Industry news

AstraZeneca has put ink to a £25m, five-year deal with BT for it to become the pharmaceutical company’s global network partner.

The contract marks the expansion of an existing relationship in which BT provided network services for AstraZeneca in Europe, the Middle East and Asia Pacific. BT will now extend its reach to 33 new sites in the USA and Latin America.

Richard Williams, Global CIO, AstraZeneca, said that the creation of a new “service effect” contract with BT: "will deliver greater agility, responsiveness and collaboration among our global workforce. This in turn, will lead to improved overall business performance.”

Simmons & Simmons has edged out DLA Piper and Eversheds to become the preferred legal adviser for £1bn turnover outsourcing specialist Sitel.

When Sitel merged with ClientLogic in 2007 the group had more than 100 law firms on its books.

Sitel assistant general counsel John Hayward said: "The genesis for this relationship is the fact that there have been a number of different suppliers throughout Europe, the Middle East and Africa [Emea]. The whole point is to get a big European player who can help us rationalise that background."

Simmons had not previously been instructed by Sitel. It will become preferred counsel for Emea and will manage the use of preferred local firms.

According to IT services consultancy Deloitte’s “Why settle for less” report, outsourcing is failing to meet strategic objectives. The report states that although outsourcing suppliers are meeting cost objectives, many of the companies interviewed expressed disappointment with outsourcers’ overall ability to provide continuous process and technology developments.

Firms contracting outsourcing suppliers should be under no illusion that simply by outsourcing a function, innovative changes will manifest. When developing an outsourcing contract, both the supplier and end user need to identify what is expected of both parties. If there is no explicit statement that the end user wants process and technology improvement, the supplier cannot be expected to provide this. Therefore it is crucial to make it clear from the very start if innovation is expected.

The report states that only 37 percent of firms wanted to improve customer service while only 27 percent were hoping to gain a competitive advantage through outsourcing deals. These figures clearly show that the objectives set by these firms were not strategic but rather cost based. It is likely that a high percentage of these contracts have been in place for a number of years, at the start of which cost reduction was the prime driver for outsourcing. If the research was to be conducted five years from now, the results would show a much higher emphasis on strategic objectives being met.

With 89 percent of respondents claiming that their outsourcing contract delivered at least 25 percent return on investment, it seems that the primary focus of outsourcing deals of cost reduction is being achieved. It’s only recently that non-financial benefits have taken a leading role in outsourcing contracts. However, with the looming economic downturn, outsourcing objectives will again shift predominantly to a cost based model as companies are forced to tighten their belts. Given this situation, return on investment that outsourcing is delivering will ensure that it continues to flourish.

Richard Granger, the man in charge of the NHS National Programme for IT (NpfIT) has left the building. The UK's highest paid civil servant announced his resignation last year, but his actual departure was only confirmed on 31 January.

In a letter to staff dated February 6 2008, Granger is praised for the “major success in rolling out technology-enabled change to the NHS under his leadership”.

Hugh Taylor, the Department of Health’s most senior civil servant, said, “Richard has done a great job in leading the National Programme for IT, which has connected every hospital and GP surgery to a common network.” So, the beleaguered former chief of NHS IT gone and history is being rewritten. But what can we learn from his departure?

This week there are conflicting rumours about the latest ambitions for NHS IT. For example, the Department of Health (DoH) press office denies any suggestion that London’s spine is to be separate from the national spine, and that BT was automatically awarded a new contract to develop that – having failed to deliver the original one. Such a scenario would beggar belief and would be an about-turn on supplier management. (BT has announced this week that it will not tender for work on the proposed ID card scheme.)

Granger himself was hard on suppliers and expected to get a great deal for the NHS and taxpayers. Suppliers were held to some very tight deadlines and penalised when they didn’t deliver. Whether or not those deadlines were realistic is a moot point.

Since the original plans were released there have been many cries of ‘foul’, and a great deal of renegotiation has taken place. Some suppliers claimed to have been excluded unfairly, while others were discarded en route.

One of the critical issues raised by many CIOs within the health service is the way the NHS has approached the whole NPfIT programme. There has been a lack of stakeholder and clinician involvement.

The other main issue is the name. This programme is called the National Programme for Information Technology. So IT is not an enabler for all those good things like change, transformation and people engagement – those things that get CIOs a ticket to the board and buy the right to participate in massive change programmes. No, it's another tech programme.

