Industry news

In his fourth installment on 'critical intangible' in the sourcing process Alex Blues, Head of IT Sourcing at PA Consulting Group considers the advantages and disadvantages of either being prescriptive or open to market influences in dealing with suppliers.

This is the fourth in a series of blogs about the role of ‘critical intangibles’ in the sourcing process. Critical intangibles are the fine details that are often overlooked by those concerned with the pricing and the legal framework of a sourcing relationship, but which have the potential to make a significant difference in the outcome of the sourcing relationship.

Today, I would like to consider the advantages and disadvantages of either being prescriptive or open to market influences in dealing with suppliers. If you want to be driven by process, then being prescriptive is definitely for you – you tell a supplier exactly what you want in terms of scope, service levels or even price. Then the role of the supplier is just to respond and answer the questions.

On this basis you can easily set-up an evaluation matrix, you decide on how you will weight different factors and you agree a scoring system. The result is an ‘apples with apples’ comparison and you make your decision based upon clear quantitative criteria. This can work extremely well for commodity type sourcing arrangements. However, many organisations are not looking at prescribing the solution, especially in complex situations, they are looking for outcomes.

In such cases it is better to describe what the solution will deliver and let the market use its skills and experience to help shape and define the solution. One of the reasons for considering outsourcing in the first place is because you believe that the market understands the solutions better than you, so why tell the market what to do to. You will not get an ‘apples with apples’ comparison, but you will receive a range of solutions - some perhaps more innovative than others - that can be evaluated against the outcomes you require.

This may make the financial comparisons more complex and it may make the contract construction somewhat more complicated, but it will without doubt be much better for the business and offers the potential for suppliers to provide innovative approaches that you might not even have considered.

Credit Suisse Asset Management in Germany has outsourced its fund administration business to Société Génèrale Securities Services (SGSS); under the terms of the agreement SGSS will provide Credit Suisse Asset Management in Germany with comprehensive fund administration services including front-office services (ASP), funds administration and reporting services.

This new model allows Credit Suisse to implement a more flexible organisation to meet the requirements of an increasingly complex and continuously changing market and regulatory environment.

As part of the new set up, SGSS will acquire the legal structure of Credit Suisse's Asset Management Kapitalanlagegesellschaft mbH which it will incorporate into its existing local structure, SGSS Deutschland KAG mbH.

The transaction is expected to close on 30 September 2010, subject to local regulatory approval. Credit Suisse (Deutschland) AG's Private Banking will not be affected by the transaction. The Portfolio Management, Client Services and Fund Distribution will also stay unchanged.

In Germany, SGSS is responsible for €62.2bn under administration through nearly 500 funds and benefits from more than 50 years of experience in the fund administration industry.

The Taxation and Customs Union Directorate General (DG TAXUD) has awarded Accenture a three-year IT systems management and development contract valued at approximately €49.3m.

The agreement will support the European Commission’s CUST-DEV2 programme, which is designed to introduce a harmonised, centralised and paperless customs system (eCustoms) across the EU by 2013.

Under the terms of the contract, Accenture will manage the existing customs systems at DG TAXUD as well as the specifications of the Trans-European Systems.

Additionally, Accenture will work with DG TAXUD on the development and management of new customs applications and systems in the scope of the eCustoms initiative.

Accenture will draw on its extensive experience working with customs agencies around the world and its High Performance Customs framework to support the program.

The contract was awarded following an invitation to tender issued by DG TAXUD and based on Accenture’s competitively priced bid and experience working with customs services. It also includes the option for two one-year extensions.

Vivansa, a Belgian technology company specializing in the customs industry, will work as a subcontractor to Accenture.

UK bank Northern Rock has chosen Symantec solutions as part of its customer and corporate data protection strategy.

The bank has employed Symantec's PGP Universal Gateway Email, which encrypts data at the gateway. The system ensures data is protected from unauthorised access in transit over the public Internet and at rest on a recipient's mail server.

The product has since been rolled out to all email users within the organisation, allowing them to communicate securely with customers, partners and regulatory authorities.

Northern Rock has 75 branches throughout the UK, as well as postal, telephone and internet operations.

