Industry news

Retailers and business services firms are leading the growth in IT spending in the UK, as organisations step up their investment in online commerce and knowledge management systems.

The latest Computer Weekly/Kew Associates research shows that retailing, wholesaling, hotels and catering firms increased their IT spending at a rate of 7.6%over the 12 months to the end of March, a rate higher than the rest of the economy.

Emerging cyber crime including ID thefts, data thefts, credit card manipulation and stealing confidential information from companies, have put IT companies and BPOs on high alert. The IT-ITES sector in India has initiated several radical moves that has brought in some amount of confidence back in the sector. Companies are also demanding that Nasscom, the apex body for the segment, create awareness in US and Europe countries on the various security measures taken by Indian companies.

Says Ashwin Mittal, director, Cross-Tab Marketing Services Pvt. Ltd, an ITES company, “Data security is paramount in our business. We need to demonstrate strong systems for getting business, and can be exposed to litigation from clients if we do not protect their data. Nasscom can help by introducing a common platform of security standards throughout the industry and also by introducing a certification programme for companies' data security systems." Cross-Tab adopts strong data security measures at the personnel, process, infrastructure and technology levels. The company spends about 1% of its revenue annually on data security.

According to Neeraj Kaushik, country head-India, Trend Micro, a security software provider, “Security is not something that you do once and do away with, but an ongoing process. Where Indian companies lack is in constantly being aware of the challenges and accordingly redeveloping their data security measures.” Industry players say that, the job of a typical BPO worker becomes very suffocating as there is no access to personal e-mail accounts and access to websites not necessary for work are also blocked. Workers are forbidden from socializing with non-employees during work hours. Also visitors are required to seek permission and are required to sign a document of non-disclosure.

It has its detractors, but in reality there is little evidence to suggest that the outsourcing market is doing anything other than booming. Research firm TPI has found that Europe and Asia-Pacific are both still experiencing strong outsourcing growth. Outsourcing activity in Europe for the first quarter of 2007 was up by two-thirds compared to 2006, with $9.7bn-worth of contracts signed, while Asia-Pacific experienced a 30 per cent rise to $2.1bn. Outsourcing is still, and will continue to be, a boom market. However the nature of the outsourcing deals is changing.

In the past in the financial services sector, reducing overheads to maintain a competitive edge or simply staying afloat was the underlying force behind every outsourcing decision. In some respects outsourcing was seen as a way of passing on a problem that was too expensive and resource-draining for the company. Financial services organisations have been guilty in the past of viewing outsourcing primarily, if not solely, from an operational perspective.

Nowadays, a more mature and wiser outsourcing market has emerged. Companies no longer see cost as the principle driver behind outsourcing deals - more and more companies are viewing outsourcing as a way to add value to their organisation as well as gaining additional domain and technology expertise. By employing a supplier with high-level industry knowledge to develop complex technology that transforms or re-engineers a key business process or function, the end user aims to change the operation so that both the performance improves and the cost decreases.

Outsourcing the development of high-end technology, which will re-engineer the company’s key processes – transformational outsourcing - is a new and exciting development in the outsourcing marketplace. Analysts describe transformational outsourcing as “an emerging form of IT outsourcing that combines cost saving with the potential for enhanced IT flexibility”.

One example of transformational outsourcing is within banks and financial services organisations, which outsource software aimed to improve or re-engineer their front line operations. By employing a supplier with the domain and technology expertise to deliver mission critical software, the banks accelerate process transformation and build software that is a vital part of their operations.

When outsourcing is approached from a transformational perspective, the economic advantages are a beneficial result rather than an objective. The key aim is to accelerate and finance process transformation. This is geared around key business needs such as strengthening front line operations, accelerating speed to market, closing the skills and knowledge gaps and primary technology demands such as building a strong and flexible infrastructure. A recent IDG study on transformational outsourcing found that firms are increasingly using transformational outsourcing as a way to introduce strategic flexibility into their business models.

The transformational model implies another level of the vendor / end-user relationship. It is more of a partnership in which an outsourcing provider can demonstrate flair in thought leadership, pro-activity, domain expertise and an ability to adapt and respond to the end user’s business requirements. This approach can be used in any sort of outsourcing practice, from high-end applications through to complex IT systems and business process outsourcing.

With the rise of transformational outsourcing has come the realisation amongst end users that outsourcing isn’t a matter of simply handing over a problem to a supplier. The transformational model is different. As research firm TPI explains, transformational outsourcing is “the process of effecting continuous strategic change and tying the results of the outsourcing initiative to strategic business outcomes. It is a collaborative, risk- and gain-sharing relationship among the organisation and its service providers to drive enterprise transformation and achieve significant business process improvements.” By harnessing the outsourcing process, and working in tandem with the supplier towards the same goals, transformational outsourcing can have a strategic effect on achieving company goals.