By settling on a name as mundane as NPfIT, the perception by clinicians and patients was that this is simply an IT programme and (predictably) people switched off. Why? Because no one outside of the IT department wants anything to do with IT. The recruitment problems that beset innovative CIOs are testament to that problem.

So, come February 2008 we see a familiar lack of stakeholder and clinician engagement. It beggars belief that as the rest of world is looking at engagement and relationship management, the largest transformational change programme in the world decides to do exactly the opposite.

So what are the consequences? Firstly, the programme signed contracts centrally without any true understanding of what was required at a local level. Healthcare needs are very complex, and by trying to get to 'one shoe to fit all', people at the centre have not taken account of the regional and local challenges faced by the NHS.

Then the centre decided that it would be a good idea to compound this initial error by insisting that clinicians take backward steps with their current systems to move to the centralised solution. Many clinicians refused. Why should they move to a system which provides only some of the functionality of their legacy applications? (This type of after-the-fact approach whereby technology dictates management needs is typical of projects that ultimately fail – as Chris Middleton explores in his blog this week.)

The NHS CIOs we’ve spoken to about the current farrago made several recommendations that the new incumbents would do well to take onboard.

• Don’t run before you can walk. New systems need time to be designed and properly implemented. Take the time for discovery, and make sure that the needs of the business are addressed. It’s not too much to ask.

• Communication, communication, communication: At the moment, a lot of good work is not communicated to the public or to stakeholders. Sing praises, acknowledge mistakes and explain how those will be fixed. Indeed, there are lessons there for the entire outsourcing industry.

• Set realistic timeframes. Whitehall meddled time and again and tried to deliver the majority of the programme in a very short timescale. The programme is slated to run until 2014, so there is no need to drive everything forward at once (except, perhaps, electoral necessity and party politics, neither of which are conducive to public programmes such as this). Getting the major thing right – delivering a national spine – would be a massive advance.

• Engage your partners. If this had been a true partnership with the suppliers, as opposed to a firm and fixed contract of deliverables, there would have been a great deal of scope to deliver what was required. A basic working agreement between all parties to seek to work towards a final connected solution for the whole of England would have been better than lines and lines about which product functionality would be delivered when, and the relevant penalties for non conformity. Penalties are important, but then so are deliverables.

• Stop changing your mind! As is so often the case with the public sector, once a project is started, we cannot leave well enough alone. Goalposts are constantly moved and criteria changed (Inland Revenue, anyone?). This leads to escalating costs, changed timescales, demoralised staff and – eventually – sloppy processes and procedures.

Something else we have learned is that Granger will not be directly replaced. The DoH is to appoint a chief information officer for health, who will focus on delivering an overall IT vision and report directly to NHS CEO David Nicholson.

The CIO will have the status of director general who will be the head of development and delivering the overall strategy for information on health and social care. Until an appointment is made, Matthew Swindells, policy adviser to the Secretary of State for Health, will act as interim CIO.

This is all very well, but that sounds like an awful lot of Whitehall.

Meanwhile, a report in Health Service Journal quotes the DoH's informatics review manager Tom Denwood as saying current “chaos” surrounding the NHS IT strategy will be resolved within weeks, with a major shake-up at the DoH to establish “unified governance” and clear decision- making, as well as to try to integrate strategic management of health and social care information, and establish clear responsibility for IT strategy and information within the DoH.

Speaking at a conference, Denwood, previously head of the Choose and Book, said NHS IT bosses have said there is, “a complete absence of a function that translates policy into business requirements”.

There is no rationale for pouring more taxpayers’ money (£12 billion and counting) into anything that doesn’t translate into, and meet, business requirements. So much for a national service; it’s more of a national scandal.

French services group Steria has reported year-end 2007 revenues of €1.46 billion, up more than 12% year on year. Domestic revenues were up by 1.3% at €534.3 million. The company sees overall growth in line with the French services sector, but with improved profitability.

The recent acquisition of of Xansa has already contributed revenues of €110.5 million – eight percent of Steria's revenue – in two months of business. Steria has announced it will migrate fully from the Xansa brand in the next few months.

The company's UK market saw growth of six percent to €305.8 million. Steria claims the results now put it at number four in the UK public sector, but Ovum analysts rate it as being just outside the top ten.

