Industry news

Sprint, provider of wireless and wireline communications services, has signed a unique wireless and wireline network services agreement with global leader Ericsson.

The new seven-year agreement will see Ericsson deliver operational efficiencies for Sprint while expanding Ericsson's own network services business in North America. The contract is valued at between $4.5 billion and $5 billion (USD) over the seven-year term of the contract.

Sprint's Steve Elfman, President of Network Operations and Wholesale, believes the deal, named "Network Advantage," catapults the company to elite status in wireless and wireline network effectiveness.

"No other U.S.-based carrier has followed through on the business-enhancing vision inherent in Network Advantage. Our best-ever network performance will become even better by leveraging Ericsson's world-class leadership in network services, their proprietary tools, and the knowledge of more than 30,000 dedicated and highly-speciali s ed service professionals to power Sprint's Now Network," said Elfman.

Key elements of the agreement include Sprint retaining full ownership and control of its network assets; customers working directly with Sprint employees as their primary contact; and Sprint retaining technology and vendor selections. Ericsson will assume responsibility for the day-to-day services and the transferred employees will become part of Ericsson Services Inc.

Nobel Biocare, a Swiss dental implant manufacturer, has signed a seven-year ITO contract with CSC.

Under the terms of the contract, CSC will assume responsibility for desktop and help desk services, as well as data centre operations supporting 38 Nobel Biocare locations in 33 countries representing five continents. Outsourcing these functions will enable the company to achieve cost savings starting in the first year and support Nobel Biocare's strategy to increase profitability and ensure long-term growth.

"Signing this agreement demonstrates the confidence industry leaders like Nobel Biocare have in our ability to provide flexible, cost-effective solutions that meet evolving business needs," said Gerhard Fercho, president of CSC's Central European Region.

BearingPoint's Brazilian operation, which specialises in consulting and systems integration services, is being purchased by CSC. CSC's new presence in Brazil, the world's ninth-largest economy, will add key horizontal capabilities and vertical industry expertise. The transaction is subject to the satisfaction of customary closing conditions and the approval of the court overseeing BearingPoint's corporate reorganisation.

BearingPoint's Brazilian operation currently has 550 employees and offices in Sao Paulo, Rio de Janeiro and Brasilia. Approximately two-thirds of the staff are qualified to implement and support SAP solutions. Through the acquisition CSC will add further horizontal capabilities includ ing project management, strategy consulting and applications management along with language capabilities including English and Spanish, in addition to Portuguese.

Clients of the Brazilian business include some of the world's largest producers of oil, gas and iron ore. The acquisition will expand CSC's industry vertical expertise and clientele in its Chemical, Energy and Natural Resources and Technology and Consumer sectors.

The acquisition will add to CSC's existing Latin American presence which includes operations in Argentina, Chile, Colombia, Costa Rica, Guatemala, Peru and Mexico.

GlaxoSmithKline (GSK) has signed a new five year IT support contract with Mahindra Satyam, recently rebranded from Satyam Computer Services. GSK has been a customer of Satyam since 2002. The new contract is to provide SAP and other critical systems support to GSK's businesses across the world.

"GSK is delighted to be able to extend our contract for another five years. We look forward to continuing to receive the high level of professionalism and commitment from Satyam and its associates that we have experienced over the past seven years" said Bill Louv, Chief Information Officer, GSK.

Last week I thought Lloyds TSB had their work cut out for them when turning bad press into good. However, it seems the outsourcing industry can’t get any worst coverage then it received this week. Placing ‘outsourced’ and ‘torture’ in the same sentence can never be good. Do not fear the Round-Up is not going to dredge the dark depths of civil liberties and human rights. This is not the type of outsourcing we are privy to and certainly do not condone it!

This week a thrilling ITO contract was won by CSC. Nobel Biocare, a Swiss dental implant manufacturer, has signed a seven-year ITO contract with them. Not the type of company that one sees often in outsourcing news. Dental implants, I still can’t work it out. Either way the toothy Swiss company hopes that CSC will help their implants grow and grow. The Round-Up wishes them the best of luck.

On to the more common, the U.S. postal service has renewed its customer service contract with Convergys. Since 2003 Convergys has provided the postal service with customer service support at three U.S. contact centres. This extension is the second two-year renewal of the contract.

