Industry news

HP has announced new and enhanced quality and management software designed to increase the success of mainstream deployment of service-oriented architectures (SOA) by businesses. SOA is an approach to delivering IT services in a secure and manageable way that uses loosely connected, reusable and standards-based technology that can be quickly aligned to changing business needs. For SOA to be broadly adopted and deliver business value, an entire organization must have confidence that the services it provides function correctly, scale as demand increases and meet operational requirements.

To make certain that services meet all functional and performance objectives and are ready for production deployment, HP has introduced new versions of its SOA testing products, HP Service Test and HP Service Test Management.

“Customers who want to scale their SOA-based deployments recognize they must make SOA a seamless part of their quality and management infrastructure to support business requirements,” said Tim Hall, director of SOA products, Software, HP.

Infosys, Tata and Wipro are among the Indian companies celebrating the news that the Indian government has finally decided to extend a tax holiday scheme, which has benefited the growth of the local outsourcing market, by a year. The expiry of the tax holiday for Indian outsourcers based in technology parks has been extended until March 2010 from March 2009.

The original expiry date could have seen corporate tax rates of 12% and upwards rise to as high as 22%.

One of the major factors behind the Indian IT sourcing phenomenon has been the development of Software Technology Parks of India (STPI), which began in in 1991, and saw designated companies receiving a decade's worth of income tax exemption. Recently, debate has raged as to whether the country can afford not to tax some of the most successful multi-billion dollar enterprises doing business in its cities.

"We are very happy with the announcement," said Som Mittal, president of leading IT lobby group, NASSCOM. The relief is twofold: the Indian Government has been anxious that the country’s national champions may themselves up sticks, and take their business out of India to alternative sourcing locations.

• Indian nerves have certainly been frayed this week. Wipro was hit by rumours of a mass exodus of senior executives in the wake of news that P R Chandrasekar, president, Americas and Europe, had resigned.

Accenture's CEO has swept aside any fears of his company being impacted by the global credit crunch.

Speaking to the Indian media during a week-long tour of the country, William Green said, “We have not seen any cancellations or deferrals of business deals yet.”

Mr. Green said that within the company's in-house use of the ‘Made in Bangalore’ label signified the extent to which the company regarded Bangalore as a centre of innovation, say local reports.

Consulting and outsourcing giant Capgemini has announced its seventh annual Vision & Reality study: Customer Value Integration – How to Re-Tune Pharma’s Commercial Model in Light of Changing Stakeholder Influence, which reveals that pharmaceutical companies can remain profitable and maximise customer value in today’s market by aligning their efforts to address the shifting power between physicians and patients through better collaboration with industry stakeholders and influencers such as physicians, payers, insurance companies and government bodies.

Capgemini surveyed more than 100 pharmaceutical and payer executives from Health Management Organizations (HMOs), insurance companies and government bodies worldwide, facilitated an advisory board session with leading physicians, and conducted research to assess how pharmaceutical companies are responding to the changing stakeholder landscape. While business transformation in the industry is inherent to adapt to this shift, responses to survey questions suggested a perception gap between how executives view the market evolution and how they respond to it.

The study suggests that the power of the physician has declined in comparison to the increasing influence of patients and payers over the last decade. Today’s prescription decision-making process involves a complex set of interactions between stakeholders and influencers that the pharmaceutical industry needs to address. The combination of these stakeholders varies significantly depending on the therapeutic area and product lifecycle maturity of a drug and the previous “one size fits all” model is too slow and inefficient to address this shift. While traditional stakeholder,, such as physicians, still exert an influence and assume an important role for prescription decisions, new and influential stakeholders are beginning to re-shape how prescriptions are made.

“While pharmaceuticals are finding it difficult to adapt to this fundamental shift in stakeholder influence, customer value integration – that is to say identifying customer needs and expected value then aligning a company’s core competencies to meet those needs - is a fundamental shift that will reshape the face of the industry in the next three to five years,” said Omar Chane, vice president of the Life Sciences Practice at Capgemini. “While the industry has been trying to address the shift in the market through adjustments of key capabilities, the pace of change is going to increase, and the industry is going to witness a more fundamental structural change.”

The study includes insights into the degree of change in the pharmaceutical industry and the barriers to effectively deal with this change:

* 51% of participants viewed the changes in the pharmaceutical marketplace as structural, while 38% found them incremental, and nearly 11% described them as temporary.