Steria is rumoured to be one of a number of companies expected to tender for elements of the proposed ID card scheme, along with EDS, IBM, CSC, Fujitsu and Thales.

Like Atos Origin, Steria has been going through a business transformation programme, in this case aimed at a strategic move into smaller numbers of valued-added business deals, of which any services element of the ID card scheme would be a signature win.

Chairman and CEO Francois Enaud used his platform at the recent Nasscom conference in Mumbai to say that Steria plans to significantly grow its Indian operations, which account for more than one quarter of the group's total workforce.

Enaud said: “The Indian presence afforded to us by the acquisition of Xansa not only adds an important dimension to our blended delivery model, but also provides a considerable boost to our integrated solutions and services offering, including IT and BPO [business process outsourcing].”

Computing and services giant Hewlett-Packard has surprised some financial analysts by reporting a strong set of first-quarter results for fiscal 2008, and raising its outlook for Q2.

Net income was $2.1 billion on first-quarter revenues of $28.5 billion, with revenues up 13% year on year. Looking at revenue by region, Asia-Pacific grew 22%, EMEA grew 15% and the Americas increased by a much smaller margin of eight percent.

HP generated $3.2 billion of cash from operations, which includes the payment of an annual employee bonus, and returned $3.3 billion to shareholders through share repurchases.

HP's chief finance officer Cathie Lesjak explained the strong quarter by pointing to the company's manifold revenue sources: “We generated 69% of total revenue outside of the US, with emerging markets driving significant growth. First-quarter gross margins were 24.5% compared to a year ago. Gross margin was up 80 basis points, driven by a generally favourable commodity environment, disciplined pricing and improvements in warranty and attach [sic].”

But thereby hangs a tale, to misquote the Bard. US revenues have not been separately itemised, which means that the Americas figures may be pumped up by business from outside the US. However, we can infer from Lesjak's percentages that US-specific revenues were in the region of $8 billion.

There was good news for the outsourcing sector, which has seen promising figures by other leading players this month. Services were a strong performer for HP – a company that is widely seen as a bellwether stock for the health of both the enterprise hardware and services markets. Revenue was up $4.4 billion, or 11% year on year.

Outsourcing and integration revenues led from the front, increasing 15% and 13% respectively, while technology services revenue was up nine percent. Operating profit for the quarter was $489 million, or 11.2% of revenue.

Said Lesjak: “We remained focused on balancing margin expansion with revenue growth. Our services results reflect improved focus on services attach [sic], combined with operational improvements from our ongoing efficiency initiative. We've made progress reducing our cost to service delivery, but we still have considerable work to do.”

CEO Mark Hurd was equally forward-looking: “HP delivered a strong first quarter. We had balanced growth and profitability across all regions and gained share in key market segments.”

Hurd claimed that the company's performance was driven by three key factors: “[First] Significant cost savings to both fund our growth and expand our earnings; two, our deployment of additional sales resources to capture incremental opportunities in the enterprise and mid-markets; and three, diverse global customer base and a broad portfolio that's aligned with the growth areas of the market.

“Let me be clear, our cost savings are significant and ongoing,” he concluded. HP has projected second quarter revenues of $27.7 billion to $27.9 billion, compared to estimates calling for $27.4 billion.

HP has recently inked a seven-year outsourcing deal with Unilever to manage parts of its IT infrastructure outside the US. The deal is valued at $675 million, and suggests that technology companies with a huge international footprint can weather the storm, but the immediate future for smaller US technology companies may be less easy to divine from major-league players' results.

News that a Government enquiry has issued a call for evidence on the efficacy and efficiency of outsourced services is a sign that Whitehall sees outsourcing both as a vital strategic weapon in the coming years, and also as a potential means of shooting itself in the foot when services are poorly managed.

The new enquiry, set up by business secretary John Hutton and headed by economist DeAnne Julius, is perhaps long overdue, given that the total value of government outsourcing is estimated at £40 billion a year and encompasses a growing range of public services being taken on by the private sector. It's likely that in the coming year outsourced services could represent over 20% of all government services spending.

The enquiry will report in June and is looking now at how the market can be made to work more effectively in terms of procurement models and barriers to entry. I think we should help.

Surely, however, this is a classic case of putting the cart before the horse: the real question is why some public-sector schemes are poorly conceived, specified and managed by the client.