There are both huge benefits and potential pitfalls when outsourcing such development to a supplier. On the plus side, the promise of rapid, substantial, sustainable improvement in enterprise-level performance, as well as an improvement on the bottom line has tempted end users to consider transformational outsourcing.

However, it is essential to follow best practice guidelines when considering a transformational outsourcing solution. As in any outsourcing deal, finding the right supplier is vital. The difference in transformational outsourcing being that the supplier must be trusted absolutely to know the end user’s business, the systems that are used and the operations and processes that are to be transformed. The domain-level expertise has to be one step above traditional outsourcing because of the fact that core processes are actually being transformed, rather than amended or simply being managed.

One other issue that must be thought through within transformational outsourcing is the need for the end user as well as supplier to look at their relationship as a business model, that benefits both partners, and not just a deal. It is very important that the strategic purpose should be kept at the centre at all times.

The advantages of transformational outsourcing come about as a result of intelligent outsourcing processes. When transformational outsourcing is put in place, monetary benefits are an inevitable outcome, but it is the improved value to the end user’s organisation and processes that is the most significant benefit to the end user.

By Sergey Karas, Vice-President, Luxoft.

For more information, please visit www.Luxoft.com

Xchanging has announced a five-year £1.7 million annual contract renewal with SELEX Sensors and Airborne Systems UK to provide HR services. This builds on a relationship which began in 2001.

SELEX S&AS UK is a wholly owned subsidiary of the Finmeccanica Group after BAE Systems sold its stake in May 2005. SELEX S&AS chose to renew its agreement with Xchanging under new terms for three primary reasons: recognition from both companies that the partnership is working and continuously improving service delivery; Xchanging's demonstrated expertise in HR processes and delivery channels; and the transparency of its pricing structures. This made Xchanging the provider of choice.

Under the new contract, SELEX S&AS will continue to receive tailored HR services, building on the already strong relationship with Xchanging. The agreement goes beyond the first contract with new services, new service standards and a new pricing structure. SELEX S&AS will also continue to benefit from the significant investment in HR processes offered by Xchanging.

Darren Bartholomew, HR Manager for Shared Services at SELEX S&AS UK, said, "We have worked together in partnership now for six years and I am pleased to have extended our relationship with Xchanging, taking the provision of HR services to a new level of maturity. With this partnership we have the ability to deliver an even better level of service to a very demanding customer base in what is an incredibly fast-moving business."

David Andrews, Chief Executive Officer at Xchanging, said, "SELEX S&AS' choice to renew its service agreement with Xchanging demonstrates our ability to tailor services and pricing structure to the customer's needs. We look forward to the next five years of delivering quality services and measured value."

David Rich Jones, Executive Director responsible for Xchanging's Human Resources services, said, "We are delighted to build on our excellent working relationship with SELEX S&AS – allowing them to focus on their exciting challenges while Xchanging applies its expertise to accelerate the HR service to even higher levels."

Sun Microsystems India and Tech Mahindra today announced a strategic alliance to enable the rollout of cost-effective and efficient IPTV services to the Indian and Asia Pacific markets. As part of this alliance, Sun and Tech Mahindra along with AMD will jointly set up a next generation IPTV lab at the Tech Mahindra facility in Pune. Tech Mahindra is already engaged with various service providers to offer IPTV solutions in various geographies.

Sun recently introduced the Sun Streaming System -- the industry's first massively scalable and cost-effective video delivery platform for cable and telecommunications operators, which helps operators increase subscriber revenue by offering new video-based services and personalized, unique video streams to each consumer.

The IPTV lab at Tech Mahindra would feature solutions from an exclusive consortium of solution partners including, Digisoft, Envivio, Harmonic, I-Make, Verimatrix and Mototech, and Sun's own Streaming System. The State-of-the-art lab will showcase a pre-integrated End-to-end IPTV system for Tier1, tier2 and Tier3 service providers. Tech Mahindra would use this lab to showcase its IPTV domain expertise toits global customers. This lab will also allow potential customers, OEMs and ISVs to test the Sun Streaming System's capabilities, architect and validate an end-to-end solution.

Speaking at thelaunch, Mr. K.P Unnikrishnan, Director, Strategic Alliances Sun Microsystems India said, “Through this alliance with Tech Mahindra, we are looking forward to showcasing an end-to-end IPTV solution based on carrier grade Sun systems featuring the revolutionary Sun Streaming System. This is Sun’s first such alliance in the country for IPTV services. We are extremely excited about this partnership and what it entails for us."

