Industry news

As part of his studies towards the NAO's recently launched Diploma in Global Strategic Outsourcing, NAO member Graham Jump is conducting a survey into 'Price Benchmarking in IT Outsourcing'.

Due to the commercially sensitivity nature of benchmarking, real data can be hard to find and Graham's aim is to collect some intelligence on how price benchmarks are actually being used in the real world.

If you are a user of IT outsourcing services with recent (last 2 years) experience of price benchmarking and would like to participate please link to the survey at:

http://www.surveymonkey.com/s.aspx?sm=kg2SFG0aDDijkQEYzdzmGw_3d_3d

The survey does not ask you to identify yourself, your company or any third parties and so your response will not be identifiable among the other responses. It should only take 5-10 minutes to complete.

BP, one of the world’s largest oil and gas companies, has commissioned Infosys Technologies to manage and operate a large portion of its business systems. The applications outsourcing and support agreement will run for five years.

Over the last 12 months, BP has undertaken a programme to consolidate its information technology (IT) vendors for application development and application maintenance (ADAM). BP had a rigorous procurement selection process which assessed Infosys on capability, oil and gas sector knowledge and cost.

Dana Deasy, BP Group CIO, said, "I'm pleased to have selected Infosys as one of our strategic ADAM vendors. In awarding Infosys ADAM work for our Integrated Supply and Trading and Exploration and Production businesses, we look to leverage its capability and knowledge of the Oil and Gas sector. This agreement will enable BP to reduce complexity, standardize work processes, and lower our overall cost base."

Fujitsu Services operation in the UK has proposed a reduction of up to 1,200 jobs. This measure is being proposed because of lower than anticipated revenues. The reductions are expected to be complete by the end of 2009.

Fujitsu has said that the action is necessary to ensure that the company remains competitive in the current economic climate.

Fujitsu currently employs 12,500 people in the UK. It is an IT systems, services and products company with an annual revenue of £2 billion. To date the company has taken a number of measures to keep its cost base down and avoid job losses, including a company wide pay freeze, a reduction in the number of contractors and temporary workers, a re-training programme and tight control of recruitment. In addition strict controls have been applied to operational and capital expenditure.

USA Army has signed a contract with CSC to continue designing and developing training courseware. The contract has a one-year base period and four one-year options. It replaces a previous Army National Guard training services contract awarded to CSC in September 2003.

Under the terms of the contract, CSC will provide distributed learning educational products to the Army National Guard. CSC will develop and update new and existing courses as well as convert classroom-based courses to a distributed learning environment. They will provide services at the Distributed Learning Development Centre at Camp Dodge, Des Moines, Iowa, and the National Guard Professional Education Centre at Camp Robinson, North Little Rock, Ark.

Businesses across the world have been using outsourcing as a strategy to reduce costs, streamline workforces and improve quality. On the whole, this strategy has been effective and has resulted in management teams across all industries turning to outsourcing more frequently.

Now, if businesses outsource to UK based suppliers then jobs remain onshore, graduates have a chance to learn the vital basics and the UK moves into the future happy in the knowledge that it has a well skilled workforce. The problem is, many of the biggest businesses are not using UK suppliers, instead they are opting to offshore, leaving the UK with a growing skills gap. In fact it is safe to say that the gap is quickly becoming a void.

Over the past few months there have been a host of businesses receiving less than favorable reports about their offshoring practices. Most recently, Lloyds Banking Group has been under fire from the media as a result of a Daily Mail report that said Indian IT contractors were being brought into the UK to work in place of UK counterparts. The article was supplemented with internal documents that revealed the concerns Lloyds managers have about knowledge gaps within their IT department, hence they were possibly looking to their Indian partners to provide them with the necessary skilled workers.

What this means for Lloyds is that they lack the necessary skills to do basic IT processes without calling in the offshore cavalry. This is worrying; a large financial organisation should have the capacity and the business sense to keep a retained team of workers on-shore. It is probable that Lloyds became a little too focused on cost cutting and rapid ROI whilst losing sight of the future security of their organisation.

Mass offshoring is not just having an effect on the capabilities of UK businesses, it is also having a distinct effect on those yet to begin their business life, the graduates. Firms excessively offshoring work and not investing in their own staff has resulted in fewer graduate opportunities and in turn means that mid level IT specialists are becoming a rarer breed. Graduates need on-the-job training in order to become tomorrow’s IT specialists. Who will train future developers, networkers and IT managers if there is no one left in the country with the foundation skills?