And finally there is some exciting news for all the academics out there. Okay, you’re right, for some reason I do not have a following that consists largely of academics. However, the news that Gartner and Oxford University are launching a CIO academy in the Gulf Region is still exciting stuff.

The University of Oxford’s Saïd Business School and Gartner Executive Programs, a unit of Gartner, Inc., will deliver their renowned CIO Academy in the Gulf Region. The programme has become established over several years at Oxford, helping many IT leaders to maximise the contribution of technology to their organisations.

Although this week’s news round up began with a distinctly somber tone, I do hope you are left feeling uplifted and revived with all the new outsourcing contracts that are floating about. The Round-Up is a little worried about what headlines will be in the press next week. I hope when we meet next the news will not be so grave in nature.

Until then, happy sourcing.

It is common knowledge that the IT outsourcing market is split into so-called tiers, with tier one comprised of the “Big Four” (IBM, HP, Accenture, CSC) and tier two being mainly specialists in certain technologies or regional in scope such as Logica or Unisys, often aspiring to join tier one.

But this unintentional layering of the supplier market inherently creates a challenge. Companies with tens of thousands of employees, outsourcing IT functions through a contract of five years or more and with a value of upwards of £15 million per year, will be perfectly suited to a tier one provider. But the companies of a scale just below this with needs of equal complexity but an ability to sign a contract valued at only £3 - 10 million per year , simply will not be given the same levels of care and service by the tier one providers.

However, a tier two supplier typically lacks the sophistication and scale to accommodate the complex requirements these organisations have as they typically target the smaller end of the market. Therefore, companies of this size – approximately 2,000 employees for example – have shortlists of potential sourcing providers, but no one who can serve them fully, representing a gaping hole in the market – tier one wouldn’t serve them adequately, tier two can’t.

But there is a solution.

The first step is to readdress your expectations and understand you are unfortunately in a market black hole. If your budget is less than what would satisfy a top tier supplier, then the further down the hierarchy of suppliers you are looking, and the more care you must take when selecting the eventual supplier. And as you are unlikely to find a single supplier who can fulfil all your needs to the level you require, be open to a multi-sourcing approach whereby you take advantage of the specialisms of various suppliers. Provided the overall relationship and co-operation is adequately managed from all quarters, multi-sourcing can prove more than beneficial. Indeed multi-sourcing is arguably best suited to organisations of this scale.

Finally, with so many rumours abound within the sourcing industry, and any other industry for that matter, on possible mergers, consolidations, departures from the UK market etc., companies must be certain of whether the supplier is on an upward or downward trajectory. Will you be the most or least important client to the agency in three years’ time?

In short, with top tier suppliers likely to focus on more profitable and larger contracts, and smaller suppliers unlikely to be able to meet your requirements, heightened degrees of diligence and flexibility will be essential – your first choice supplier may not be suitable, but there is no reason why the problem cannot be solved by an alternative strategy.

Gartner forecasts released early this week will have confirmed what most CIOs knew and have been struggling with over the last year and a half. The recession has truly hit the IT industry with global spending down six percent to $3.2 trillion in 2009 compared to $3.4 trillion in 2008. When you put it in decimals the change seems small but it is highly significant. The collective fall in spending is the result of a lot of stress and wide scale efficiency initiatives being made by CIOs around the world. Prudence is forcing companies to look at cost cutting across the board and IT budgets have not escaped the spotlight. Gartner predicts IT spending to pick up slowly in 2010 but recent Ovum research provide a bleaker picture until 2013. In short, IT departments are likely to be under pressure for some time yet.

"The full impact of the global recession on the IT services and telecommunications sectors is still emerging, and forecast growth in these areas has been further reduced significantly,” commented Richard Gordon, research vice president and head of global forecasting at Gartner.

While no executives like budget reductions, it appears a forced reassessment of IT efficiencies could turn out to be a good thing. Richard Barker, MD of Sovereign Business Integration, an outsourcing company, sees the downturn as a wake-up call for IT.

“The past decade has been defined by conspicuous consumption across the board. The cheaper goods have become, the more the nation has bought. And the IT department has been one of the biggest culprits in encouraging this ‘pile it high’ culture. Cheap servers, network bandwidth and storage have encouraged inept practices and allowed users to treat the corporate network as an extension of their personal online presence,” commented Barker.

