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'India Inc' is moving from services to innovation, and both it and China are becoming world intellectual property (IP) hubs, believes Prof. Phanish Puranam of the London Business School. According to Puranam, if research and development can be done in a distributed, outsourced environment, then there is no limit to what can be delivered offshore.

The global IP picture is changing, and measuring “innovation as an outcome” is something that can now be quantified and explored in a statistical model, the professor told delegates at the FT Outsourcing conference this week.

So do the facts support this claim? Today, China and India account for two percent of the world's IP activity, and that figure will soon increase to five percent – arguably low for countries representing perhaps 20% of the world's population.

That said, the picture is, of course, massively distorted by the 'elephant in the room' of the rampaging US patent machine. So the fact that Indian inventors, designers and engineers are developing and registering so many patents, whether for domestic or international companies, is a significant and encouraging development. Dozens of US companies now figure strongly in the client list for India Inc's innovation, including IBM, HP, Texas Instruments, GE, and Intel.

Nearly every patent that has come out of India in the past five years has been in such lucrative areas as organic chemistry, IT, pharmaceuticals, and telecoms, said Puranam, and these are often developed locally with global cooperation – what he called “the globalisation of knowledge production”.

Unsurprisingly, the picture in China is different: domestic firms are dominant in Chinese patenting activity, and in areas that complement their Indian counterparts. However, Puranam claimed that Indian patents have greater impacts relative to Chinese work in terms of forward citations – a claim that may itself be distorted by India's more open outlook to, and cooperation with, the West.

So how does distributed knowledge work happen in terms of R&D? Puranam discussed research carried out by the London Business School across 17 firms and 120 projects, saying that the fundamentals are the same whether you are looking at call centres or high-end knowledge process outsourcing (KPO).

One model is so-called 'black boxing', where companies partition work into independent modules that can operate intensively with very little interaction, reducing the need for coordination – by implication, a hothousing approach. Puranam was critical of this model for many types of work: “You can't really run an assembly line model with creative work,” he said.

The other, more effective strategy, said Puranam, is rooted in strong communication, where the main driver is not technology, but common knowledge and a shared mindset.

Certainly this year's conference seemed to showcase a dialogue between two – unshared – mindsets: first, technology solutions solving technology problems (minus the hard evidence of their efficacy for human beings) versus a softer, more people-focused approach (which seemed, paradoxically, to be more grounded in fact and technological innovation). Needless to say, it is the latter that tends to suffer in a recession; a lesson our industry sometimes signally fails to learn.

Puranam's presentation was one of the most interesting and challenging ones from the conference platform, but it did beg a question in this delegate's eyes: if something as core as research and development to any (traditional) business is joining the ranks of manufacturing, customer service, back-office processes, marketing, communications, technology infrastructure management, knowledge process outsourcing, and applications development as a potentially offshored, third-party function, then what will the client company of the future consist of – and who will pay the CEO's wages?

You?

They said the days of the outsourcing megadeal were dead, but news that services and hardware giant HP is acquiring EDS for $13.9 billion (£7.13 billion) suggests that a tier one deal on the provider side can still take place, even as IT stocks rally against a downward market.

EDS with its deeply embedded links with the public sector may have exceeded guidance in its latest results, but its accompanying earnings call suggested a need to hide a less than stellar underlying performance with wordplay and semantics.

EDS boasts depth of experience in huge, complex deals, while HP brings a range of service and software offerings for which that is an ideal shop window and sales floor.

However, while analysts such as IDC's Douglas Hayward have been swift to roll out all the usual, predictable comments about the cultural and practical challenges facing them as they merge (surely that happens when any company buys or merges with another?), none of this provides much insight into the repercussions for the outsourcing industry.

It goes without saying that HP is embarking on the deal during a highly unusual US recession that sees both a lack of capital liquidity combined with sliding property prices, soaring commodity prices, inflationary pressures, and fears over job security.

The truth is that while the deal will doubtless shake up the market (in Ovum's analysis) and hand HP a tranche of governmental deals, for example, there are risks lurking in the shadows.