* 79% of participants suggested more payer / pricing pressure as one of the top three market forces driving the change in the industry. The other market forces most commonly cited include more government influence (55%), and increasing regulatory requirements (47%).

* 63% of participants named organizational adaptation as one of the most important capabilities pharmaceutical companies need to develop to respond to new market challenges. The wish-list of capabilities also included market analytics and segmentation capabilities (47%) and customer needs assessment know-how (43%).

Each year since 2001, Capgemini’s Life Sciences practice examines a specific topic that is both timely and urgent for the life sciences industry.

Things are bad, but not that bad – at least, that's the view from three of the world's top economists, who also predict that emerging economies such as those of India and China are set to benefit from any economic downturn in the US.

“We are having an economic crisis, but it is very focused on the US,” suggested Gerard Lyons, chief economist and group head of global research at Standard Chartered. “The US is the biggest economy and because of that what happens there has an impact. If there is a deep, long US recession, then that slows global growth. The last time the US had a downturn was 2002 and it was a v-shaped, low downturn. The crisis there this time is not just on the financial sector, but among consumers.”

Lyons, speaking at the Premier Business Leadership summit organised by software firm SAS in London this week, argues that what will happen next is a significant scaling up in markets such as China. "It's very easy to get wrapped up in what's happening in the west, but there is s fundamental transition in the world that will have a profound effect on the balance of economic power from west to east,” he argued. “Asian economies have a current account positions that are good and are well-insulated. I spoke to someone in Brazil a couple of months ago who said that it didn't matter if the US had a recession, but it would if China did.”

China is a force to be reckoned with, he argued. “I went to a medium-sized town recently and visited town planning,” he said. “I pressed a button on a display and saw what had currently been constructed. Then I pressed a button and saw what's planned for the next ten years and it was a metropolis. They have built a dam and it will reach a water level next year where they will be be able to export in mid-sized tankers. They have built two ports. They have a locked-in labour force of 100 million people in the region and the current wages are less than on the coast of China.

“India is very interesting also, its catch-up potential is enormous. India is a democracy, but its biggest problem is lack of infrastructure. When the Brits left India, they left behind a very efficient civil service, but that has led to lots of bureaucracy. But it is a young country.

"In China, a lot of people are worried that they will be old before they are rich; in India, 45 percent of the population is under the age of 19. India needs to easy up on the regulation side and work on the infrastructure, but the opportunity is there. I talk to a lot of companies who feel that they missed out on China and don't want to miss out out on India.”

But things aren't as bad as they might seem in the US, according to Joseph Quinlan, managing director and chief market strategist with Bank of America Global Wealth and Investment Management. “We're not eating as much steak and it's Hamburger Helper time, but the US consumer will hang on in there,” he predicted. “The US economy has a simple equation: jobs = income = spending. Now, I think we are at stall speed economically. It could go flat and then the question becomes what is the recovery rate. The silver lining is that we are still exporting. We have a huge trade deficit, but the exports are holding in there and that will carry us through.

“If you take away the financial angst and stress, the economy is still in a decent shape. There might well still be one or two nasty things around the corner. There could be another banking institution that has a run on it, but we're closer to the end than the beginning [of any crisis]. There will be slower growth over the next few quarters, but this is about rebalancing.”

Rebalancing is also something that will be reflected in the UK economy, reckoned Dennis Turner, chief economist at HSBC Bank. “We are likely to hit a sticky patch,” he said. “Growth will half and it will be slowest rate of growth since the last recession, but it will still be growth. The economy at the end of this year will be bigger than it was last year. There won't be a recession. What we might see is SARS – severe acute recession syndrome, which is a mental condition whereby if people believe there will be a recession and act as though there will be a recession then there will be a recession."

This mirrors what I said in the Editor's Blog a few weeks ago: fear of recession becomes a self-fulfilling prophesy; especially in the blog-fuelled Internet world where information is valued by the speed at which it moves. Fear becomes fact at Internet speed.

"It's easier to talk an economy down than up," he continued. "Ours is not an economy about to go off a cliff. We've had 63 quarters of positive economic growth. we have more people in employment than ever before. This is about an economy that is resetting. We are going to see two to three years of sub-trend growth. Now that unfortunately is a politically inconvenient length of time.”

But there are clouds ahead, particularly in relation to the public sector. “We have an enormously large and inefficient public sector,” argued Turner. “One fifth of the total labourforce works in the public sector. Median salaries are higher than in the private sector – and we have unfunded liability for public sector pensions of one trillion pounds. And it's inefficient because productivity is lower than in the private sector. The government has been muddled. It has assumed that if you pay the same people more money to do the same jobs, then somehow that's an improvement. But we haven't seen the reform to go with it. You can have better public service without it being owned by the public sector.”

