Industry news

Global consulting, technology and outsourcing services firm Capgemini has acquired Swedish IT and Business Process Outsourcing (BPO) service provider Skvader Systems AB (Skvader), specialising in the provision of smart meter deployment services and smart meter managed business services. .

As a part of the deal Capgemini will acquire a software solution developed by Skvader to support its managed business services contracts.

The software is sold to other utilities and utility service providers through SaaS contracts to support 1 million smart meter deployments. This software will enhance the solutions that Capgemini currently deploys in support of Smart Energy Services contracts in Europe and North America

Skvader is one of the delivery partners of Landis+Gyr, a leading provider of integrated energy management solutions, in Landis+Gyr’s contract for the installation and management of 400,000 meters in Sweden at power and gas company E.ON.

This will now be a part of Capgemini’s Smart Energy Services business, further extending the company’s share of both the Swedish and European smart energy market.

Capgemini estimates that over €300m of smart energy service contracts will come to the Nordics over the next three years, underlining the strategic significance of this acquisition.

Mid year results seem to be showing positive results despite on-going price pressures. During the first half of the year, Steria revenue increased by 1.4% on a like-for-like basis in the first half 2010. During the second quarter 2010, activity was stable, with consolidated revenue amounting to €417.5m (-0.1% like-for-like versus the second quarter 2009).

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

In the United Kingdom, excluding currency, the trend in second quarter revenue exceeded initial expectations at -3.9% versus the second quarter 2009. The quarter was notably characterised by the signature, in June 2010 with the Cleveland Police Authority, of one of the largest contracts ever won by the Group for an inital amount of €211m over 10 years.

While some may be quick to point out that the optimism may be misplaced –it does take 18-24 months from the initial tender to the awarding and signing of the contract – Steria also recorded a 17.6% rise in new orders during the second quarter 2010, leading to a total increase of 3.2% in the first half 2010 versus the first half 2009.

Similarly, H1 has proven a good one for the Indian ITO sector, holding out the promise of higher perks for the millions of IT professionals. Results for HCL, showed a positive trend. While Patni showed a 10.7% year-on-year results despite a 2.8% drop in revenue quarter on quarter. The company’s revenues stood at $167.6m, down from $172.3m in Q1. The company attributed the revenue drop due to project delays by some of its BPO clients.

Wipro also beat estimates in the June quarter, though a softening in Europe's revenue contribution raised concerns about profits ahead. The software services exporter's Europe revenue share fell mainly due to currency volatility, but it continued to see a strong business pipeline from the region. Indeed, the company posted a 31% jump in profit and beat analysts’ estimates as demand for computer services rose.

Wipro’s results add to those of industry leader Tata Consultancy Services.

In recent weeks, IBM has been in the news the other side of the Atlantic as it tries to respond to two legal cases brought against it.

It is interesting to note how, despite the maturity of the outsourcing sector – particularly in the US - it seems as though the issue of managing relationships and expectations is a skill that has not yet been perfected by the industry.

Although legal action is always considered a ‘last resort’ option, the public sector is under pressure to deliver savings and efficiencies. When multi-million contracts have ‘gone wrong’ or are ‘significantly delayed’ somebody – usually, it seems, the vendor – has to be responsible.

But it’s much more complicated than that. More often than not, vendors and suppliers deliver what they were asked to deliver. Where they seem to fail is to meet the untold or unclarified expectations that buyers and end-users have in mind for the venture.

A recent example is IBM, who has been facing two recent legal disputes in the US.

The first of these relates to the state of Texas and a seven-page letter the Texas Department of Information Resources sent detailing what it calls “chronic failures” of agreed service levels.

In the letter Texas expresses to IBM it remains discontented with services provided, indicating that IBM is in breach of its contract.

This is not a new problem. Indeed, it has been ongoing since 2008, when the state first suspended the $863m, seven-year outsourcing contract.

IBM obviously contests the claims. Meanwhile, Texas IT officials are hoping for the best and preparing for the worst after giving IBM 30 days to fix alleged problems with the state's $863 million data centre outsourcing contract.

The second incident involves the state of Indiana and sees both parties suing each other since May. The heart of the problem: Indiana's 10-year, $1.6bn outsourcing contract with IBM to streamline welfare eligibility in the state, which the state governor cancelled in October last year.

According to reports, the Indiana Family and Social Services Administration (FSSA) is trying to recover $437.6m it paid IBM until 31 January. The lawsuit also includes costs incurred for any third-party lawsuits, federal penalties and employee overtime, plus triple damages worth more than $1.3bn.

As for IBM, it has counter-sued Indiana for $52.8m reportedly for hardware, software and automated processes Indiana IBM left there and is still using.

In both cases, each side disputes the other's claims. We’ll just have to stay tuned to see how the saga unfolds; only then will we get sight of what the possible repercussions for the outsourcing industry will be.

In his fifth and final blog on the series of 'critical intangibles Alex Blues, Head of IT Sourcing at PA Consulting Group, examines the differences between being commercially open and commercially closed.

In this fifth and final blog in the series on ‘critical intangibles’ we are examining the differences between being commercially open and commercially closed.