First, big-ticket government deals have seen many a global name damaged locally by the very public backlash that follows whenever such deals overrun and/or overspend; that will play very badly with HP shareholders who treasure the company's long-held reputation as a solid and reliable brand. No one was entirely convinced by the Fiorina-fronted vision of HP as the flexible, innovative service company rather than the offspring of two men in a shed.

The public sector is just that, and sector failures lodge in the public consciousness. EDS might not be a name on the lips of the average consumer, but HP certainly is.

Second, however, is the most important factor: the emerging topography and geography of outsourcing over the next five to ten years. That landscape that will lie in front of HP very swiftly after the months and years it will take to digest another mega-deal. By then, of course, a number of Indian service providers will have snapped up smaller, nimbler European services players and made themselves an attractive alternative to any giant that lumbers into view.

Knowledge process outsourcing (KPO), R&D outsourcing, and even legal process outsourcing (LPO) will soon become essential offerings for any global outsourced service provider – the latter on the back of deregulation in the legal services market and cost pressures within a highly litigious US. It seems unlikely that HP could even be in the frame to compete with the Accentures of the world in offering such a portfolio.

Mere marketplace muscle-flexing coupled with cost and labour arbitrage are gradually taking second place to skills, innovation and local knowledge, and you can't just buy the market presence of, say, IBM off the shelf.

The emergence of software as a service (SaaS) offers both great opportunities in the mid market along with a shift in the role of the CIO towards innovation and away from mere systems management, so again the deal, while impressive, seems a little old-fashioned. The stockmarkets might – fleetingly – crack a Bolly or two, but it may be over the bows of the Titanic.

Virtual network operator Vanco is casting around for a financial lifeline after founder and CEO Allen Timpany jumped ship and it emerged that the company has spent much of a credit line it was thrown in January this year.

Barely two months ago, Vanco celebrated twenty years as a managed telecoms services provider at its AGM in Barcelona – a sparsely attended event in terms of customers presenting to the press, and one notable for customer complaints from the conference platform, as reported by sourcingfocus.com in March.

Vanco has built an apparently viable business on its knowledge of the global telecoms market and its infrastructure. That knowledge base – a virtual map of the global telecoms network – has plugged it into some 700 asset-based carriers (ABCs) and suppliers worldwide, from whose offerings the company chooses technologies and services for its customers.

So why is an asset-light, technology-neutral sourcer for telecoms and networking expertise in financial trouble?

At the AGM in Barcelona, this writer became concerned that Vanco's real asset was that invaluable and sophisticated map and database of the world's telecoms infrastructure, down to the granular level of a town or village's network profile – an asset which might have persuaded Vanco towards opening a lucrative consultancy line. Indeed, one senior manager said the company had been both tempted by the idea – and approached by a consultancy suitor, but had (reluctantly, in that executive's view, perhaps?) rejected the latter's advances. It would make sense now for such a suitor to step forward again and grab what most of the company's executives regard as its crown jewels.

However, at the AGM the CEO was emphatic. "We've had that discussion," said Timpany to sourcingfocus.com, "but we don't wish to monetise it [the database]. We would do a 'white label' service through the web portal [vanconetdirect.com], but minus the services and at a lower margin and a lower price.

"Our consulting team's value is in landing a multimillion-dollar contract,” he continued, “not in offering a consultancy service at a few thousand dollars a day."

Multimillion-dollar deals may have been the focus of Vanco's business, and yet the company owns but a small percentage of the potential Fortune 1,000 contracts. Meanwhile, Ovum reports that BT and AT&T have both done $1 billion individual deals in the past year. Vanco only won its first $100 million-plus contract in early 2007, after many years in the vanguard of the VNO concept.

At the AGM event, Frost & Sullivan analyst Sharifah Amirah, head of research ICT EMEA for the analyst, identified the SME market as being the source of 80% of telecoms growth in Europe over the next few years – surely a sign of commoditisation of supply. CEO Timpany slammed the idea: "The SME market is a fools' gold thing. The numbers look impressive if you listen to the analysts, but doing it effectively and making money is almost impossible, as they can get a better service from local suppliers."