However, Turner argued that the UK has been better placed than other countries in Europe. “In the UK, we have very different perceptions of Europe. We go for breadth, some of the founding father countries go for depth,” he noted. “They would rather have more common policies and structures and greater integration. "We welcomed the east Europeans, we'd probably be more welcoming of Turkey than some of the founding countries. In some ways Europe is still looking inwards and being myopic. There are structural deficiencies and tendency towards protectionism.

“We are actually better Europeans than many other countries in Europe,” he added. “We have free movement of goods and people. When the 8 countries of Eastern Europe joined the EU, only3 countries accepted the free movement of labour clauses – us, Sweden and Ireland. We have free movement of capital in the City of London. Have you tried buying a French company recently?

"He concluded: “It's a different world and a different economy. You don't manage the economy the way Dennis Healy did. When I was a boy, the Chancellor of the Exchequer was a big man, the financial director of UK Plc; now he's the CFO of a subsidiary company called UK Ltd, an arm of Global Plc.”

The traditional outsourcing contract is on the brink of extinction. As the capabilities of modern IT become ever-more closely aligned with businesses needs, so too have the requirements around the classic outsourcing deal changed and matured. Yet despite a burgeoning trend of more strategic outsourcing relationships, the majority of contracts are still renegotiated within two years of signing and second or third generation deals are still the exception, not the rule. Is there a way to ensure modern outsourcing marriages are built on genuine compatibility and survive beyond the honeymoon period?

The good news is: things are already changing; the bad news is: it’s because the entire process has become more complicated. Gone are the days of straightforward 'facilities management' outsourcing models, where basic IT functions such as data centre operations, software development or desktop management were directly outsourced to third parties. Now, the more complex IT requirements of modern businesses demand a completely different procurement and contractual approach factoring in complicated multi-sourcing contracts, sub-contractual agreements and the potential transfer of large numbers of staff to multiple sites. Off-shoring, in particular, brings additional logistical and cultural complexities - the outsourcing of a government call centre is clearly a far more sensitive proposition than a standard infrastructure management contract.

As a result, the old-fashioned adversarial approach to procurement is, thankfully, also dying out. To best manage these additional complexities, outsourcers must forge genuine business partnerships, built on genuine organisational affinities, with their customers. For an outsourcing provider to deliver core business management and transformation services, it is vital they are engaged as a strategic business partner, not an arm’s length supplier.

The responsibility for honouring this partnership lies on both sides of the fence. To get the best out of the deal, the client needs to do more than just scattergun a few RFIs at the usual suspects. A focused market research process is required to identify a short list of potential organisations whose business models, size, experience, objectives, culture, and increasingly their CSR and green credentials, demonstrate a real compatibility with the client’s own business.

This is even more important if you plan to outsource business processes rather than datacentres. To get the right BPO partner you may need to probe that bit deeper: Will you have full visibility of the provider’s processes? What previous service failures have they experienced and how did they rectify them? And most importantly, are the financial projections accurate and are adequate provisions in place to allow for economic and organisational change within your business? There is also some basic information about the business that is important to collate up front, but not always obvious e.g. staff attrition levels, geographical presence, experience of transforming/re-engineering processes and internal governance structure. Similarly, the outsourcing provider cannot simply rely on wheeling out their tried and tested professional bidding teams to wow the client with sales-speak and then proceed to handover to an entirely separate delivery team whose sole purpose is to recoup the costs of the bid by exploiting costly change processes.

Even if both the client and the provider have self-selected on a partnership basis, getting the contract right from the outset is critical. Ensuring this is clear, considered and mutually beneficial is key to securing a happy and long term relationship. The devil is very much in the detail however; whether it’s service level agreements, timing, specification of deliverables or even the dreaded termination provisions, all parties need to be in full accordance and understanding. Most importantly the scope of the services to be delivered and the roles and responsibilities for doing so, must be in no doubt. Any mismatch in expectation must be ironed out at the beginning or it is liable to explode, with much more damaging consequences, further down the line.

This shared understanding should set the tone of the entire relationship.