Symantec was selected as Northern Rock's vendor of choice following a rigorous competitive tender.

Based on total contract value (TCV), the second quarter of the year was down 13.5% quarter-on-quarter but it did show a 20% (quarter-on-quarter) improvement in terms of volume, according to data released by sourcing data and advisory firm TPI.

The 2Q10 Global TPI Index, which measures commercial outsourcing contracts valued at $25m or more, recorded TCV of $18.1bn in Q2 2010, down about 13% both sequentially and year-on-year.

Results for H1 2010 indicate that despite sluggishness, clients continuing to look to outsource to improve operations and enable innovations such as cloud computing.

During the first half of 2010, the global market TCV of $38.9bn remained flat with a year ago following the unprecedented surge in contract restructurings during the first quarter. In the second quarter, restructurings accounted for 20% of TCV, in line with historical trends.

The market in the second quarter exhibited particular softness in Europe, the Middle East and Africa (EMEA), Asia Pacific and IT outsourcing (ITO).

In EMEA, however, quarterly TCV fell both sequentially and year-on-year, 21% and 14%, respectively. Meanwhile, in Asia Pacific, TCV increased 5% sequentially in the second quarter but dropped 73% year-on-year. While the Americas saw second-quarter TCV decline 9% over the first quarter of 2010 but increase 21% over the second quarter of 2009.

By scope, ITO TCV during the second quarter fell nearly 30% sequentially and 23% year-on-year. First-half ITO TCV of $29bn, fueled by the large contract restructurings of the first quarter more than by second-quarter performance, rose 5% over the year before.

The quarterly TCV of contracts for business process outsourcing (BPO) rose 60% over the first quarter of 2010, which was one of the worst on record in this segment, and 20% over the second quarter of 2009. But overall BPO activity remained weak by historical standards, with the greatest growth in contracts valued at between $10 million and $25 million.

Finally, by industry, the Global TPI Index found declining activity in financial services, manufacturing and telecom & media, even in the more robust Americas region.

These three sectors are as critical as ever to the outsourcing market, and their relative sluggishness restrained overall market growth in both the second quarter and the first half of the year.

In contrast, the travel, transportation and hospitality industry saw impressive gains for the second straight quarter, and the retail sector, with four successive halves of growth off a small base, remained another industry to watch, as retailers continue to experience top-line revenue pressure and pursue cost reductions from sourcing.

UK comms regulator Ofcom has granted Tech services company Logica UK a new ICT outsourcing contract.

The contract is for an initial four year period with a possible one year extension, representing a Net Present Value (NPV) positive outcome of £10m over the 5-year term.

Ofcom forecasts an annual saving of £1.5m, representing an £7.5m saving over the 5-year contract term through to 2016.

The refresh and simplification of Ofcom’s existing ICT infrastructure will bring technical improvements that will increase resilience, drive environmental sustainability and lower its operational costs over duration of the contract.

Similarly, the new service is expected to reduce Ofcom’s ICT carbon footprint by 60% over the duration of the contract, which will be achieved by cutting the number of data centres and servers it uses in half.

Axel Grunwald, senior consultant at IT consulting firm GFT Technologies reminds us of the need to think of the consumer in the development of investment banking projects.

At the outset of a project, the effort to define requirements and scope can be all-consuming. Whilst the user is included briefly at this point, to explain the businesses needs to the technical team, often little provision is made to return the knowledge to the users in an appropriate form.

In the banking sector, this problem is frequently made more complex. Requirements can change during all project phases and the operational model, processes, or procedures continue to be defined or changed alongside the development of the system.

GFT was recently made acutely aware of this issue in a project where a system needed to be devised before the operational team was in place. The lack of users in the early stages meant that our team had to pay particular attention to how the new system would be returned to the client. We had to include in our methodology some key considerations for involving users in the knowledge transfer. We identified these as:

Language

Training

Resources

We noticed that often, as a project progresses from business requirements to technical code, a transformation of the language happens and it becomes unsuitable for the end-user. In order to re-engage with the business user (during UAT and / or production) it is essential that the documentation is re-translated into business language; “null” has to return to “nothing in here”.

