Industry news

Tech Mahindra has signed a five year deal, valued in excess of US$350m, to provide BT with application maintenance and support services for their business-critical BSS and OSS applications and platforms.

These services will be delivered from Tech Mahindra’s state-of-the-art Centres of Excellence (CoE) at facilities in India and a new facility being setup in the UK to monitor BT’s core business processes.

Clive Selley, Managing Director, Wholesale Service Design for BT, said: “This deal links our Application Portfolio performance to our business performance. Tech Mahindra’s experience and expertise on both, the business process as well as IT Systems makes it the perfect partner for value realisation and achievement of BT’s objective to become number one in customer service. The five year period and confirmed business will enable Tech Mahindra to take a long term view on innovation and service excellence."

Sanjay Kalra, President, Tech Mahindra, said: "This deal showcases Tech Mahindra’s strengths in delivering business critical services that have so far been hidden under “business-as-usual” application support. We are delighted at the confidence BT has shown in us and this contract will further strengthen trust and partnership between our two companies.”

Indian IT outsourcing company Wipro has used its conference in Bangalore to announce plans to open two more software centres in the US and to create hundreds of jobs in the UK.

The strategy is part of the emerging trend of 'reverse outsourcing', characterised by Indian companies such as Tata and Wipro expanding into their customer's home markets, and also using the economic downturn to snap up European bargains.

Wipro chairman Azim Premji said the company planned to recruit more than 1,000 people in the US to new software development centres in Michigan and Atlanta. He has also said he wishes to make some European acquisitions, potentially starting in Germany.

In the UK, Wipro (which is India's third largest IT outsourcing provider) plans to create hundreds of new jobs by opening a centre in the South East, and is reportedly considering further centres in the Midlands and Scotland.

Axon has won a 10-year strategic IT outsourcing contract with Wolverhampton City Council. Savings are estimated to reach £60m.

Axon will replace the council's outdated computer systems, helping to create a more efficient back office that will cut administration costs. Real-time data access will also help the authority to improve its financial management and budgeting.

The contract is one of the most significant in the council's recent history, said chancellor Andrew Johnson, cabinet member for resources, governance and support services.

"People will experience faster and more convenient access to essential services which will be delivered more cost-effectively," he said.

"For our staff, it will mean opportunities to serve the public in an environment that will invest in developing their skills in customer service and IT. Many will be trained to work with modern systems that will cut unnecessary costs and reduce the frustration of red tape.”

Although an increasing number of business process outsourcing (BPO) decision makers understand the critical role of IT in BPO success, many don't know how to act on this knowledge when undertaking a BPO project, says an EquaTerra market study. The study also found that buyers in the Americas and Europe are still uncertain about how to account for IT solution options in the BPO sourcing and solution design process.

These are the key findings from EquaTerra’s third annual Assessing the Role of IT in BPO Success market study. Respondents to the 2008 survey included more than 250 BPO decision makers in North America and Western Europe. All respondents were responsible for HR, finance and accounting, or procurement BPO decision making in organizations with minimum $/£/€100 million in revenue operating across all major industry groups.

Additional key findings from the 2008 market study include:

Perceived importance of the BPO service provider’s IT solution to BPO success

• The average score given to the importance of the BPO provider’s IT solution was 4.36, up 17 percent from the 2007 edition of the study

• Eighty-eight percent of 2008 study respondents cited the provider’s IT solution as being somewhat or very important to BPO success

Most critical attributes of BPO service providers’ IT solutions

• Flexibility to adopt to buyer process specificities

• Cost-efficiency, so the provider can pass on additional savings to the buyer

• Ease of use for end-users (eg, via self-service tools, strong reporting)

Top enterprise software preferences in BPO

• Buyer preferences for IT solutions in BPO: While the majority of buyers are open to considering BPO service providers with different IT solutions, they have clear IT solution preferences

• Buyer preference for enterprise software solutions: When entering into BPO efforts, most buyers prefer to continue using the same commercial enterprise software solutions they currently have in place

Stan Lepeak, EquaTerra’s MD of research, said: “Although IT is linked to business process performance, EquaTerra consistently finds the IT topic, and often the buyer’s IT group, under-represented in the BPO process. As a result, poor planning around IT needs and issues in BPO frequently becomes a common root cause of BPO problems.”