Of course, not all IT departments will have taken this approach, but where it has occurred this kind of profligacy will no longer go on unchecked. Those CIOs that have always erred towards prudence in their IT strategies, will happily continue down their well-planned paths. However, as budget reduction targets hit those less-prepared organisations, big changes will be necessary. So, what are the options for CIO’s to make the changes that matter?

The experts sourcingfocus.com spoke to were adamant that indiscriminate cost cutting is not a sustainable approach. A slash and burn mentality may bring significant cost reductions now but will not stand a company in good stead for the future.

“In past recessions, the ‘soloist’ CIO rapidly cancelled contracts, cut headcounts and really cut into the bone of IT. Companies quickly realised that this was damaging the core of businesses,” comments Myron Hrycyk, CIO of Severn and Trent, the utilities company. “IT is just too central to business for this approach to be viable now,” he adds

Indeed, approaching cost cutting now that IT is so central to the way a company runs, is a highly sensitive task. It seems that the approach can no longer be to simply reduce overheads but must be more of a balancing act of canny expenditure and efficiency in operations.

“CFOs and CEOs are facing a heightened challenge in identifying where to scale back and where to keep investing. This is particularly the case as stringent compliance requirements and cost of failure means cut backs in the wrong areas could be catastrophic,” comments Steve O’Connor, VP of IT transformation at BMC, an IT services provider.

He adds, “As IT is the only integrated function underpinning the entire organisation, it is crucial for business success that CIOs can clearly demonstrate to the board exactly where IT investment is needed, and where the fat can be cut. By doing so the CIO is able to strengthen his/her position as a business leader and can ensure that the business runs as lean as possible, whilst still maintaining success.”

With IT providing the backbone for most large organisations nowadays, it appears the CIO’s moment to truly shine has finally arrived. Clear, decisive and strategic actions could help consolidate his or her rightful place at the board table.

Balancing act in mind, the opportunities for cost cutting are many and a large number of them fairly simple to enact. The budgetary pressures may actually provide an opportunity in disguise, allowing CIO’s to ultimately create a more efficient and effective IT-driven organisation.

sourcingfocus.com asked the industry their top tips on how CIO’s can make positive cost cutting measures:

Consulting costs:

• “n good times, consulting companies made a lot of money from your company. Now it is time for them to share some of the pain. Request a ten percent to 20 percent rate reduction. Make it clear this is temporary – but also that companies who participate will continue to be long-term partners when economic conditions improve with the implicit understanding that not participating in the rate reduction will directly impact the long-term partnership with the consulting company.” Rich Murphy, Executive in Residence, Planview (and ex-CIO at Deutsche Bank).

Applications:

• “Retained support costs can often be reduced. We went to one supplier after realising we only used 60 percent functionality for one system. We proposed to pay them 60 percent of the existing retainer and they went for it.” Myron Hrycyk, CIO, Severn and Trent.

• “Pull together an inventory of your applications, their purpose, and the number of users. You can collect more information but start with the basics, which is easy and low-cost to obtain, and progress from there. This inventory of applications will allow you to identify duplicate, low usage, and low value systems.” Rich Murphy, Executive in Residence, Planview.

Hardware and software:

• “Normal cost reduction measures for hardware are to extend the useable life of the equipment and thus push off the replacement cost. While this works in many cases, it is not always the best alternative. What if the replacement hardware uses 50 percent less electricity requires little to no maintenance, can handle five times the volume, or runs two to three times more efficiently than the old equipment? The total cost may be lower if you decide on a replacement strategy. Plus, hardware providers are also impacted by economic forces, so you should be able to negotiate a reduced price.” Rich Murphy, Executive in Residence, Planview.

• “Look at storage costs and policies, because technology changes in this area over the last few years provides a great opportunity for cost reductions,” Rich Murphy, Executive in Residence, Planview.

Outsourcing partnerships

• “We are no longer ‘soloists’, more part of a band. Work with partners to come to agreements on cost reductions. Our suppliers have an appetite for ensuring Severn and Trent gets the best value from its IT investments. They understand the long-term relationship is more valuable than their short-term margins.

“There are possibilities for reducing blended rates, recalibrating contracts and account management costs. It’s also not unreasonable to ask suppliers to invest in proving the business case for new projects as they will benefit if deals come through,” Myron Hrycyk, CIO, Severn and Trent.

• “Organisations also need to consider options such as pragmatic overhaul of procurement models, redefining “risk and reward” based approaches to managing suppliers, shared services and outsourcing,” David Roots, MD, local government, Civica.