Martyn Hart, Chairman of the National Outsourcing Association, commented, “As India and various other destinations enjoy a wealth of low level IT work, IT specialists in these countries will arguably have had better experience and training than their UK counterparts. In turn, those IT workers that have climbed the career ladder in key offshore destinations would have had such a breadth of experience that they may be better placed to manage the IT teams of the future.” So, where does this leave the UK?

Of course offshoring is understandable if not vital within a global economy. However, retained knowledge and balance are just as essential as offshoring. Companies must realise that they need to have an even spread between on-shore work and offshore. Their Indian suppliers will not tell them to keep work at home, that is for sure. So management teams need to wisen-up and be aware of the risks involved with overzealous offshoring.

Mr Hart points out the risks involved with handing over IT to an offshore supplier, “By not retaining enough good quality in-house IT expertise, businesses are at risk. They will no longer have the capability to design and run applications or IT systems themselves and will have no choice but to rely upon their offshore service providers. This would leave them in a very vulnerable position; suppliers could essentially charge what they wanted for applications and systems and they would lose their competitive edge because they would have to rely upon the same ‘off the shelf’ package as their competitors.”

So what are companies going to do? Well one area that is worth exploring is sending an in-house graduate team offshore for a period of time to learn the trade. The offshore suppliers will be best placed to train them because they have been fulfilling the work already, the graduates get the experience they need and supplier relations will be significantly improved. After the team’s tenure at the supplier’s base, they can return back in-house and bring their new found skills and knowledge with them.

The fact is that excessive offshoring is contributing to the UK’s ever increasing skills gap. If companies want to be best placed to ensure that they are prepared for future challenges, then they need to have the skills and knowledge in-house. Having a good mix of outsourced and in-house expertise is paramount if businesses don’t want to find themselves at the mercy of a supplier’s sales team.

Graduates need nurturing. It wont just be the likes of Lloyds quaking in their boots as they stare at their empty IT department, all businesses may find themselves at a distinct disadvantage unless UK organisations start taking the time to invest in the future of this country’s talent pool.

The Independent Police Complaints Commission (IPCC) has signed a ten-year, £45 million contract, with Steria to provide ICT (Information and Communication Technology) and telephony services.

As part of the contract Steria will provide the IPCC with a range of ICT and business services. The ICT will support flexible working and improve the access to information through new case and integrated information management systems.

The IPCC is a non-departmental public body, funded by the Home Office, responsible for overseeing the complaints system for police forces in England and Wales. It also investigates serious complaints against HM Revenue and Customs the Serious Organised Crime Agency and the UK Border Agency staff exercising police-like powers.

The contract with Steria contributes to the IPCC's wider change programme. It involves a restructure and is enabling the IPCC to build flexibility and efficiency to meet future challenges against limited resources.

IPCC Chief Executive Jane Furniss says, "The new contract with Steria provides us with modern ICT and critical business systems. These are crucial to the ongoing restructuring and development of the organisation and will underpin the work being done to provide greater frontline resources. In future as we develop and respond to new challenges the ICT infrastructure will give us the ability to provide the public with a more transparent and accessible complaints system."

The IT Operations Service of the Dutch Ministry of Agriculture, Nature and Food Quality has chosen Capgemini as its partner in an office automation initiative, in a five year contract worth 50 million euros.

Capgemini will be responsible for 9,000 workstations belonging to both the core department and the Ministry’s operational services. Capgemini will also manage the automation of the central networking and server infrastructure.

The core element of the technology Capgemini is offering is a ‘virtual desktop’, enabling a high degree of mobility and flexibility for the Dutch Ministry of Agriculture’s workforce. The ‘virtual desktop’ environment is delivered from Capgemini’s data centre, located in Amsterdam, to the most appropriate device, depending on each employee’s requirements (e.g. laptop, desktop, PDA or other device).

IT leaders are looking inwards as they seek new ways to deliver value amidst the recession, according to new research commissioned by Fujitsu Technology Solutions. The report, entitled “Dynamic Infrastructures and the Future of IT” explores the need for improved customer service as a differentiator amidst the recession.

More than half of the respondents (57 percent) prioritised the improvement of service levels when it comes to their investment in new technology. However, there is evidence that this focus will be on internal customers just as much as those outside the organisation.

53 percent of respondents expressed a desire to be proactive and change the way that IT is recognised within their organisation. Just over a half (51 percent) said that IT has improved internal communication in a bid to improve competitive advantage.

When asked how IT will contribute to business success, increased productivity and lower operating cost were the two top benefits identified. “This is the latest variation on the model of doing more with less,” commented Paul Parrish, UK managing director, Fujitsu. “As the recession puts pressure on all business departments to improve the bottom line, IT leaders are naturally looking for savings. However it is clear that many CIOs and IT directors are looking to see how technology can add value without going outside the castle walls of their business.”

