarking on successful sourcing contracts.

Last week, we began to assess how sourcing contracts are best constructed in the current climate and identified two fundamental questions that determine how the contract is defined and how successful the relationship will be in the long term – what is the overriding intent for the sourcing project, and what compromises are steps too far?

Often, the answers to these questions do not become fully apparent until the closing stages of a shared service implementation or outsourcing negotiation, when the client realises there is no point pushing further as the service provider has no more to bring to the table.

There are therefore four steps that should be built into any sourcing approach to ensure that objectives are mutually agreed and achieved. The same need for balanced risk exists for both captive shared services and outsourced relationships. Similar steps can be used when planning shared service projects, helping to create a common purpose for the implementation and helping to agree an accounting approach for factoring in the risks involved.

Step 1 – Understand your intent

As you prepare for a sourcing evaluation, work out the most critical goals for your solution. Prioritise between ‘must’, ‘should’, ‘could’ and ‘will not’ have features. What are you prepared to give up to secure your ‘musts’? This is a particularly important conversation to have if flexibility and the ability to scale services up and down are key priorities. To arrive at your overall intent, you will need to consult with key decision makers and stakeholders throughout the organisation.

Step 2 – Put the intent at the centre of the sourcing process

As you move through your selection process, make your intention clear – be it with potential providers or your internal team. Embed the intent in all that you do; it should be the core part of any prequalification process. Do this by speaking to potential service providers and articulating clearly what you are looking for, asking for their help, insight and ideas. The best outcome is where any providers that cannot deliver exclude themselves from the process, and those that can, gear themselves up to meet your intent in the most appropriate way.

If flexibility is a key requirement for your organisation, use scenarios to illustrate how the service providers will behave when significant, unpredictable business changes occur. Assess their willingness to live with the intent that you have set out by performing sensitivity analyses on the pricing and business case. (Keep thorough notes on their responses, these may prove invaluable later.)

There are two further steps for ensuring that you start as you mean to go on when devising sourcing contracts – checking the approach and the contract align with your intent, and then implementing the business change, also in line with intent. We will tackle these in more detail next week.

This blog is an extract from PA Consulting Group’s book, ‘Surviving and thriving in the economic crisis: The sourcing opportunity’, and is available free of charge. To request a copy of the book, please visit http://www.paconsulting.com/sourcingopportunity

The summer of 2010 is almost behind us and with it the third anniversary of the global financial meltdown that began with the US sub-prime crisis in August 2007, followed by the collapse of Lehman 12 months later.

Where some were initially optimistic about the duration of the downturn, others were able to discern the start of what would be a protracted recovery; 2009 was a particularly tough year and for many an annus horribilis. By Francinia Protti-Alvarez

In outsourcing, financial services is, perhaps understandably, where the impact has been felt the most. Certainly, outsourcing may not have witnessed such a drastic halt such as the one witnessed in the public listings and other financial sectors, but a slowdown was most definitely felt by most industry players as the effects trickled down.

“The financial services sector, seen by many as the most traditional user of outsourcing services was very quiet last year. It had little money to invest in new ITO projects and spent most of its time renegotiating contracts. Meanwhile, BPO was almost dead – no one really had the capital for the investment required,” said Alistair Maughan partner at international law firm Morrison Foerster.

However there are clear indications that this trend may be slowly reversing. Indeed, figures released in the latest Market Vista report, indicated that the banking, financial services and insurance (BFSI) sectors in particular have seen a 41% increase in transactions, with most contracts signed in the banking sub-sector; volume recorded was double over the Q1 this year.

The increase in transactions in the BSFI sector is indicative of a larger trend, which we are likely to see evolving: the increased attention to Cloud computing and XasS (anything as a service).

As the private and public sectors move to increase efficiencies and cut spending, Cloud computing presents a way to increase capacity or add capabilities on the fly without investing in new infrastructure, training new personnel, or licensing new software. It encompasses any subscription-based or pay-per-use service that, in real time over the Internet, extends IT's existing capabilities.

ITO suppliers are constrained to respond to client’s business demands through building capabilities to solve technical problems, expand services, and build consultative front ends and customised solutions for client’s differentiation.

Market experts suggest that this could see ITO suppliers in Central and Eastern Europe step up to respond to transformations caused by SaaS and Cloud Computing, adjust costs, upgrade delivery models among others issues.

In the UK there has been much talk about the G-Cloud. A strategy that would support everything from pooled government data centres to a communal email solution, collaboration tools and staff-editable wikis. It could allegedly save government £3.2bn of its annual £16bn IT budget – perfectly meeting the chancellor's 20% savings target. [The current ad hoc network of department- hosted systems is composed of a dozen dedicated government secure data centres, costing close to £250m each.]

“We don’t see an increase in Government IT happening over the next 12 months based on current deal flow as well as on the procurement cycle – it takes a good 12 months to get through a procurement process. This means such projects would not be implemented before autumn 2011,”commented Maughan.

Another trend that has been slowly building up is a move away from megadeals and into multi-sourcing type deals.

Indeed, for some in the outsourcing industry, these mega deals have become a thing of the past. The breaking down of larger contracts into smaller deals could open up the possibility of using smaller suppliers and manageable projects with appropriate governance and flexibility as required by volatile business environments, and altering systems when business change demands it.

“Under present circumstances, the projects will be axed (e.g Building Schools for the Future) or re-shaped. Reducing down the size of projects and capping them at £100m is also likely to be part of the landscape of the coming months,” notes Maughan.

“Anything above a £1m will have to go to ministers with projects over £100m going all the way to the top for authorisation,” continues Maughan “Reducing down the scope of projects is also likely to make them more manageable.”

