Industry news

The government's National Programme for IT initiative to computerise all patient records nationally suffered another blow as the £896 million NHS contract with Fujitsu was terminated earlier today.

Connecting for Health's talks with Fujitsu to revise contract terms in favour of greater flexibility failed. Fujitsu had held out for more money or a return to the original terms.

Fujitsu clinched the 10-year deal for installing the programme in the south of England in 2004, but renegotiation talks began in July 2007. Severance of the deal could cost the Japanese electronics company some £300 million.

The overall NHS project has been dogged by controversy, delays, overspending and security fears, along with criticism that it is fundamentally misconceived. The programme was one of the foundation stones of former prime minister Tony Blair's quest for modernity in government. In practice, this and other public-sector programmes have demonstrated that government and large-scale technology project management are rarely natural bedfellows.

A spokeswoman for NHS Connecting for Health said: "Regrettably and despite best efforts by all parties, it has not been possible to reach an agreement on the core Fujitsu contract that is acceptable to all parties. The NHS will therefore end the contract early by issuing a termination notice.”

Fujitsu is the second IT firm to leave the project. In 2006 Accenture – which was responsible for the north and north east England components of the project – walked away from parts of the programme.

Indian telco Reliance Globalcom is to pay $76.9 million for the UK's virtual network operator Vanco, which sourcingfocus.com reported recently has been in financial difficulties and had lost its founding CEO.

Reliance says that the deal is part of a strategy of increasing its share of the international telecoms market. Vanco will provide Reliance with a European enterprise arm, with an established base in the UK, France, Germany and the US.

• However, sourcingfocus.com believes that Vanco's real asset remains its detailed technical map of the world's telecoms infrastructure, which would offer a logical foundation for consultancy services, especially to the world's emerging economies.

Last week's European Outsourcing Association (EOA) conference in London provided a real insight into how the industry is thinking about itself as economic woes bed in after ten years of life on credit.

Delegates from the UK, Europe, China and the US, and from a range of companies, including media, broadcasting, finance and legal services mixed with outsourcing suppliers in interactive sessions that explored the future of the industry in Europe.

Asked if their company had suffered any negative effects from the credit crunch, over one-third (36%) said yes. A similar figure reported contract negotiations being suspended, while 39% said that budgets were being restricted and eight percent reported terminated contracts. BPO contracts were being affected the most, said 78% of delegates.

By contrast, 24% said the downturn promised greater opportunities to outsource. Sixty-four percent believed the credit crunch was a significant opportunity for the industry, most notably in terms of offshoring, while 59% predicted that global outsourcing will rise over the next five years.

First and foremost this was a European event, of course, and the view from the floor was that outsourcing is becoming an accepted strategy in formerly 'culturally opposed' countries. such as France and Germany, while many saw the possibility of brand-name services arising out of Eastern Europe.

Fifty-nine percent of delegates believed that recent EU entrants Romania and Bulgaria have become more attractive to work with since joining the community.

Asked for their thoughts on the Lisbon Strategy for making the EU the knowledge centre of the world – due to be renewed in just over a year – 32% of delegates (the largest voting bloc) said “We manage to earn a living despite the EU, not thanks to the commissioners”.

In a bear market, the Russian bear – as it so often is – was a divisive issue. Thirty-nine percent of delegates believed Russia is an important part of the European outsourcing picture, while 52% did not even consider it relevant.

Still looking East, just 17% of delegates thought that Indian providers are leaps and bonds ahead of other regions. That said, three-quarters of delegates said that Indian players will inevitably acquire European or American providers.

Talking of acquisitions, the elephant in the room was HP. Unfortunately, just 23% of the conference thought the EDS deal was good news for either HP or EDS customers.

• Apologies for my recent absence from this blog due to a dose of flu. Fully recovered, next week I shall be speaking at the Gartner outsourcing conference in London. I look forward to meeting and talking with you there.

Centro, the executive arm of the body responsible for public transport in the West Midlands, has partnered with Logica to develop the largest smartcard travel scheme outside of London.

The initial phase of the deal saw Logica develop and deliver 430,000 National Concessionary Passes for the over 60s and blind and disabled people in the West Midlands region. The system, which has now gone live, allows one in six people living in the West Midlands to use the bus anywhere in England for free.

Built upon smartcard technology, the passes can integrate with technology on many UK busses and will soon allow people to swipe on and off over 2,600 buses from over 50 depots in the region, as well as trains and trams.

Geoff Inskip, Chief Executive of Centro said: “We were delighted to appoint Logica, who provide us with the detailed knowledge and experience in transport technology and smart retailing we need to provide passengers with a smart transport system in the West Midlands.”

The cards were issued across the country as part of a Government scheme - the new English National Concessionary Transport Scheme (ENCTS). After the initial success, Centro and Logica will continue to work together to develop the remaining part of the programme which will go live during 2009.