“The real challenge lies in delivering these services, throughout an organisation, within tough budget constraints. Outsourcing management of the IT infrastructure is a strong start to delivering the level of service needed in a cost-effective manner.”

Tesco used to be the place where you bought your groceries, but now you can also get furniture; insurance; a credit card and a mobile phone connection. In fact, pretty much everything you need to run a home. Consumers got accustomed to this change extremely quickly and saw the benefit of buying everything in one place.

In the same way, ISPs are evolving from carriers to the people that host and deliver business applications. They are now equipped to provide the gamut of business services in the cloud, such as; Web connectivity, network infrastructure, email, archiving, document management, security, unified communications, CRM and business intelligence. In fact, pretty much everything you need to run a business.

This evolution of ISP to cloud computing provider provides CIOs with a great opportunity to tap into the strategic benefits of running IT off premise so that they can focus on business growth. Cloud computing is enabling CIOs to become strategic business advisors rather than the guy in the basement who deals with servers and cables.

Gartner analyst Daryl C Plummer has identified three trends that are shaping the relationship between end users of IT services and vendors. These trends

are:

Standardisation and commoditisation of technologies . The rise of service oriented software architecture and virtualisation . The ubiquitous use of the Internet Now that more software, platforms and infrastructure are being accessed through cloud computing, ISPs are evolving from infrastructure providers, to effectively an outsourcing organisation. As a result, the entire value chain is being fundamentally changed and businesses are sometimes confused about whether to approach their ISP, software vendor or a reseller when sourcing new technology.

At Star we have seen a clear migration path from in-house IT to cloud based consumption. In 2000 companies bought into the cloud for basic connectivity and additional storage and back up infrastructure. In 2003, hygiene services such as anti spam and anti virus were moved out of the server room and into the cloud. Now Gartner predicts that we'll see an enormous growth in business email sourced from the cloud, from 1 per cent in 2008 to 20 per cent by 2011. From 2010 to 2014 more companies will source all of their business applications this way.

The new CIO now spends more of his time managing supplier relationships rather than the day-to-day technology. A key relationship is with their value added reseller (VAR). This will become more important as services are consumed from the cloud because specialist resellers can provide the professional services to help customise on-demand services such as CRM, business intelligence tools and Microsoft Exchange. VARs will probably have already helped businesses to set up their VoIP and email, remote working facilities, IT security and disaster recovery services. That relationship and trust is likely to be strengthened as the value chain evolves.

Last week, I read an interesting article in the Financial Times, in which Infosys chief executive Kris Gopalakrishnan discusses the threats and opportunities that established outsourcing providers face from cloud computing. “The slowdown has forced companies to look at cloud computing seriously," he says. "It is a change that is happening and if we are not adapting to that change, we may get caught out.” At the same time, he adds, he and his team are exploring cloud computing as an opportunity to tap into a much wider market for its services, consisting of the many small and medium-sized businesses that don't have the financial resources to engage with a company like Infosys.

That got me thinking: what IS the difference between outsourcing and cloud computing, anyway? How does a company likes salesforce.com differ from a provider of outsourced customer service applications, if at all? And bearing in mind that cloud computing is rapidly maturing to embrace software development and infrastructure provision, as well as software-as-a-service (SaaS), can we continue to draw meaningful distinctions between the two?

The more I think about these questions, the more confused I get. To my mind, cloud computing describes an approach whereby IT resources (physical servers, databases, middleware, applications and so on) are provided as a service over the Internet, on an on-demand basis. In effect, cloud computing IS outsourcing - or is it?

At least I'm not alone. Recent research from market analyst firm Ovum says that many enterprise customers remain in the dark as to a robust definition of cloud computing. But service providers continue to invest in this technology at an impressive pace, because for them - traditional services players, outsourcing companies and telecom/network operators offering enterprise-class services - the evolution of the cloud computing market can bring distinct opportunities and challenges, according to Ovum analyst John Madden.

“However one views the cloud market, service providers want to remain active participants in the evolution of cloud services,” he says. “Even if the hype level in cloud computing remains high, providers fear that not talking about cloud as part of their services portfolio could lead to customers viewing them as also-rans in this evolving market,” he adds.

I'm going to give the matter more thought in the coming week and would like to invite you to submit any ideas to me, at jessica@sourcingfocus.com. What's the difference between cloud computing and traditional outsourcing, and what's the likely impact of the former on the latter? I'll come back to you with my findings soon.