Industry news

Luxoft, a global provider of high-end IT outsourcing, has acquired ITC Networks (ITCN), a leading Romanian software outsourcing provider specializing in the telecommunications industry.

The deal, announced today, will create a combined entity of more then 3000 employees worldwide and an annual revenue of over £75 million.

Luxoft hopes the move will increase the company's global footprint and delivery capability within the European Union while helping to strengthen Luxoft's expertise in the telecom industry.

"This acquisition is another step in Luxoft's growth and strengthening of the company's global presence," said Dmitry Loschinin, President and CEO, Luxoft. "The tremendous telecoms aptitude of the combined team, prominent European Union location and shared commitment to engineering excellence will serve Luxoft, its clients and ITC Networks' clients well for years to come."

Through the deal Luxoft will inherit ITCN existing client portfolio such as Nortel Networks, Avaya and Trapeze Networks.

The acquisition follows a recent announcement by Luxoft that it is also developing a delivery capability in Vietnam.

The fiscal value of the deal has not been disclosed.

To an interesting lunch meeting about sustainability with business intelligence and predictive analytics company SAS. The subject was whether many companies' environmental agendas are just the proverbial 'greenwash', or driven by a genuine commitment.

I've heard the word 'greenwash' several times this week – notably last night in the polemical, Dan Brown-esque TV thriller Burn Up. On that occasion it was uttered by implausible oil man Rupert Penry Jones – shortly before (quite literally) leaping into bed with the green movement in a bid to save the world via transatlantic coitus. But I digress.

The point still stands, however (no pun intended): to what extent is the green agenda driven by shareholders and the bottom line (being seen to be green is good for business) or by a genuine will to be less profligate with carbon? We may be made of the stuff, but many believe it will unmake us before you can say “corporate social responsibility”. (SAS is a private company, so its own bottom line is hard to fathom.)

This was the moral dilemma embodied on TV by Mr Penry Jones, who in such dramas is rarely troubled by clothes, rather like the Emperor of lore.

For SAS, the Emperor's new clothes are real enough: it seems genuine about its internal quest to be green, even going so far as to work with Reading University to design a water turbine to power the company's offices near the Thames.

(This is a great idea – the Thames being a vein of motive power running through one of the world's great cities – but, alas, planning permission apparently stands in the way.)

Richard Kellett, SAS head of solutions and technology marketing talked at length and with passion about the company's environmental credentials.

These seem deeply embedded within the company, despite CEO Dr. Jim Goodnight's tendency to take private jets (SAS owns several) to and from conferences, while his staff travel on commercial airliners. Perhaps Goodnight is living the Bond fantasy suggested by his name, and does not go gently into green issues.

In some ways, SAS' passionate and committed Kellett embodies the dilemma of many large companies dipping a toe into the waters of sustainability: his is a marketing role, as many green spokespeople's are within the IT industry, and this makes some wonder whether sustainability should be part of a sales pitch.

On the other hand, it inevitably is, and with many CIOs and board-level executives looking to third-party IT providers for guidance, it's the marketing strategists who carry thought leadership messages far and wide.

Over a lunch so extensive as to be barely sustainable, Kellett said he believed that people have been taking what he called an “outside view” of sustainability for too long – a view borne of pressure groups and campaigners – and that the real answer was an “inside out” approach to stand any chance of achieving change.

Personally, I doubt whether we would have been having the conversation without several decades' worth of environmental activism, but he is right that it is now up to companies to put it on the board's agenda as soon as possible.

This is particularly true in a week that has seen the Government's own green credentials turn a distinct shade of Brown as it seeks to water down EU directives concerning sustainable energy and the national grid.

But the elephant in the room of sustainability is an Indian one, with China not far behind it. In the West we can hardly tell Asia not to become the economic hotspot of the 21st century, but the environmental impact can at least be planned for.

As I mentioned in my blog last week, 300 million rural Chinese will shift to urban environments over the next decade or two, partly to satisfy the burgeoning economy's need for IT and business skills, plus outsourcing expertise.

Perhaps it may indeed fall on large corporations to push the sustainability message and the green agenda, as it is clear governments cannot be trusted to do it themselves.