UNAT DIRECT Insurance Management Limited, a wholly-owned subsidiary of American International Group Inc (AIG), has been fined £640,000 by the FSA for failures in due dilligence regarding the appointment and operation of nine of its call centres.

While UNAT did implement procedures to check their call centres’ compliance with the FSA, the firm failed to prevent them from selling to consumers before the full due diligence process had been completed. The FSA also stated that senior management were not fully appraised of the call centres’ ability to properly sell insurance projects.

In one case mentioned by the FSA, UNAT had not completed its due diligence over 250 days after the call centre had begun selling whereas another call centre sold 4,000 insurance policies when it was not authorised by the FSA to do so.

Margaret Cole, Director of Enforcement at the FSA, said: "Selling general insurance products to consumers through call centres involves greater risk. UNAT was aware of the higher risk but failed to carry out proper checks on the call centres it used. UNAT's failure to have effective control over its due diligence process exposed customers who bought policies from the call centres to an unacceptable level of risk that they would not be treated fairly. The FSA will impose significant fines on general insurance firms whose management of call centre risks falls below acceptable standards."

UNAT ceased all sales of general insurance through call centres on 22 March 2007 pending the outcome of the FSA review. According to the FSA UNAT has now improved its systems and controls following the recommendations in the review and is working with the FSA to ensure that no customer has suffered loss by putting in place a comprehensive restitution package.

A report from the NAO has slammed Department for Transport (DfT) shared services initiatives, branding initial department plans to be ‘unrealistic’ and ‘over optimistic’.

The report looked into DfT plans made in 2005 to implement a comprehensive shared services arrangement between the Driver and Vehicle Licensing Agency, Driving Standards Agency. Initial plans projected savings of £112.4m with a set-up cost of £55.4 million.

However, the report stated that: “Inadequate contract management and poor initial implementation of the Programme have meant that the Programme as originally envisaged will not achieve value for money”. The failings mentioned in the report elevated costs profoundly which the NAO expect to reach £121.2m in 2008 achieving savings of just £40.1m by March 2015.

IBM was named as the principal supplier in the deal but appears to have played little part in any of the failings that took place. The report blamed the DfT for ‘insufficient management’ and ‘poor specification of requirements’ in its dealings with the ITO giant.

Accenture has expanded its worldwide reach with the opening of a new delivery centre in Mexico.

Sharing the same methodologies, tools and architectures that Accenture uses across its Global Delivery Network, Accenture will use the new site to complement and extend its ongoing relationships in North America.

The move marks Accenture’s second foray into Mexico after it set up in Mexico City in 2004. Accenture now has six delivery centres across Central and South America in Mexico, Brazil and Argentina bringing the total number of delivery centres in Accenture’s Global Delivery Network to 51.

“The ability to serve the needs of our clients using a global capability is a key feature of Accenture’s global sourcing approach,” said Keith Haviland, senior managing director, Delivery Centre Network for Technology. “We bring together the right mix of people, skills and common standards to provide our clients with price-competitive and cost-effective solutions and services. Our global network offers the flexibility of multiple locations for the integrated delivery of services to clients.”

The move takes Accenture’s global staff to 76,000 across more than 50 delivery centres worldwide.

Centrica, the utilities group and parent company of British Gas, has awarded Fujitsu Services a £2.1 million IT outsourcing contract.

The new three-year contract will see Fujitsu manage a portfolio of applications supporting British Gas’s residential and business customers. Under the terms of the contract Fujitsu will provide 365x24 application maintenance and support services.

Fujitsu plans to use its bespoke portfolio management approach to optimise Centrica’s legacy and future applications portfolio. Centrica expects the deal to reduce their application maintenance costs by 50%.

Neil Coop, senior commercial manager, Centrica, says, “We are delighted to have appointed Fujitsu to continue to help us modernise our legacy systems using its extensive skills and resources in application management and development.”

The agreement comes as part of the latest chapter in a 30 year history in supporting Centrica and enhancing its IT systems.

Apple's iPhone has reignited the debate over consumerisation - when new technologies are introduced into the consumer market and then brought into the enterprise market - with employees determined to integrate their personal devices with their enterprise applications. However, IT managers are reluctant to take on the responsibility of managing these devices.