It is important to remember that the client is choosing a service in place of an in-house alternative. The outsourcing provider needs to be a seamless extension of the business, providing the flexibility they would expect from their own in-house resource, but obviously ensuring the cost and time benefits of using an external provider. Personal chemistry is, therefore, as important as technological capability and even cost. Providing a quality delivery team goes without saying, but it’s no good putting in place great people who then move on week in, week out. Continuity of personnel, on both sides of the agreement, is a key element to its success. Problems will inevitably arise in any outsourcing deal, but strong personal relationships can help you withstand the pressure. Churn, particularly at a senior level, has a hugely de-stablising effect and can compound the day-to-day stresses and strains of the contract.

Choosing and keeping the right people and aligning expectations from the start will ensure an outsourcing deal begins life as a truly strategic partnership, rather than simply a commoditised service. But like any long-term relationship, making it last is the real challenge. With outsourcing arrangements becoming ever more complex and critical to business delivery, changing supplier every year is damaging to both parties. The deal needs to be able to weather that tricky second year phase of the relationship, when the novelty has worn off and the tactical delivery taken hold. Continual reviews, performance assessment and regular reappraisal of objectives can help keen focus, but also provide an opportunity to adjust expectation and output as the situation and needs of the client evolve.

Part of the reason why focus can wane in the middle stages of an outsourcing deal is the assumption on behalf of the client that they can step back and simply allow the provider to drive the necessary change management or business process through. For large scale outsourcing contracts, it’s simply unrealistic to expect the provider to manage the process without any internal advocacy. Clients have a responsibility to ensure any changes to IT provision are fully communicated, and understood within the business at both senior and end-user level. You’re outsourcing the technology or the business process, not the responsibility. Leaderless change and lack of internal ownership can turn the entire process into a false economy and ensure the deal never sees a third year, let alone a third generation.

Long-term, strategic outsourcing partnerships are not just a nice-to-have – they are fast becoming a commercial necessity, so it is vital we start to get these deals right. It goes without saying that identifying the right delivery partner takes significant investment, but not just in cost terms. Clients and providers alike need to ensure that they are investing the right effort in vetting their shared credentials, agreeing a way of working, securing a stable team and sustaining a fresh approach. Without shared interests, the relationship is unlikely to reap shared rewards, and could end in a premature and costly divorce.

It's official: consumers – that's men, women and teenagers from across all walks of life, within all age groups, and in every part of the UK – hate offshoring. And the more information-based the offshore service is (yes, I'm talking about call centres), the more they dislike it.

sourcingfocus.com has commissioned exclusive research from ICM into consumers' attitude to offshoring, which will be published on this site tomorrow. The results suggest not so much a gauntlet being thrown down to the outsourcing industry as a full-bloodied slap in the face.

Just three percent of all respondents are happy with the concept of offshore call centres, while only five percent are happy with offshore loan application handling – the same percentage as for payroll processing.

The picture was only slightly better for manufacturing: 15% of all consumers are happy with the offshore manufacturing of electronic goods; and 13% with the offshoring of clothes-making.

Looking through the other end of the telescope, as it were, 59% of all consumers describe themselves as “very unhappy” with call centre work being done overseas; and 47% and 49% are unhappy with offshore loan application handling and payroll processing, respectively.

However, only 11% of consumers say they are unhappy with electronic goods being made overseas, while just 12% are unhappy with the offshore manufacture of clothes.

The hidden message there is the real challenge to companies that offshore key services, especially call centres and business processes: despite the negative publicity about sweatshops in the clothing industry, far fewer people are unhappy about having such goods made overseas than they are with offshore call centres.

That said, 60 percent of consumers say they would pay more for goods and services generally to keep them in the UK, while just over one quarter (27%) would happily let services be handled outside the UK if it was cheaper.

The results hold true across every sector, age group and region of society, with women tending to hold the most trenchant and negative views on communication-based services being located outside the UK.

It's grim reading up North too: in Scotland, only one percent of respondents are happy with overseas call centres, while 73% describe themselves as “very unhappy” with them.

Sixty-four percent of low-skilled workers dislike overseas call centres, versus an unhappy 48% of people in the 'AB' group. Don't relax too much, however: only four percent of AB respondents describe themselves as “very happy” with offshore centres.

Businesses spend millions of pounds every year researching customer attitudes in an effort to prove that the offshore call centre experience somehow adds value to the brand; our research, which is broken down into the most granular detail over some 26 pages, suggests this is rubbish.

Your customer is on the phone, UK Business plc; and he or she – whether young, middle aged or old, educated or low-skilled, wealthy or struggling to reach above the poverty line – is not happy.