“Tech Mahindra through its sustained investments in R&D, has developed IPTV capabilities across several areas that include consulting services, system integration capabilities, network technology areas in next generation elements, network and application performance optimization, interactive application development and BSS/OSS systems. Tech Mahindra is playing a significant role with a number of incumbent and emerging service providers and enterprises in the IPTV domain and Triple Play. Tech Mahindra has partnered with the industry best product vendors, like Sun, to offer an end-to-end IPTV system to service providers globally. “, said Mr. Shankar Allimatti, Vice President, Next Generation Technologies, Tech Mahindra.

“To leverage the potential that India offers for IPTV, we are partnering with the industry’s best to provide the most cost effective, best-performing IPTV solutions to ourcustomers and thus further our IPTV strategy for this region. Tech Mahindra was a natural choice given their expertise and experience in telecom solutions and services as well as their intimate knowledge of the Indian market. This alliance will help bring the Sun Streaming System's market-changing economics to customers in the video services industry in India.” Mr Unnikrishnan further added.

59 percent of respondents have had to exit or re-negotiate an outsourcing contract before the end of its term, typically due to poor service from the supplier a survey from legal firm Addleshaw Goddard’s technology and outsourcing team has revealed today.

The research, conducted by Wheeler Associates and McCallum Layton, surveyed sourcing and legal experts from 68 FTSE 350 companies, operating mainly in the financial and retail sectors. The survey explored organisations’ approach to managing the outsourcing contractual process and the key issues that companies face at each stage.

The study found that the main risk associated with exiting was inadequate exit planning – 24 percent of respondents said that their company had been significantly impacted by inadequate exit planning. Exit is the area where companies feel the least confident in their abilities, compared to every other aspect of the outsourcing process - 57 percent of respondents scored a mean of 6.5 out of 10.

The survey also shows that high profile outsourcing disasters do not appear to have increased concerns about outsourcing risks. Only one fifth (21 percent) of respondents said that problems, such as Gate Gourmet and BA, have prompted their Boards to take a closer look at outsourcing risks. Board involvement in outsourcing is directly correlated to the size of the deal – although 91 percent of respondents said some contracts were signed off by the Board, only 60 percent said that none were and a not insignificant nine percent said the Board had no involvement whatsoever.

Regarding the perception of outsourcing risks, 21 percent thought that the deterioration in the quality of the outsourced service process was the factor most likely to cause the failure of outsourcing. Lack of control was cited as the second largest risk, by 18 percent. Hidden costs associated with outsourcing contracts were deemed less risky, with 13 percent.

With regards to the outsourcing lifecycle, transition is seen as the riskiest phase – the lack of internal resource to affect transition (cited by 69 percent) and lack of supplier skills (41 percent), specifically lack of supplier project management skills (44%) were seen as the main risks in transition.

The survey also showed that while there isn’t a trend to insource, one in three UK organisations have taken or intend to take a business function that has been outsourced back in-house. Over 50 percent of those companies have cited service quality problems as the main driver and two fifths said that the failure to deliver cost savings was the reason behind their decision.

Commenting on the research, Margaret Harvey, head of the technology and outsourcing team at Addleshaw Goddard said: "The research has highlighted some key areas within the outsourcing lifecycle where there are risks which are not being adequately addressed. 59 percent of customers have had to exit or renegotiate contracts before the end of their original term but this is the area where they feel least confident about their capabilities and contractual protection. Customers and their advisers need to focus more on these "overlooked" stages in every outsourcing contract to avoid potentially significant problems."

Some Other Statistics from the Research:

• Companies are most confident in their ability to prepare the business case for outsourcing (86% scored an average of 7.6), whilst they are least confident in renegotiation and exiting (57% scored an average of 6.5)

• IT is the most outsourced business function – 69% outsource some or all of IT; 34% outsource payroll; and 32% outsource telecoms

• Business case preparation is often down to the department of the relevant function being outsourced – 79%. The finance department leads in 43% of cases.

• Two thirds of companies talked to instructed external lawyers at some stage (usually around development and negotiation of contracts) although only 11 percent called on their help post contract sign off.

Tech Mahindra today announced the setting up of its state-of-the-art software development center in Hyderabad at Kokapet near Golkonda within the SEZ area.

The new state-of-the-art campus when complete will be capable of housing 3,000 software engineers and will have all modern facilities like video conferencing, training centres, food courts, a gymnasium and a sports complex, which is spreading over 8.43 acres of area. The green complex to be built in the form of campus will have rain water harvesting mechanisms, an in-house sewage treatment plant to recycle water and minimize the impact on environment. The structures will be built encompassing intelligent building management system with intelligent lighting systems.