Similar to prior years of this assessment, the internal IT group was the lead source of advice on IT issues in BPO processes, cited by just over half of the respondents. However, while 75 percent of US respondents identified the IT group as a key source of advice, only 31 percent of European respondents did so. In the 2007 survey, 63 percent of US respondents cited the IT group as a source of advice, compared to 44 percent in Europe.

While these rankings overall are positive, they still show that a relatively large number of the BPO buyers do not meaningfully include their IT group in BPO efforts. While this approach has potential risks, EquaTerra asserts that BPO buyers must seek external IT subject matter expertise if they truly feel their IT group cannot provide the needed support, or if the IT group does not step up to the challenge.

Prudential UK has announced the closure of its recent £745 million business process outsourcing (BPO) deal with UK outsource provider, Capita. The 15-year 'billion dollar deal' (actually $1.5 billion) is the largest of its kind in the UK insurance market, and revolves around the outsourcing of life and pensions sales administration.

Building on a relationship between the two companies that began in 2003, the deal will see the outsourcing of Prudential UK's life insurance intermediary admin services, the transfer of over 3,000 employees in the UK and India, and the sale of Prudential UK's Mumbai-based captive operation.

Electronic payment systems software provider ACI Worldwide has announced a seven-year agreement to outsource internal IT services to IBM.

As part of the deal, IBM will provide ACI with global infrastructure services including management of mainframe, storage and related server platforms, data network monitoring and management, and end-user support services.

For its part, ACI will retain responsibility for its security policy management and on-demand business operations.

The deal is estimated to deliver ACI operating cost savings of $25 million to $30 million over the course of the contract, providing the company with advanced technology and enhanced service capabilities.

David Morem, senior vice president of global business operations at ACI, said, "This agreement allows ACI to focus on its core competence in developing, delivering and supporting payment solutions for our customers.

"By outsourcing infrastructure management to IBM, we can leverage their worldwide resources to consolidate our datacentres, upgrade hardware and software, and standardise on proven tools and processes to improve our operational performance in our on-demand business and IT infrastructure.

"IBM will bring enhanced disaster recovery capabilities and more stringent security standards to our IT systems, reducing our risk exposure, and provide an IT foundation that can grow very cost-efficiently as ACI's global business expands."

Philip Hausler, vice president for the banking industry at IBM Global Technology Services, said, "This agreement reflects the broad range of services IBM can offer to help customers maximize their efficiency and leverage modern technology. We look forward to serving ACI and adding value to their worldwide business."

The deal will include incremental cash costs of approximately $4 million in severance expenses, transition costs and professional fees in 2008 and is expected to be cash-positive for ACI due to a decrease in capital expenditures.

In addition, ACI expects to incur up to $5.5 million of transition-related charges in 2008 for which cash payment will be deferred and paid out in periodic installments in years 2009 through 2012.

Inflexible contracts mean that businesses should now seek "transformational deals" from their end-user workplace services (EUWS) providers through 2008, says a leading analyst

Research by technology and business process outsourcing analyst NelsonHall finds that EUWS is now a "fairly mature market" in the US and Western Europe, with "widespread buy-side [customer] interest" in remote management, offsite support and self-help portals.

The findings are within NelsonHall's latest global research paper, Assessing The End User Workplace Services Market The strongest service growth in EUWS will come from network-centric or unified communications-based services, which will grow from four percent of the overall EUWS market in 2007 to 20 percent by 2012.

However, customers should use their negotiating muscle the secure better deals, advised Dr. Katy Ring, Information technology outsourcing (ITO) research manager at NelsonHall. She said, "Most of the current installed base for end-user workplace services has in place inflexible contracts that are not well-suited for the changing workplace policies of buy-side organizations or for remote services delivery.

"The global device estate for end-user workplace services is changing in terms of requirements for the way functionality is accessed by devices. Because of the technology and workplace policy changes happening in the EUWS domain within organizations, there are benefits to seeking outsourced transformational deals in 2008 and beyond.