Indeed, it seems likely that this is what many large companies have done – telecoms, after all, is a market that is based on the known quantity and the familiar.

Also, with such a complex supplier network of 700+ companies spread across the globe, each carrier's SLAs must have impacted on the quality of service that Vanco has been able to promise customers with its own SLAs.

However, that is not to say that the virtual network operator (VNO) model is dead. Perhaps it will find a more profitable home within the familiar portfolio of a Fortune 1000 name?

They said the days of the outsourcing megadeal were dead, but news that services and hardware giant HP is acquiring EDS for $13.9 billion (£7.13 billion) suggests that a tier one deal on the provider side can still take place, even as IT stocks rally against a downward market.

EDS with its deeply embedded links with the public sector may have exceeded guidance in its latest results, but its accompanying earnings call suggested a need to hide a less than stellar underlying performance with wordplay and semantics.

EDS boasts depth of experience in huge, complex deals, while HP brings a range of service and software offerings for which that is an ideal shop window and sales floor.

However, while analysts such as IDC outsourcing commentator Douglas Hayward have been swift to roll out all the usual, predictable comments about the cultural and practical challenges facing them as they merge (surely that happens when any company buys or merges with another?), none of this provides much insight into the repercussions for the outsourcing industry.

It goes without saying that HP is embarking on the deal during a highly unusual US recession that sees both a lack of capital liquidity combined with sliding property prices, soaring commodity prices, inflationary pressures, and fears over job security.

The truth is that while the deal will doubtless shake up the market (in Ovum's analysis) and hand HP a tranche of governmental deals, for example, there are risks lurking in the shadows.

First, big-ticket government deals have seen many a global name damaged locally by the very public backlash that follows whenever such deals overrun and/or overspend; that will play very badly with HP shareholders who treasure the company's long-held reputation as a solid and reliable brand. No one was entirely convinced by the Fiorina-fronted vision of HP as the flexible, innovative service company rather than the offspring of two men in a shed.

The public sector is just that, and sector failures lodge in the public consciousness. EDS might not be a name on the lips of the average consumer, but HP certainly is.

Second, however, is the most important factor: the emerging topography and geography of outsourcing over the next five to ten years. That landscape that will lie in front of HP very swiftly after the months and years it will take to digest another mega-deal. By then, of course, a number of Indian service providers will have snapped up smaller, nimbler European services players and made themselves an attractive alternative to any giant that lumbers into view.

Knowledge process outsourcing (KPO), R&D outsourcing, and even legal process outsourcing (LPO) will soon become essential offerings for any global outsourced service provider – the latter on the back of deregulation in the legal services market and cost pressures within a highly litigious US. It seems unlikely that HP could even be in the frame to compete with the Accentures of the world in offering such a portfolio.

Mere marketplace muscle-flexing coupled with cost and labour arbitrage are gradually taking second place to skills, innovation and local knowledge, and you can't just buy the market presence of, say, IBM off the shelf.

The emergence of software as a service (SaaS) offers both great opportunities in the mid market along with a shift in the role of the CIO towards innovation and away from mere systems management, so again the deal, while impressive, seems a little old-fashioned.

The stockmarkets might – fleetingly – crack a Bolly or two, but it may be over the bows of the Titanic.

Services giant Hewlett-Packard has confirmed it is purchasing Electronic Data Systems (EDS), the oft embattled ITO player with major public sector contracts.

The Wall Street Journal first reported the possibility of a deal on Monday, citing figures of $12bn to $13bn from unnamed sources. HP has today confirmed the deal to an expectant market.

Confirmation of the purcahse sparked a rapid change in shareprices on the NYSE with HP dropping six percent and EDS up 27 percent. EDS issued a statement on the deal after close of trading on Monday.

While the move is being hailed by some commentators and analysts as HP’s bid to take on IBM in the corporate market, others are not convinced – including sourcingfocus.com's Chris Middleton (See Editor's Blog for more).