This is closely aligned to a previous discussion about the difference between trust and suspicion. If your approach is trusting in a supplier relationship, you might automatically expect to also be commercially open, and if your approach is to be suspicious, you might also expect to be commercially closed.

However, it is important to look beyond this obvious correlation.

Being commercially open is about sharing your figures, for example costs and profits, from both the client and the supplier’s perspective. This is particularly important in situations where there is: potential ambiguity, where the scope is fluid or ill-defined or where there is a high chance of change moving forward.

Even if your natural trait is to be suspicious, being commercially closed in these circumstances will not work. It is important that both client and supplier can see the impact of each other’s actions on the economic model of the deal.

On the other hand, commercially closed is where both sides treat the commercial details as confidential, and often they become a key ingredient in negotiations. This is okay when there is certainty, the scope is clear, the change required is minimal and where one side or the other will not always be wondering "could I have done better?"

It is important to agree whether you need an open or closed approach as part of the sourcing strategy, as some suppliers are prepared to open the bonnet on their commercials whilst others will not. Determining this as part of an initial market test can avoid a lot of wasted effort.

Discussing critical intangibles with my clients has now become an integral part of agreeing supplier engagements and, although a few clients still look at me quizzically, many more believe it is a valuable exercise.

Robin James, insurance practice lead at FusionExperience, addresses some of the reasons why insurers should look to Cloud as a means to cope with increasing regulatory demands.

Financial regulators have always set a framework of good business practice which they see as the foundation for sound business. However, there has been a notable shift in the breadth and depth of this regulatory oversight and regulators are now increasingly demanding that organisations demonstrate that they are complying not only with the letter of the law but also the spirit within which the regulation was created. With the rule makers using increasingly vague language and broad brush examples, it is clear that the days when instructions were precise and easily followed are most definitely gone.

These developments will continue to pose a challenge to the insurance sector in particular, which is set to fall under a particularly strong regulatory microscope. To cater for this, insurance firms need to start employing ‘interpreters’ to help them understand its complex language and to enable them to capture enough data.

This should enable them to produce the information that will help them to demonstrate that they are compliant with the regulator’s wishes. Systems to support regulatory disclosure have to be agile and capable of being configured in hours and days, not months and years. Although this may sound like a tall order, but there is a very real and easy solution that already exists.

By moving towards cloud based architecture, insurance firms will be able to deliver secure, agile, sophisticated solutions that can be rapidly tweaked to meet changing business imperatives. These can range from straight forward measurements right up to a full blown enterprise solution and be based on robust solution sets and secure data repositories, reducing the risk factors reviewed by the regulator.

The cloud is also standards based and this allows for a more sophisticated model of usage. Insurance companies will be able to isolate and select the most appropriate components rather than entire solutions, allowing companies to change components quickly, and to respond efficiently to either business imperatives or regulatory stimulus. Insurance companies that have moved into the cloud have found that it gives back control to the owning organisation in ways that traditional outsourcing has never been able to.

Despite this, the insurance industry has shown itself to be wary of stepping into the unknown underlining reluctance to move into the cloud. However, far from being an ethereal unattainable dream, the cloud has many proven benefits. It is considerably cheaper than running an in-house IT department and cheaper than traditional conventional outsourcing.

The cloud also offers the opportunity to not only outsource infrastructure, but software and other services as well. The cloud will give organisations responsibility in managing their business, an essential requirement if companies want to have any hope of managing risk in an increasingly regulated environment.

By moving into the cloud, insurance companies will be able to be more dynamic and capable of evolving in timescales that have seemed impossible thus far, but will prove vital when faced with more intrusive and sophisticated regulation. This approach to outsourcing IT will allow the insurance industry to take a significant step forward to becoming ready for business in the 21st century.

Beverage manufacturer Britvic has awarded international IT services provider Atos Origin a new five-year contract worth around £15m.

The deal announced covers IT hosting services for Britvic’s centrally located UK systems including all its SAP, Siebel and associated applications for the back office functions. It follows a three-year contract awarded in 2008 for applications management.

For this new contract Atos Origin and Britvic have agreed a commercial model where the fee is based upon the transactions delivered. This provides Britvic with more flexibility to better plan and budget for services in line with its business processes.

Following the recent acquisition of Fruité Enterpises in France, Britvic needs flexible, cost-efficient IT systems that can support business operations and ensure product delivery to customers.

The agreement will help Britvic to better address critical business challenges, such as enabling the supply chain to prepare for the international growth and to ensure that it can continue to respond fast to peaks in demand for its products.

Atos Origin provides support from both the UK and its Indian delivery centres in Mumbai.

According to reports, Fujitsu UK & Ireland has landed three new private sector deals worth a total of £200m, in an announcement which many hope will signal a change in the fortunes of the UK IT industry.

The announcement comes after 30 months of extremely depressed sales in the private sector, with Fujitsu CEO Roger Gilbert explaining that the deals were done as part of a ‘flurry of activity’ in the last quarter, much of which was driven by mergers and acquisitions, as well as by demergers and ‘disaggregations.’