The 451's Janice McGinnn reports this week on the ramifications for the National Programme for IT (NPfIT) now that Richard Granger has finally, as someone once said of Elvis, ‘left the building’ (leaving his work mobile behind in the press office, apparently).

This is the same Richard Granger who once famously lambasted "privacy fascists”, as he described them, for criticising his tenure at the head of the scheme – just a few months before a series of public-sector data privacy scandals revealed just how important data privacy is to successful government provision.

Granger's managerial style notwithstanding, one of the signature failures of the massively ambitious – and perhaps largely misguided – NHS programme that he headed has been its hard focus on IT, rather than service, and letting technology dictate and drive medical staff’s behaviour and working regimes.

This type of error unfortunately typified the ambitious and idealistic Blair regime – technology for technology’s sake; modernity for modernity’s sake. It was as though macho-budget technology spending somehow equated with powerful government; an old-fashioned arms race, in other words. But on the client side, no one outside the IT department wants anything to do with IT – unless there is a security breach, or a project is over budget and over schedule, at which point it is in the media spotlight.

Imagine the public support that has been squandered by all the mass-media public discussion about databases and technical specifications.

Gordon Brown, once paymaster of NPfIT, would do well to lose his Tory-crafted reputation for dithering by single-mindedly abandoning that focus and taking the programme back to the people who use it, and to its publicly stated aims (rather than its technical specifications).

When IT schemes go bad, whether they are in the private sector (like the IBM litigation discussed in my previous blog) or the public sector, the warning signs are almost always the same. If it’s for the people, but all about the technology, then it’s not going to work.

I suggest that this is what the enquiry should really be focusing on, otherwise it may (like some of the public schemes it investigates) be misconceived from the outset. The outsourcing industry as a whole, which employs hundreds of thousands of people within the UK alone, can only supply what it is invited to tender for.

I hope all the readers of sourcingfocus.com will put themselves forward to, in those immortal words, help the (industry's) police with their enquiries. Let's get involved and challenge the enquiry's assumptions. It will be better for our industry.

Indian IT services outfit HCL Technologies has acquired CapitalStream, a US provider of front office automation technology to North American banks, in an all cash deal worth around $40 million.

CapitalStream's product range includes software for prospecting and sales, credit analysis, due diligence, documentation and portfolio monitoring.

CapitalStream's flagship product, FinanceCenter, is a Web-based multi-tier application designed to automate front office operations. HCL says the product is used by over 20% of North America's top banks and customers include Bank of America, National Bank of Canada and Scotiabank.

Commenting on the acquisition, S Premkumar, corporate officer and global head, financial services, HCL Technologies, says: "This will enhance our capability in the Financial Services sector to deliver large scale enterprise solutions. The modular architecture would also help HCL to localise the platforms across various global financial centres."

The new team numbers 13 partners and is pooled from fee earners in the big four Scots firm’s London, Edinburgh and Glasgow offices. The group was set up last month and is being led by Glasgow-based intellectual property partner Laurence Ward.

Dundas said the move had come in response to client demand, with the team set to target a broad range of work including IT, human resources and facilities management in both the public and private sectors.

Commenting on the move, Ward said: “A dedicated outsourcing team of this size is unique in Scotland and also allows us to compete on the UK outsourcing stage. Our experience means we can work seamlessly with known consultants, streamlining the supplier selection and contracting process and maximising the chances of securing attractive deal terms for clients.”

He added: “If a business is ill-prepared going into an outsourcing contract or on its renegotiation, the exercise can become massively inefficient and time-consuming and difficult to exit.”

The firm has advised on outsourcing deals for clients including financial services heavyweights Standard Life and RBS on the outsourcing of regulated back-office functions, as well as local authorities including Glasgow City Council, which it advised on shared services initiatives.

A customer of IBM has cited the computing and services company in its bankruptcy declaration in a Delaware court, blaming a failed enterprise resource planning (ERP) application for the company’s inability to complete orders. American LaFrance (ALF), a US maker of firefighting equipment, developed a standalone ERP system when it was spun out from previous owner, Freightliner. Almost immediately upon the changeover to the ERP system from Freightliner, so ALF claims, problems with the new system had a devastating impact on its operations, including an inability to reconcile data, and missing financial information. ALF claims that IBM is responsible for the IT problems that precipitated its bankruptcy, because, essentially, alleged deficiencies in the system prevented it from customising orders for individual customers.

See Editor's Blog for more on this story.