VoiceStream, a little known UK telecoms company, has acquired 75 percent stake in Indian-based BPO player, Helios Outsourcing.

VoiceStream will invest around £1.5m to help the company grow. By focusing on niche markets VoiceStream expects Helios to be worth approximately £45m within three years.

VoiceStream chairman and managing director Paul Kopec said, “We wanted to secure our UK revenues and have more control and hence we bought into our service provider Helios Outsourcing. In-house processing is a huge area”.

Fujitsu Services, the leading IT services division of the Fujitsu brand will create 120 jobs in Northern Ireland.

The company will invest £8.8m in a partnership with Invest Northern Ireland (Invest NI) which will contribute a further £2.2m to establish an Applications Services Centre of Excellence at Fujitsu’s Timber Quay site in Londonderry where the majority of the jobs will be based. A further 30 jobs will be created in Belfast.

This is the third investment Fujitsu Services has made in Northern Ireland in the last 18 months. The first, an £18 million investment in June 2007, created 402 jobs in Managed IT operations in Derry and Belfast, while a £3.2 million expansion of its Centre of Excellence for Oracle created a further 30 jobs in Belfast in August 2007.

Leslie Morrison, Invest NI chief executive said, “The fact that this is Fujitsu’s third project in only 18 months sends out a strong message that this region has the infrastructure and skills to secure high-value investment from global companies. Following last week’s USNI investment conference, this is further evidence of the confidence international companies have in Northern Ireland as a premier investment location.”

The Ministry of Defence has awarded EDS a contract to implement an enhanced supply chain system as part of its Management of Material in Transit (MMiT) project.

The project hopes to provide more accurate information on supplies and accelerate delivery whilst reducing costs. The MOD hopes the system will also improve the confidence of those on the front line due to enhanced delivery reliability.

Col. N. I. Barsby, Materiel Flow Project Team Leader, MoD, commented: “Past operational experience has shown that the MoD urgently needs the MMIT capability in order to make best use of the physical supply chain. The positive impact on user confidence of knowing exactly where things are and when they will be delivered will be immense. We look forward to working in close co-operation with EDS, SAS and Supply Chain Consulting to achieve the delivery in the middle of next year. The introduction of MMiT will mark a step change in the way the MoD manages its materiel in transit and will be significant milestone in an overall programme that will revolutionise the Joint Supply Chain programme. We can't wait to get MMIT out to Front Line users.”

The MMiT is expected to be used in the field by the middle of 2009.

Virgin Atlantic, one of the world’s leading long haul airlines, has renewed its managed services contract with Tata Consultancy Services (TCS), the IT services subsidiary of global conglomerate, Tata Group.

Under the renewed agreement, which will last until 2011, TCS will continue to manage Virgin Atlantic’s global end-to-end IT systems including a 24x7 service desk, infrastructure and application support services. The deal also entrusts TCS with the management of Virgin Atlantic’s other third party IT suppliers.

Mike Cope, IT Director of Virgin Atlantic, said: “Today, airlines need to effectively exploit IT more than ever to be successful in a very competitive marketplace. Thanks to our ongoing partnership with TCS we have the right partner to enable this.”

Interestingly, the travel and transportation sector is emerging as a key vertical for TCS, generating 4.0% of the company’s total $5.7 billion revenues for fiscal 08.

TDC, the largest telecommunications company in Denmark, has signed a $413 million outsourcing contract with the Computer Sciences Corporation (CSC). The seven year contract expands upon existing agreements signed in 2003 and another seven year $330 million deal signed in 2007.

The deal significantly extends CSC’s application support for TDC including the management of TDC’s legacy application portfolio, provision of application development and maintenance services for more than 500 applications and support for approximately 17,000 users. CSC will also appropriate around 220 TDC employees to take place in June.

Jørgen Jakobsen, TDC Chief Information Officer said: "We already have an excellent relationship with CSC in several areas and are pleased to expand it further to include the management of our legacy application portfolio. The new agreement will enable us to further modernise and consolidate our applications so they deliver the capabilities our business requires.”