"Key challenges for the development of the EUWS market are moving end-users away from reliance on on-site support, negotiating new pricing models, and developing flexible contract structures," continued Ring.

"In the traditional EUWS model, a significant proportion of on-site support and/or local field services personnel are required. This is the main cost component that is reduced with a virtualised service delivery capability."

On average, the field services component can contribute 40-50% of the total cost of the traditional EUWS contract, said Ring. "This cost is not eradicated by a virtualized model but it can be reduced by 30% so that it comprises around 15 - 20% of total costs."

The mature market for outsourced EUWS means that many customers are on their second contract in this area, or expecting to renew between 2008 and 2010. There is widespread interest among customers in taking advantage of cost savings from increasing remote management of device estates, access to self-help portals and the use of lower-cost, off-site support staffing and help desks.

This makes interesting reading alongside an observation by Gartner analyst Ed Thompson at yesterday's Gartner CRM conference in London that increased demand for self-help portals is a classic hallmark of a serious economic downturn.

During such times, said Thompson, organisations cannot afford to experiment with new technologies and business models and tend to focus on cutting costs rather than pursuing new business.

By 2012, EUWS revenues will move from a managed service installed base dominated by traditional offerings to an installed base dominated by remotely managed offerings, said the NelsonHall research.

Movement to remote management within existing contracts is unlikely to occur until those contracts are ready for renewal.

The European market is slightly ahead in the adoption curve for remotely managed EUWS because some key local vendors such as Getronics, Siemens, and Fujitsu Services have been active with more advanced service offerings for longer than the large global providers that dominate the American market.

The research also found that green IT audits and advice will become a standard component of EUWS offerings as increasing numbers of organizations wish to market themselves as environmentally aware.

This is a challenge for many providers, said Ring. "Many vendors currently lack a green IT advisory service within their EUWS portfolio," warned Ring, "and yet this will become an increasing buy-side requirement. Particularly as the ability to offer green IT audits and advice for EUWS clients will also assist organizations looking to adopt low cost thin-client solutions."

Indian outsourced services providers are casting around for ways to bill their customers more, while avoiding obviously inflating costs, says research published today.

Analysts at Forrester Research have cautioned that a dose of economic reality is entering the offshore services market in India as labour costs in that country rise, skills are increasingly in demand, and the Rupee appreciates against the spiralling dollar.

Indian service providers are struggling to maintain profit margins, and although providers were initially more focused on finding ways to insulate their clients from local inflation, says Forrester, today they are equally focused on finding ways to charge clients more for similar services.

"Sourcing and vendor management professionals must understand the insulation techniques as well as the newest pricing tactics in order to negotiate the best deals today," advises chief author of the report, analyst Stephanie Moore. While rates themselves have been subject to fairly minimal increases, "important price increases are often embedded elsewhere", she concludes.

The report advises CIOs to pay particular attention to rates for onsite visits by offshore specialists, which often escape close scrutiny, together with definitions of the working week, and clauses referring to currency inflation and travel.

When oil giant Royal Dutch Shell made ill-judged announcements about outsourcing thousands of IT jobs on unfavourable terms, it left skilled internal IT staff feeling devastated and undervalued... the same staff who might be outsourced if plans go ahead. This was an object lesson in how not to do it.

This month Shell's CEO has again been talking up the need to cut costs and outsource technology innovation. At the same time oil prices have soared to $110 a barrel, profits are in the tens of billions, and he is on record as saying there is no problem with global supply.

What a strange time, then, to let the story slip out that its outsourcing strategy seems to be shrouded in uncertainty.

A story has broken that Shell is locked in talks with suppliers and now seems undecided on the fate of the major IT outsourcing plan that it revealed earlier in the year.

In January Shell courted controversy and union protest when it emerged that it planned to strip out or outsource up 3,200 IT jobs, on severance plans that were significantly poorer than those for other professionals within the company.

However, in a document sent to staff today, and reported by The Register, Shell said: “At this stage it has not yet been decided if Shell will actually outsource all or part of its global IT infrastructure activities, if so who the supplier(s) will be and how the outsourcing will be structured.