Preparation for the handover to the business community must involve training and appropriate documentation. The benefits of this are two-fold. Firstly, as the usage of the application was explained to the user, this provided for a quicker and smoother testing process. Secondly, it also helped to avoid problems stemming from a lack of understanding.

This approach also supported the train-the-trainer concept, as acceptance-testing users were enabled and provided with the knowledge and documentation to pass on to the other business users when the system finally went live.

We found that the best-placed resources to perform this task are the business and technical analysts, who also gather the business requirements and designed the business and technical solution for the system. They have both the understanding of what has been developed and the skills to re-translate the documentation. They are also best positioned to identify gaps that may have emerged during the project lifecycle.

So the same resources that are responsible for enabling the technology people to code the application are also responsible for enabling the business users to understand and use the system.

For best effect, we embedded both business and technical analysts in the internal support unit to directly engage with the business user on a case-by-case basis and to answer specific questions. They were also deeply involved in the production of user manuals, training sessions, and other documentation distributed to all users.

This user-focused approach meant that, despite not existing at the beginning of the project, the users were fully included in the handover. As they are the final client, we discovered that the project is more successful if you don’t forget them!

Global IT and BPO services provider Patni, has appointed Apoorva Singh as senior vice president and global head – infrastructure management services.

In his new role Singh will be spearheading the infrastructure management services vertical along with Patni’s customer interaction services (CIS) division relating to technology-based support business.

Singh has 15 years of rich industry experience to his credit and in his previous assignment has worked with Infosys as Head of their IMS division for EMEA region.

Prior to Infosys, he has also worked in leadership roles with companies like Solix/ Emagia Corporation, MeraNet Private Limited and Maruti Udyog Limited.

Online rail retailer thetrainline.com has granted Capgemini a five-year extension on its IT outsourcing contract.

The contract, with an estimated value of £15m covers the period 2010-2015 and ensures 24/7 support for the ticket company’s entire IT infrastructure including its online and call centre customer-facing systems.

The contract also provides for Capgemini to undertake a growing volume of applications support and applications management activity for thetrainline.com.

The new contract extension aims to give thetrainline.com better cost-effectiveness through innovations such as virtualisation of the train ticket retailer’s entire server installation, located at a Capgemini data centre in Yorkshire.

The agreement also involves increased use of Capgemini’s Rightshore® delivery model, with much of the applications support work to be undertaken over the five-year period at a Capgemini facility in Bangalore.

Both companies have uninterruptedly worked together since 1997.

The French market’s rapidly growing appetite for engineering offshoring in embedded systems segment is a clear case in point.

This is the outcome of a study done by Pierre Audoin Consultants (PAC), a leading market research and strategic consulting firm in the domain of software and IT services industry in Europe.

The research was conducted at a time when the global economic crisis that has hit the EU the hardest seems to have opened doors of newer opportunities for Indian Information Technology in certain high value and high-end solutions that had so far remained closed for the Indian companies.

According to the PAC study it’s the very same French companies, which had been suspicious about the capacity of the Indian companies to lead and deliver projects in this key segment, that are beginning to change their opinions.

Previously, the benefits of any engineering offshoring went exclusively to North African and Eastern European countries, favoured by the French given their geographic proximity and cultural as well as linguistic compatibilities.

However, French companies began to look for alternative and more cost-efficient destinations in part due to the rising costs –a trend accentuated by economic downturn – and in part due to the lack of specialised engineers for embedded services in Europe.

The survey, carried out among 50 CIOs of big-, medium- and small-sized companies manufacturing embedded systems, found that two-thirds of the respondents admitted to using offshore services.

Similarly, the study discovered that while most French companies prefer to either refer to an expert or develop the embedded system internally; very few offshore the project in its entirety. Indeed, in most cases, it is the conception, the development, the test or the maintenance that is offshored.

But while the survey established that French companies take a lot of time in deciding whether to offshore to India, Indian IT companies have also failed to established strategies aimed at the French market.

Nevertheless, the trend is evolving. Some of the Indian companies such as HCL Technologies, have recently began increasing their visibility in and understanding of the French market.