• “At Severn and Trent I have brought IT and procurement closely together so each can more easily adapt to the needs of the business. This is part of our vendor management strategy to enhance vendor relationships,” Myron Hrycyk, CIO, Severn and Trent.

• “I’m a strong believer in multi-sourcing to create the strongest partnerships. The benefits to be gained far outweigh the extra management time involved in such relationships,” Myron Hrycyk, CIO, Severn and Trent.

• “Hidden IT spend is an important area to look at. Those IT expenses that appear in different departments can add-up. CIOs need to get a handle on every IT cost across the organisation,” Steve Wathmought, MD, Xantus, an IT consultancy.

Amid the gloom, there are clearly many opportunities for CIOs to make bold, business enhancing decisions that not only drive efficiencies but also create long-term effectiveness. And, while projections on the arrival of IT industry ‘green shoots’ vary, it is important companies are ready when they do finally arrive.

“If there is one good thing to come out of the recession, it will be that organisations will become far more prudent when it comes to purchasing and managing technology. IT departments may be feeling the pinch. But a return to good, business based IT practices will not only enable organisations to address IT costs today but will stand them in excellent stead as the recession lifts and the economic outlook brightens,” says Richard Barker.

The University of Oxford’s Saïd Business School and Gartner Executive Programs, a unit of Gartner, Inc., will deliver their renowned CIO Academy in the Gulf Region.

CIO Academy is a popular management development programme for CIOs and IT directors. The programme has become established over several years at Oxford, helping many IT leaders to maximise the contribution of technology to their organisations.

The CIO Academy programme aims to equip IT leaders in the United Arab Emirates to combine the insight and experience of the world’s largest IT executive community and find solutions to address challenges and changing demands in today’s competitive environment.

United Arab Emirates, with its increased investment in infrastructure and ICT related development is one of the fastest growing regions in the Gulf. The awareness to embrace technology and best practice the in United Arab Emirates is unmistakable as businesses continue to take advantage of new technologies to overcome bottlenecks and increase their efficiency and growth.

His Excellency Rashed Al Mansoori, Chairman of Abu Dhabi Systems and Information Centre (ADSIC) will be a special guest speaker on the programme. ADSIC is the governmental body responsible for delivering the UAE’s acclaimed e-government platform to match the best in the world.

“Delivering this programme in the Gulf is an exciting yet natural step for the University. We have built valuable relationships with many prominent organizations and are pleased to further develop our commitment and offering to the region” said Professor Michael Earl, Acting Pro-Vice-Chancellor, (Development and External Affairs), University of Oxford.

CIOs interested in taking part should visit www.gartner.com/cioacademy or email dawn.gudelis AT gartner.com.

According to Indian Daily, the Economic Times, Nissan, Japan’s third-biggest automaker, is inviting tender for an application development and maintenance deal worth up to US$250 million. Interested companies include TCS, Wipro, IBM and Mahindra Satyam

Read the full story here.

Schneider Logistics, a global provider of logistics and transportation services, has signed a multi-year outsourcing agreement with ExlService Holdings, Inc. (EXL), a provider of outsourcing and transformation services.

Schneider Logistics, SRO in Olomouc, Czech Republic, currently provides transaction processing services to Schneider and its clients in Europe and the U.S. Schneider presently has approximately 200 employees that will transfer to EXL as part of the agreement. Through its delivery centre in Olomouc, EXL will have access to a talent pool with strong multi-lingual capabilities. The Czech Republic presents significant growth potential enabling EXL clients to leverage the labour pool in the Czech Republic to expand and diversify their outsourcing operations.

“As we operate the business, we are always looking for opportunities to be more efficient and effective,” said Jack Gross, Senior Vice President, International, Schneider Logistics. “This agreement positions us to continue to provide customers with excellent service while maintaining a competitive, low-cost position in the marketplace.”

According to Mr. Gross, the new relationship means Schneider Logistics customers will realise greater efficiencies in their business processes, including European freight audit and payment, logistics engineering, carrier contracting and brokerage business.

The Olomouc facility will serve as EXL’s third outsourcing service delivery location outside of India and The Philippines. With the acquisition of Schneider Logistics, SRO in the Czech Republic, EXL will have twelve delivery sites located across India, The Philippines and the Czech Republic.