Gilbert, who confirmed that the three contracts, were for a desktop management programme, a global support and logistics programme, and mix of back office and shop floor systems for a major retailer, also said that the level of orders from the private sector had trebled in the first quarter of 2010.

The news comes in the same week that Fujitsu announced that it was restructuring its product lines in order to compete more vigorously as a global supplier of cloud-based and managed services.

Gilbert insisted that although the firm had yet to engage the government in detail to discuss their needs, he felt that the new approach, combined with new initiatives designed to give a quicker payback, such as sharing desktop architectures, consolidating network assets, could present the public sector with substantial savings.

Fujitsu was expected to announce its first-quarter 2010 results on 29 July, to reflect the new structure.

Media reports suggest that accounting software provider Sage is among the interested parties bidding for Italian management software manufacturer from private equity firm Bain Capital in a deal that could reach up €650m.

The move is in line with Sage’s build-up strategy –in 2006 the company invested £617.5m in acquisitions including the £307m purchase of Emdeon Practice Services.

The group has a strong position in the traditional off-the-shelf software and is trying to build upt its software as a service (SaaS) capabilities.

But while the Newcastle-based firm may have fallen behind competitors in the SaaS space, it has worked to raise cash and reduce its debt which it is reported to have falledn from £558m in Q1 last year to £280m as at June this year.

Other interested bidders in the auction include private equity firms HgCapital and Cinven.

This is not the first time Sage goes head to head with a private equity firm for an acquisition. Four years ago it lost a bid against HgCapital for Norwegian software group Visma.

The commercial outsourcing market in Europe, the Middle East and Africa (EMEA) has yet to exhibit signs of recovery following the sharp downturn in demand in mid-2008, according to the latest figures published by data and advisory firm TPI in their Q2 2010 Index.

Reduced outsourcing activity in the UK and Germany in the first half of 2010 has caused an overall decline from the same period last year.

In the first half of 2010, the Nordics accounted for almost 17% of global total contract value (TCV), making it the second-largest outsourcing market in the world behind the US. The impact of the decline in these traditionally strong markets was offset somewhat by a number of large contract signings in the Nordic region and France.

“So far this year the Nordics ranked as the second largest outsourcing market in the world – mostly owed to a few significant restructuring deals," noted Duncan Aitchison, partner and president of TPI, EMEA. "Germany dipped a little this year but is still reasonably strong and has the greatest potential for sustained growth. In comparison, growth in the Nordic region is likely to be less consistent.”

He added, “The UK is without a doubt the market that has suffered the most, certainly in Europe but the case could be made globally. For a long time the two big markets were the US and the UK, with the UK knocking a 20%+ of the global market –reaching close to 30% in 2008. We have witness it step down, halving from 2008-2009 and again from 2009 to the first half of 2010.”

One of the latest additions to the EMEA TPI Index is the reporting on public sector outsourcing trends in the region , which has shown that public sector contracts awarded in EMEA in the first half of 2010 stood at over €9bn, with the UK Public Sector accounting for 86% of EMEA public sector expenditure.

Between 2005 and 2009, the UK public sector accounted for 57% of all outsourcing, compared to the commercial sector’s 43% share. In the first half of 2010, there was a notable shift as the commercial sector share fell to just 25% of the UK market. With a 75% share of UK outsourcing spending and an increased appetite to explore outsourcing options, the public sector has become an increasingly important target for service providers to help balance the reduced opportunities in the commercial sector.

Nevertheless, Aitchinson admits that activity is not likely to increase significantly, as few contracts have been launched. “So far this year there has been little to no news of contracts in the works. The first six months were dominated by talk about the election, and now the coalition government is setting up the agenda.”

The overall picture for the remainder of 2010 is not a rosy one, given the number of uncertainties that prevail at the macroeconomic context.

Leading global IT services provider HCL Technologies Ltd, has announced a 24.1% global revenue increase in its results for both the year and the quarter ended June 30 2010.

Indian firm HCL was ranked number one in both Tier 1 Traditional IT Infrastructure Outsourcing (ITO) and Remote Infrastructure Management Outsourcing (RIMO) earlier this year in Datamonitor's 2009-10 Black Book of Outsourcing, a feat that has been attributed to the strength of the company's client relationships and reputation for consistently providing results that deliver measurable value.

HCL's results show that its global revenues have increased by 24.1% to $2.7b, while year on year revenues have increased by 21.5% to $738 m, thanks to a number of significant contract wins. During the last financial year alone, HCL won contracts within its key vertical and horizontal service lines in Europe, including Equitable Life, GlaxoSmithKline, Royal Mail, Sky Italia, St Gobain and News International.

“Over the last year we have developed facilities, invested in local operations and increased headcount in the region and with it our ability to service European clients locally. This is a continuation of our European growth strategy of making strong investments during the downturn, to be best positioned to accelerate our business forward in the European market.” commented Rajeev Sawhney, President for HCL Europe.

“This commitment to Europe has enabled us to welcome new clients to HCL, as well as extend current relationships. This growth exemplifies the cornerstone of our core philosophy on Employees First, Customers Second and in our success of gaining momentum in the region."