Legally within the UK there is still very little control regarding how data is held or outsourced, and common law has no recognition of data privacy. This has ultimately led to the creation of the Data Protection Act. But whilst the Act sets out eight principles by which those organisations holding personal data should abide, it is generally seen as guidance only with penalties for its breach historically difficult to quantify in court.

Those organisations that see this lack of legislation as a free reign on data management however should think again. If recent recommendations by the House of Commons Justice Committee go through and negligent data loss becomes a criminal offence, the issues surrounding corporate responsibility for the protection of data will only become more pressing. Couple this with the fact that many UK businesses currently outsource to countries where data privacy law is applicable and we have a significant issue on our hands.

Let’s take a look at Germany for example. Here data can only be held for a single specific use, for which full permission is needed from the originator. Once the data has been used for the reason it was obtained, it must not be passed on, either externally or to other internal departments. UK companies outsourcing abroad need to be comply with these laws or face possible prosecution.

Regardless of the legislation, stringent controls on the outsourcing of data make good business sense as aside from the obvious public relations issues there are also many operational risks associated with outsourcing data management, with the misplacement of critical information potentially resulting in significant delays and costs being incurred.

So what can be done?

The integrity and security of those companies that you may outsource to should be of key concern and if sensitive data is to be processed or transferred offshore, a compliance mechanism to deal with data protection will be required.

Whether outsourcing internationally or nationally, effective contract management presents the legal mechanism by which organisations can ensure full control over the data that is being outsourced. By utilising clauses within a contract to stipulate how information can be used and stored, your business can ultimately gain more control and ensure that damages can be sought if the contract is breached.

And whilst the rules surrounding the outsourcing of data are foggy at best, there are still some simple questions that organisations can pose namely:

Is the data being sent to the company going to be held in a safe, secure and appropriate manner?

Will the data only be used in the manner for which it is being held?

Does the outsourced company have appropriate security processes in place such as high levels of encryption or email policy to ensure that employees cannot transfer data out of the organisation?

Clear commercial and contract management will ensure that the outsourced company can answer positively to the above questions. But if in doubt ask an expert and follow the guidance laid out in the Data Protection Act. After all ‘best practice’ working only creates better business efficiencies, minimising risks and maximising profits. What more motivation do you need?

Scottish Water has inked three outsourcing deals worth over £120 million. The company aims to slash its operating costs by £1 million a year over the next eight years.

Fujitsu Services has secured an eight-year, £28 million contract with Scottish Water to supply service desk support and infrastructure services as well as desktop managed services. The project will support over 4,000 employees based all over Scotland, including its HQ in Dunfermline and its offices in Edinburgh, Glasgow, Dundee, Inverness and Livingston, plus engineers and support staff working remotely.

The utility has also signed a £41.5 million communications deal with BT, covering mobile, voice, data and networking.

A third deal with Indian outsourcer Tata Consultancy Services (TCS) is the largest, worth some £60 million, and will provide appliations management and support.

David Brown, Scottish Water general manager for IT, said: "This is the culmination of a great deal of hard work from suppliers and Scottish Water.

"It delivers significant cost savings, an enhanced service and the opportunity to exploit the extensive development capabilities of some of the most innovative companies in the business."

In 2002, three separate water authorities, East, West and North of Scotland merged to form Scottish Water, the UK’s fourth largest water utility serving around five million customers. Each company had its own IT system and support staff, which was not cost effective or easy to manage. Scottish Water pulled this together into one business, and now wants to move its IT function onto the next level by moving to a managed service.

• ScottishPower has also been on the outsourcing radar this week, extending its communications infrastructure contract with Thus for an unspecified period.

The Financial Services Authority has fined Liberata, a key BPO provider to the public and financial sectors, more than £500,000 for failure to ‘control its affairs responsibly and effectively’ and lack of ‘due skill, care and diligence’ in its business activities.

The fine was incurred when staff at the company failed to cope with the high volume of messages generated by its computer system resulting in pension policyholders losing money on their investments.

The ruling, the first imposed on an outsourcing company by the FSA, sets a precedent which could lead to other outsourcers being held accountable for technical failures.

The FSA’s report detailed Liberata’s failings stating that: “30,000 policyholders did not receive documents containing important information about their savings…of these policyholders, 161 suffered financial loss”. The FSA calculated that the losses incurred as a result of these failings amounted to £17,584.

The fine for Liberata’s failings was initially set at £750,000 but was reduced by the FSA for early settlement.