The blending of the services provisions market is also a trend that has been evolving in the last three years. The distinction between Tier-1 providers (Accenture, IBM, EDS, CSC); mid tier/niche (Capita, Capgemini, Unysis), and the traditional (offshore) vendors (TCS, Wipro, WNS) was more of less clear.

However, things may not be as clearly delineated anymore. Tier-1 players are trying to develop their offshore capabilities while traditional providers are establishing onshore presence; mid Tier vendors are perhaps feeling a squeeze as they find it more difficult to compete with the larger players.

This market consolidation is also illustrated by acquisitions like that of EDS by Hewlett Packard, Perot Systems by Dell, ACS by Xerox or TCS’ purchase of UK-based Diligenta.

Whether reactionary, proactive or a bit of both; the trends evolving in the outsourcing market have been a few years in the making. Nevertheless, it would be unwise to bet on these trends evolving in a particular direction.

And while recent Gartner reports suggest the UK’s Government IT spending will be higher than financial and manufacturing sector. It also assumes that Chancellor George Osborne, in his aim to bring public sector to 1997 levels, will be successful in transforming people-driven processes into IT-driven processes – according to industry experts, that’s 450,000 jobs we are talking about cutting.

It would seem that before anything can happen the government is going to have to bite the bullet and make up its mind: efficiencies and virtualisation vs. unemployment. It’s going to be a tough one.

Earlier this week Dell trumped Hewlett-Packard’s (HP) $24 a share offer, but that was yesterday’s news. The bidding war between HP and Dell is getting more interesting as HP raised its offer from $27 a share (announced mid-week) to $30 a share.

Dell’s offer of $ 24.30 per share was made on 23 August and would see it pay $1.6bn (over £1bn) for all common 3Par stock.

But if Dell thought this would be enough to dissuade HP from the game, they were wrong.

On 26 August HP made its offer which was $3 higher than its original offer; 11% premium over Dell’s latest bid, which values the company at $2bn.

Since Dell made its original bid at $18 per share on 16 August the price offer per share has increased dramatically.

The stakes are rising quite quickly and it will be interesting to see who ends up making the acquisition.

While Dell may have made the first move, at $53bn its annual revenues are half of those of HP ($115bn). For Dell it maybe one of those games from which it is safer to walk away.

Sunoco has awarded IBM a deal that will see the manufacturer and marketer of petroleum and petrochemical products outsource its managed business process services and application support services.

Under the agreement IBM will help Sunoco drive improvements to a number of its back office processes by leveraging IBM's experience in the oil and gas industry, and deep business and applications process expertise, existing tools, and operational knowledge, thus enabling Sunoco to focus more of its resources on critical growth initiatives.

Similarly, as part of the agreement, IBM will provide services to Sunoco from its global operations centers, enabling Sunoco to better manage its Application Enhancement, Application Maintenance, Finance and Accounting, and Indirect Procurement processes.

It is not clear how large the contract is but last year Sunoco spent close to $90m, signing a $34m contract extension with India-based Wipro’s Infocrossing unit.

Sunoco also has contracts with AT&T Services and CompuCom. The company hired consulting firm EquaTerra earlier this year to identify other areas that might be ripe for outsourcing.

The Royal College of Nursing (RCN) has implemented NewVoiceMedia’s cloud-based telephony solution ContactWorld, to ensure that its members can always speak with an expert consultant regardless of any problems that the call centre encounters.

The RCN contact centre in Cardiff is a vital resource to nurses, providing advice and support on issues such as pay, working conditions, law, employment and retirement concerns, as well as specialist counselling services.

In addition to the disaster recovery function, RCN will use ContactWorld to manage incoming calls from nurses, students and healthcare professionals to its library service. All RCN members have access to the organisation’s library, currently one of the biggest specialist nursing resources in the world.

The NewVoiceMedia solution is entirely cloud-based, and can work with any phone - PBX extensions, home landlines and mobile phones - and does not require expensive hardware to operate.

Similarly, integration with other existing telephony systems is easy, allowing RCN to simply switch between its standard solution and ContactWorld within minutes via the web should an incident arise.

UK support services and construction service provider Carillion has recorded a healthy set of interim results, with profit before tax up 17% at £58.8m for the six months ending 30 June 2010; close to £9m higher that during the same period last year.

However, revenue shrank 11% to £2.51bn (H1 2009: £2.83bn), owed to the disposal of non-core businesses, the sale of equity investments in public-private partnership (PPP) projects, among other things.

Earlier in August, the firm was awarded a five-year extension to its existing infrastructure contracts with EDF Energy Networks, worth £40m a year.

Under the extension, which is set to kick in January 2011, Carillion will deliver infrastructure services for sub-stations and cabling to support the electricity network in the East of England.

The coalition government’s spending review, due in October. With projects such as the Building Schools for the Future (BSF) being axed, many in the construction and outsourcing community are waiting to get a better grasp of the extent to which cuts to public spending will affect them.

Public Sector Bank UCO Bank has awarded IT and business transformation service provider Wipro Infotech signed a 7 year total outsourcing contract with five Regional Rural Banks (RRBs).

The contract is for implementing a Core Banking Solution (CBS) across 803 branches of RRBs under UCO Bank’s sponsorship.

With this initiative, all five RRBs would come under the ambit of core banking, thereby ensuring uniformity in technology platform and related business processes for improved business efficiency and customer care.

The scope of services includes building, hosting and managing the underlying infrastructure at the Data Centers, in addition to implementing the Finacle CBS across the five RRBs in question.

Wipro would also provide network management and user training across all 803 branch locations as a part of the Total Outsourcing relationship.

The CBS would be executed on an Application Service Provider (ASP) model where Wipro would get paid on a monthly pay-per-use basis. Roll out of all branches is expected to be completed by September 2011.