This is according to a new report by Datamonitor. The report Enterprise Mobility: Trend Analysis to 2012, predicts global enterprise expenditure on mobile devices will grow from $6 billion in 2008 to an estimated $17 billion by 2012, which highlights the need for IT managers to begin to implement mobile device policies as ever more enterprises look to expand their mobile workforces. "Enterprises are fighting a losing battle against employees when it comes to mobile devices and they should consider supporting a limited selection of devices rather than banning them outright", says Daniel Okubo, technology analyst with Datamonitor and the report's author. "Allowing a range of the most popular devices will improve employee satisfaction and encourage more of them to embrace mobile devices and improve their productivity when away from the office." Enterprises are understandably concerned about ensuring the security of their data. In a survey conducted by Datamonitor to establish issues that are currently preventing enterprises from investing in mobility solutions, the majority of the 467 respondents rated security as the greatest barrier to adoption of mobility solutions. Traditionally enterprises have allocated devices, such as the Blackberry, to employees to enable them to check their email and be responsive when they are away from the office. However, as other mobile devices like the iPhone are increasingly popular among end users, enterprises are finding that employees want to be able to integrate their personal device with their corporate email account and other applications. For many people their mobile device is a personal thing which they want to customise and keep on their person. They do not want one device for personal use and an IT issued device for work. So far very few IT departments have yielded to these requests and are refusing to be responsible for managing such a wide variety of mobile devices. However, the iPhone has set a new standard for device usability and the trend of consumerisation is going to continue. "There is an element of fear of the unknown," says Okubo. "Enterprises question how security will be managed and whether mobility technologies will fit into their current IT infrastructure. Technology vendors have a role to play by properly addressing enterprise pain points." The key issue is that regardless of device, IT managers need to ensure they have a clear policy on mobile devices and at least the basic security capabilities to lock devices remotely, wipe them back to their factory setting and block certain applications being loaded. Employees must be made aware that it is important to report lost or stolen devices immediately, and they should not use their mobile devices to transfer sensitive company data. Carriers such as Vodafone have started realising the problems that many enterprises face in managing devices and have started offering hosted device management solutions. This means that if an employee loses their phone they can call their operator and they will wipe or lock it. Similarly if their phone is broken they can contact their operator who can remotely diagnose and fix their device and install updates. IT managers should ensure they have these capabilities either through traditional security vendors such as Sybase or for smaller enterprises, perhaps a hosted solution from a carrier is more efficient. Okubo concludes: "As more enterprises look to expand their mobile workforces and equip their employees with mobile devices, the issue of device management is going to become increasingly important. The popularity of mobile devices in the consumer markets is forcing enterprises to consider how best to manage these devices in the workplace and they need to ensure they have clear policies in place to manage employee expectations."

CSC has announced its fourth quarter results. Revenues were $4.48 billion, up 11% (or 7% on a constant currency basis). Its fourth quarter EBIT margin was 9.2%, compared to 9.5% in the same quarter last year. CSC signed major contracts worth $2.5 billion in the quarter, which took its total for FY08 to $13.3 billion.

Ovum analyst Phil Codling said: "This was a solid financial performance from CSC to round off a solid year. For FY08 as a whole, the revenue growth metrics were the same as for the quarter (i.e. 11% topline growth, 7% in constant currency). However, if we take out the c$500 million that CSC's acquisitions contributed to FY08 revenues, organic growth looks more like four percent. That is, nonetheless, an improvement on the flat performance we saw in FY07, a fact that reflects contract revenue timings and better execution from CSC, rather than any pick-up in the market more generally.

"CSC's deal signing performance raises some question marks, however. The sum of $13.3 billion in total contract value for the year is down on the $16.9 billion bagged in FY07. Bear in mind that $11.2 billion of the FY08 signings came from the public sector, which means just $2.1 billion came from CSC's global commercial interests. CSC says some signings have slipped into FY09 and reports a reasonable start to the year, but the low level of major commercial signings is undoubtedly a weakness the company needs to address.

"In attempting to do this, it faces a tough market environment with few new opportunities for the kinds of big wins that have traditionally underpinned CSC's outsourcing business. That said, a number of developments at CSC should give the company a chance of improving its position. Not least, its acquisition of Covansys last year means it now has a 15,000-strong workforce in India, a vital resource for competing effectively in the commercial sector in both North America and Europe. Secondly, under its 'Project Accelerate' strategy, the company has begun to align itself under targeted vertical markets which, in the private sector, should give it a better focus in financial services and manufacturing in particular. Finally, CSC is also focusing attention on what it terms 'mid-sized' deals (i.e. those typically $50-350 million in value) and appears to be gaining some traction here as the outsourcing market continues to fragment.

"There is also a positive sign in the fourth quarter numbers that CSC can do better in the commercial sector. Global commercial revenues actually counterbalanced a flatter quarterly performance in the federal sector with an impressive 16% top-line growth (or 11% in constant currency) to $3.0 billion. CSC's improved and expanded consulting and projects capability accounts for much of this growth, not least in Europe (where the company's performance has remained significantly better than in FY07).

"Overall, CSC is right to be aiming a little higher in the coming year (with a projection of 5-7% organic growth), particularly as CEO Mike Laphen appears to think he can capitalise on a likely wobble at major competitor EDS as it undergoes its integration with HP. (Whether such a wobble occurs is of course in the hands of EDS, HP, their partners and their customers, not CSC, but we acknowledge that it's a possibility.) The last two years have seen CSC put some key strategic pieces in place to improve its performance. Having restructured and refocused the business, it's now time to show that CSC really can accelerate. And in a competitive landscape that is about to be shaken up by the merger of HP and EDS, CSC needs to make it clear that it provides customers with a long-term alternative to its much larger competitors."