With the IT industry producing some two percent of all global carbon emissions – a figure Kellett suggested will soon double – it is certainly true that the IT industry is best placed to clear up its own mess.

Another day, another problem besetting the troubled NHS programme for IT – once Tony Blair's beacon of British modernity, now something of a flickering low-energy bulb in our gloomy, Brown-hued times.

An NHS trust serving half a million acute patients has announced that it is pulling out of the Cerner Millennium electronic care record system because it has lost confidence in the project.

And why the sudden change of heart (if you'll pardon the expression) at The Royal United Hospital Bath Trust (RUH)? The departure of southern area programme provider Fujitsu, said a spokeswoman.

Authorities are now trying to decide whether Bath will source its own provider to implement the system when Fujitsu finally quits in November, or use other MPfIT providers BT or CSC.

Either decision would inevitably cause delays and complications: as the spokeswoman admitted, independently sourcing a provider would mean funding the project locally. That is not the most PR-friendly of announcements for such a Trust to make at any time, let alone in a downturn that may tip into a year-end recession. Using another programme provider would confuse the national picture.

The RUH spokeswoman said: "Following the termination of the contract between the NHS and Fujitsu, and subsequent meetings between the trust, Fujitsu, Cerner and Connecting for Health, the assessment of the RUH trust board was that it did not have sufficient confidence in the level of support that it would receive from the suppliers, at and beyond the go-live period, to proceed with the implementation of Millennium."

Of course, what she was really saying is this: customers' good relationships with their suppliers are at the core of large outsourcing projects, and are essential to make them work. If a supplier is forced out of a deal because the goalposts are constantly being moved by the government, then that has an all-too-human impact at the point where the service is supplied.

Whitehall needs to understand that the NPfIT is yet more proof that such projects must be about people and relationships if they are to work.

They are not about screwing every last penny out of some faceless service drone who does not have the good fortune to be a management consultant with a blank cheque from Downing Street.

The web, one of the most powerful tools for both promoting and undermining a company’s valuable corporate assets - brand and reputation, has also changed the entire nature of protecting them.  In a new report, ‘Brand protection services’, global advisory and consulting firm Ovum says the task will become even more challenging as Web 2.0 technology spreads. It points out that policy makers have yet to balance the legitimate concerns of organisations with respect for freedom of speech and truthful debate and organisations have to be proactive in protecting their online reputations.

“The fundamental problem is that there is no quality control of content on the Internet.” says Graham Titterington, Principle Analyst and information security specialist at Ovum and author of the report. “The corporate mindset has been slow to adapt to the changing world. New techniques are needed to detect attacks and defend reputation in the online world, even when the remedy requires conventional legal action.”

The Internet is now a major channel for the sale of fake branded goods, which in some cases results in danger to the customer. Copyright and trademark infringement are commonplace. Businesses have suffered real damage as a result of false allegations spread on the Internet. The annual revenue of online counterfeiting fraudsters has been estimated at $110 bn (source MarkMonitor).

Another aspect of online counterfeiting is represented by the misuse of a web domain name. The attacker sets up a website with a similar name to that of a legitimate organisation with the deliberate intention of deceiving visitors. It extends to virtual services offered by fraudsters on the Web purporting to be the legitimate organisation. The issue will become more prominent as the Web becomes more interactive.

A niche group of service providers has grown up to monitor the Internet for these offences and initiate enforcement action both at the ISP level and in the physical world. “For example MarkMonitor is a niche vendor offering services in domain management, online trademark protection, online channel monitoring, and anti-phishing. Larger IT vendors also offer protection services, such as IBM’s COBRA alerting service.”

However, according to Ovum countering bad publicity needs a more subtle approach. Debate has to be matched by a positive involvement in online discussion forums. The wider issues of reputation abuse need to be tackled by a combination of prevention, detection and reaction. The first stage in protection is the registration of trademarks, domain names and intellectual property. Web monitoring can detect early stages in the development of an attack strategy. More detailed detection requires the co-operation of ISPs in identifying the use of specific IP addresses and their ownership. Reaction includes, forensic analysis, the issuing of legal notices and follow up action, and the closure of web sites and IP addresses that are engaging in illegal activity.