“However, if the outsourcing is to be implemented it will undoubtedly have an impact on the employees working in the relevant part of the IT infrastructure activities in the UK.”

This would seem to be a significant backwards step by a company that earlier in the year said that staff would be dismissed who were superfluous to any successful outsourcer's requirements.

Suppliers in the frame to date have included EDS, T-Sytems and AT&T.

Like any company, Shell would like to reduce its costs but it is doing so within the very public global context of over $110 per barrel of oil (Monday this week), potential fuel protests, and 2007 profits of some £13.9 billion ($27.4 billion). Not a sector being torn asunder by recessionary forces, it seems.

If, as seems likely, the US is in recession (judging by the downward plunge towards zero of interest rates) then some energy speculators are betting that, far from falling, oil prices will remain in triple digits for as long as five years (with short-term falls and corrections).

Prices would be kept aloft by commodity investors and producers as a hedge against political instability, uncertain long-term supply, and the downturn in other economic sectors such as property and banking. A possible scenario, then, is energy ceasing to be a utility, and becoming the new gold dream of the decade: something the environment would happily sustain, no doubt.

In such a global energy economy where cheaper oil currently only exists along the sharp political knife-edges of Iran, Iraq and Venezuela (two of which can trade with their allies how they wish) oil giants are going to have to maintain a public face of cost-cutting, care, and innovation, while also struggling to satisfy the West's oil addiction at whatever price it can afford to pay.

Shell CEO Jeroen van de veer said: "From the physical point of view there is no high alarm. It's difficult to understand why the oil price is where it is. No tankers are waiting in the Middle East, there are no queues for the retail stations here."

In Shell's annual report, the CEO said: “Operation excellence, technology and good project management remain central to our efforts to produce more energy from conventional oil and gas and unconventional sources such as oil sands.

"If we do not develop the right technology or do not have access to it or do not deploy it effectively, it may affect delivery of the strategy as well as our operational performance and financial position."

He then suggested that technology outsourcing was a cornerstone of the company's strategy moving forward: “more reliance on global systems, relocation of information technology services and increased regulation” were the challenges, he said.

So once again a global company finds itself on the horns of a number of (self-inflicted) dilemmas, as regards the politics of outsourcing.

The first concerns the sourcing of innovation versus the stated need to make cost savings at a time when business in its sector, at least, seems to be booming for investors.

The second concerns the PR implications of making sweeping announcements about sourcing strategies that leave vital, skilled internal staff feeling threatened and undervalued – before being asked to move to a new employer, perhaps.

And the third concerns the fact that in the always-on, mobile world of social networking, you can be the story, but you can no longer manage the news.

In conclusion, when you outsource, do it for strategic reasons that free you up to do what you do best; involve staff; play fair; and proactively tell a good story – not boast of your power in a downturn.

In any project, from a school project to the most detailed software development project, you will know more about it at the end than the beginning. It’s hardly rocket science. So why, when thinking about the implementation of detailed software development projects, do so many companies plan every micro detail at the very beginning of the project? Surely it makes sense to perform the first part of the project, define short-term requirements, examine results and conclusions, and then plan again for the next stage. Agile software development, producing software in short iterations, is the common sense approach to software development. It minimises the planning at the initial stage with the realisation that a more fluid approach, with planning at each stage of the development, would guarantee the best results. By constantly testing and integrating the results at each stage, the final product can be released earlier if it is ready, or changes can be made that will lead to an implementation that is both rapid and successful.

The more traditional ‘waterfall’ approach to software development is a process-led approach. The stages of the project are well defined and the requirements are set in stone at the start by analysts – the design at the outset, followed by blueprint documents, then the construction, integration, testing and finally deployment to customers. As any software developer will know, this is the traditional way that software is developed. But it is an approach that lacks the flexibility that would allow the project to evolve with the changing needs of the user.