The BPO market has been impacted by the credit crunch with a decline in contract signings as organizations rethink their business and sourcing strategies, according to a new report from NelsonHall.

The "BPO Index" market monitor for June 2008 released today found that while the value of global BPO contract signings in the commercial and civil government sectors increased by 29% in H2 2007, BPO technology crossover ventures (TCV) increased by just two per cent in H1 2008.

The report also found a downturn pattern in BPO contract activity taking place in Q2 2008 and a quarter-on-quarter decrease in global BPO TCV between Q1 2008 and Q2 2008 of approximately 8%. The effect of this has been to make Q2 2008 the lowest for global BPO TCV since 2003.

In a statement issued by the firm, it said: “This single quarter may not be the start of a trend but there are signs of a short-term pause in activity while organizations reappraise their longer-term plans. The broad conclusion seems to be that the market is in a pause before the storm with organizations reappraising both their broader business strategies and sourcing strategies in the light of the current economic reality. This will almost certainly lead to an increase in BPO contract activity in the future and mean that organizations need to be more ambitious and transformational in their sourcing strategies, though looking for a rapid return from these strategies.

On a positive note the report found that the pattern of back-office outsourcing has changed with F&A outsourcing coming into its own and growing strongly in both North America and Europe. This has been driven by the increasing need of F&A support in emerging geographies such as Latin America. At the same time, single service activity in HR outsourcing remained strong.

Organisations are increasingly building and utilising complex services supply chains to lower costs and address the emerging opportunities and perceived threats of Globalisation, according to EquaTerra’s Advisor and BPO/ITO Service Provider Pulse Survey 2Q08.

The 2Q08 Pulse Survey, a survey of top outsourcing service providers and EquaTerra’s own client-facing advisors provides data on current and projected demand for outsourcing worldwide, plus a unique insight into the impact ongoing Globalisation is expected to have on outsourcing.

“Services supply chains have steadily become both more diverse and more widely distributed, with large organisations forming hundreds of different relationships with hundreds of different service providers worldwide,” says Stan Lepeak, managing director of research for EquaTerra. “Ongoing Globalisation is accelerating that process and adding new layers of complexity.” The 2Q08 Pulse Survey looks at some of the challenges relative to these expanding services supply chains.

Most organisations don’t yet do a good job of arranging relationships with services providers. EquaTerra finds buyers’ overall skills at developing quality outsourcing business cases are mediocre, particularly when it comes to assessing total costs to achieve desired improvements from outsourcing and attendant indirect or shadow costs.

Respondents to the 2Q08 Pulse Survey believe the two most useful metrics for building a solid outsourcing business case are current performance levels (75 per cent) and current direct costs (74 per cent), yet the survey finds many buyers don’t accurately capture even these most important measurements. The ability to optimise and manage global services supply chains on the backend is proving equally challenging.

2Q08 Pulse Survey respondents rate buyers as poor to mediocre across a variety of governance activities, including their ability to measure service level agreements (SLAs) and end-user satisfaction. While these problems are not new, they are exacerbated as organisations do more global sourcing.

Creating complex services supply chains is intrinsic to Globalisation and struggles to develop the tools and skills needed to manage them is to be expected, according to Lepeak. “It took decades for manufacturing supply chains to mature. Now, organisations are steadily migrating from those vertical integration models to horizontal specialisation.”

The 2Q08 Pulse Survey indicates there is accelerating interest in outsourcing’s flexible cost and operating models as Western organisations seek ways to weather the economic downturn and counter lower-cost global competition. The 2Q08 Pulse Survey focus on Globalisation draws on data collected in an earlier study conducted by the Economist Intelligence Unit on behalf of EquaTerra and World 50, which polled more than 200 C-level and other senior executives from 19 industry groups worldwide about the benefits and challenges of Globalisation. In that study, more than 54 per cent of respondents reported the number one response to Globalisation was a greater emphasis on improving business process efficiency and effectiveness.

Almost half, 47 per cent, said their firms were investing in new or existing operations in foreign markets, including third-party outsourcing relationships and the establishment of captive offshore operations. Many, 35 per cent, said they were also investing in IT applications to become more competitive and reduce costs. EquaTerra increasingly sees Western organisations tapping the robust IT talent pool found in emerging markets and turning to IT outsourcing as a way to upgrade and expand IT capabilities without upfront capital investment.Additionally, the survey findings show that:

• Demand for business process and IT outsourcing (BPO and ITO) is expected to exceed 2006 and 2007 levels. Pulse Survey demand projections and pipeline forecasts are indicative of deals that typically close over the next two to three quarters. EquaTerra advisors (38 per cent) indicated demand levels were up for 2Q08, down 12 per cent from 1Q08 but up eight per cent over 2Q07.

• Service providers characterised their Q2 pipeline for BPO and ITO deals as rising 10 per cent to 52 per cent, a 14 per cent increase over last quarter. Projections for next quarter are only slightly less optimistic, with 45 per cent of providers polled expecting continued growth in demand, down from 50 per cent last quarter. Outsourcing efforts with short-term return on investment or that deliver quick cost savings are going forward, often at an accelerated pace. Not surprisingly, efforts focused on complex process transformation or that require significant upfront investment are more likely to be slowed or on hold.

• Demand and supply increased for emerging knowledge process outsourcing functions such as engineering, research and development, financial modeling and analytics, legal process work. There was also growth in areas like document services, facilities and real estate management and logistics services.

EquaTerra estimates there were more than 150 outsourcing deals in 2Q08 with an average total contract value (TCV) of $270 million. This compares to 120 deals in 1Q08 with an average TCV of $120 million. These numbers exclude deals not publicly announced or announced without publishing deal details.

Find out more about the pace of ITO and BPO and how Globalisation is impacting outsourcing by participating in EquaTerra’s 2Q08 Pulse Webcast Thursday, July 24, at 11 a.m. EDT USA/4 p.m. BST EU. To register, please contact Allison.Norman@equaterra.com. Free copies of the 2Q08 Pulse report will be available for download immediately following the Webcast from: http://www.equaterra.com/webcast072408.aspx

Tyre manufacturer Michelin has signed off on a three-year contract with ITO provider, Logica for the provision of systems development and IT consulting services.

Logica will handle IT services for the company across its Finance and Purchase Reporting Group, supply chain management, marketing and sales (CRM) across Europe and North America.

Michelin hopes the new deal will deliver enhanced operating efficiency and more responsive, flexible information systems whilst driving cost and quality efficiency. 

Logica will implement the deal using a blended delivery model which allocates the optimal IT resources from its global service centres.

Kent County Council, one of the largest local authorities in the UK, has awarded Unisys an ITO contract worth approximately £32 million.

Under the terms of the agreement, initially lasting until late 2012, Unisys will create and manage a public information network and security service for the Council.

The contract, signed for an initial four years, forms part of the ongoing shared services initiative that has been spreading across the public sector since late 2006. It is hoped that the new system will enable cost-effective communications and collaboration among local government agencies, while providing new information services to residents.

The network will initially connect approximately 1,100 public sector establishments, including schools, council offices and libraries. The extra bandwidth the network provides will also mean that many primary schools’ capacity for internet access will double and there will be improved capabilities to support home, flexible and remote working within the county. The network will also be available to all public service bodies within the Kent boundaries wishing to join the alliance.

Paul Carter, leader of Kent County Council, said: “We expect that the benefits the network will bring in terms of collaboration, governmental linkage and common shared infrastructure will in turn result in enhanced public services for the people of Kent”.

Banco Espírito Santo (BES), one of the major financial groups in Portugal has awarded IBM a seven-year outsourcing deal for the management of the bank's IT infrastructure.

As part of the agreement, IBM will manage the entire BES server infrastructure in Portugal including administration, management and operation of the midrange infrastructure.

The agreement forms part of an ongoing BES' strategy to improve its IT efficiency, as well as management processes, elevating service quality and assuring products and processes innovation.

The deal, signed in June 2008, expands the scope of a previous contract signed in 2006.

South Tyneside Council has signed a 10-year outsourcing deal with BT for the provision of back-office IT services.

The contract, estimated to be worth around £300m, covers the human resources, procurement and financial services functions of the authority. It is thought that the deal could lead to provision of similar services to other councils across the UK in the future.

As a result of the contact 450 South Tyneside Council employees will move to the new BT local government services division.