The agile approach is different; the philosophy is based on the idea that if projects are developed in short iterations (two to three weeks), at the end of which the user can see a working version of the software for sign-off before progressing to the next iteration, then the overall project will be much more flexible. The methodology advocates that the best way to measure progress is through the constant development of working software. At the outset of a project, everyone knows that the requirements will change. No-one knows exactly how the software will work and the agile methodology embraces change and uses it to progress. By predicting only a few weeks in advance, this minimises wastage in terms of time spent on document writing at the outset. It also takes into account the everyday variables that can affect any project, for example personnel changes or problems, technological developments and regulatory changes (particularly in the financial services sector).

The strengths of the agile development methodology are based on the flexibility of the agile offering. Deciding what a project will look like a year prior to its completion does not take into account the industry changes or the changes within the customer organisation that could affect the project. If the customer changes its mind after nine months, this might require a complete project re-think under the waterfall methodology, but the adaptability of the agile methodology allows change to be made based on the requirements of the customer. Also, the fact that a client can assess the development and suggest future plans and changes after each iteration, thereby developing a deeper understanding of the project’s requirements, means that changes can be made throughout the project’s lifespan.

Another advantage of the agile methodology is the constant testing and integration. The test-driven environment - the project will be tested during each iteration - ensures that any faults can be corrected on a regular basis. Therefore after each iteration, progress can be viewed and measured and the next stage can correct any faults, whereas testing towards the end of a ‘waterfall’ project may find a huge problem with the system that needs widespread correcting. This can prove very costly and hugely inefficient. Alongside this is the advantage of an integration of teams (both teams at different supplier locations and integration between end user and supplier teams) – the constant testing and development will mean a close collaboration between end user and supplier who will meet face-to-face on a regular basis to ensure that the next stage of the project is a success.

But it’s not all advantageous - there are limitations to the agile development methodology. For one, it is very dependent on the structure of the client organisation. The customer has to have an agile organisational structure, with internal process that have the flexibility to allow for constant change in a project. If a customer has a rigidity of structure, whereby all projects are strictly planned (and therefore predictable) from beginning to end, then attempting to put in place a methodology that embraces constant change and development is likely to cause internal confusion and consternation.

The need to get customer buy-in at every stage can be a potential difficulty, particularly for customers who are inherently used to the waterfall methodology. Whereas in the waterfall methodology the customer involvement is limited to two stages – beginning and end - the requirement for on-going participation and input in the agile methodology may prove problematic for some organisations. If the supplier is trying to develop software using the agile methodology, but the customer is not getting involved, the benefits are immediately lost. It can also prove costly if the customer is continually suggesting changes – the project can quickly grow larger than its original scope. Suppliers have to take this into account when costing projects of this nature.

Another drawback of agile is that if one part of the project does not work, the whole project can become bottlenecked. This is especially problematic if the issue is within the development team, who are central to rapid progress. If a bottleneck does occur, it wastes the time of everyone involved in the whole project.

There is no doubt that the agile methodology is gaining popularity. In the early twentieth century Henry Ford revolutionised the automotive industry with the invention of just-in-time production, a methodology implemented to improve the ROI of a business by reducing in-process inventory and its associated costs. Just-in-time was a methodology whereby a series of signals, or Kanban, automate the production process into making the next part of the car. Although the progress and development of agile is not perfectly analogous, the philosophies do have similarities; each element of the agile software development is done in small iterations, each iteration self-contained but having a knock-on effect on each other. The take-up of agile seems to be following a similar trajectory to just-in-time too. Just-in-time has proved a tremendously successful and popular methodology, although for several years it was only taken up by very few manufacturers – mainly Ford and then Toyota. However, like agile, sceptics needed very clear proof of its benefit before its more widespread adoption.

Agile is becoming more widespread and sceptics are being won over. The realisation that you have the most information at the end of the project, as opposed to the beginning, is infiltrating into mainstream software development methodology, whilst doubters amongst end user organisations are realising that a shift in internal ideology can create a more rapid and successful deployment of software. Although many organisations are tied to the more traditional waterfall methodology, whose main benefit remains the predictability of delivery, agile – the challenger methodology – is becoming ever more popular due its (potentially) more rapid delivery and the greater involvement of the end user at each stage in the development process.

For more pieces like this, subscribe to our email newsletter.