Mr CP Gurnani, President International Operations of Tech Mahindra and Ms Ratna Prabha Principal Secretary IT &C Department, Government of Andhra Pradesh recently signed a MOU (Memorandum OfUnderstanding) for the acquisition of land which will be handed over to the company within next few days.

On the announcement of Tech Mahindra's Hyderabad campus plans, Mr. CP Gurnani , President International Operations, Tech Mahindra, said, "We are overwhelmed by the support that we received both from the investor-friendly government and professionals here. We are keen to tap the Andhra Pradesh talent pool and makethis centre a major hub in the region and thus participate in the techno-economic development of the State."

"Tech Mahindra has been on a continuous journey of transformation, addressing new players in the telecom ecosystem and expanding service lines. We have chosen Hyderabad because of its rapidly developing infrastructure, IT-friendly policies and access to a high quality pool of software professionals. Hyderabad is integral to the expansion of the company's service offerings and delivery capabilities. The huge presence of many of Tech Mahindra?s ecosystem Partners in the city makes it further more attractive" he further added

Tech Mahindra today announced the signing of a five year deal to provide BT with strategic sourcing services. This contract is expected to create new revenue for Tech Mahindra in excess of US$1 Billion over this period.

Tech Mahindra will support BT’s planned growth of managed services to business customers around the globe and continue to provide ongoing services related to BT’s internal systems, processes and re-usable platforms.

Tech Mahindra and BT Group have worked together for 20 years on a range of projects which have proved very successful for both parties. This deal builds upon and strengthens the productive working relationships developed during that time.

Both companies will work together on creating and operating a global delivery organisation, by leveraging and augmenting Tech Mahindra’s existing delivery centres, to achieve greater flexibility and efficiencies in addressing client requirements.

Hanif Lalani, BT’s Group Finance Director, said: "This is another example of BT sourcing the best skills around the world to deliver outstanding service and value for our customers whilst contributing further to continued operational efficiencies."

Vineet Nayyar, Vice Chairman and MD, Tech Mahindra, said: "We are proud to be BT's preferred partner for its internal IT requirements and this new opportunity will enable us to assist BT serve their external customers even more effectively. We feel privileged that BT has selected us for this opportunity and takes our long standing relationship to a new level."

Channel 4’s recent Dispatches programme highlighted problems that Indian companies have had with data security. The sting operation managed to buy personal data on British citizens from Indian call centre workers. Data security in outsourcing arrangements has long been an issue that troubles many in the financial community; this high-profile failing of data security won’t allay fears. There are no easy solutions to data security, and it is only by being extremely thorough that firms can ensure that data is kept safe from fraud and theft.

Data security is at the heart of any outsourcing agreement. When financial companies outsource their IT, more often than not the data transferred to the supplier will contain confidential information. Outsourcing agreements are built on trust between end user and supplier. It’s crucial that the end user has to trust the supplier with this information and equally the supplier returns the favour by guarding this data in a suitable manner.

Undefined boundaries relating to the division of responsibility of security protocol are often the reason behind security lapses. When working with a supplier, the issue of responsibility is always a potential problem. This can often be exacerbated by an ‘out of sight out of mind’ attitude - this is not an approach that any organisation can afford to take, particularly with security. Suppliers need to be allowed to work with the data, but it helps if end users build the security policy, in conjunction with suppliers. If not, the left hand might not know what the right hand is doing and this may result in misaligned security objectives and achievements. It helps if throughout an outsourcing agreement the users visit the supplier location every 6 months or every year to make sure that all processes are up to scratch.

Companies need a wide range of procedures, covering physical security, IT security and the security of intellectual property in order to formulate a security policy and then a complete security programme. All these factors need to be considered and integrated into a security plan in order to safeguard data effectively.

Physical security

In the last month, three laptops containing Metropolitan Police payroll data were stolen from LogicaCMG, the UK IT services firm, demonstrating that breeches to physical security do occur. The first barrier to data theft has to be physical security. Customers’ data, particularly bank details, must be entirely protected from thieves. It is advisable to have a rigorous security structure that includes: card access control; employee badges; security guards; 24/7 video surveillance; dedicated, client approved and physically secured development centres; electronic motion censors (during non-business hours); mantrap-controlled entrances and exits; coded door locks and PIN cards. Vendors must cater to the needs of all of their customers, and some financial companies might require further physical security, and flexibility is the key on the part of the supplier.

IT / Data security

Other activities that companies should always practice include firewalls, anti-virus software and automatic patch updates. These are the basics. Businesses must be careful to ensure separate back-up and IT infrastructures exist for each client, and all data is backed up.

It helps if suppliers have further measures in place, to keep the data secure and to ensure the financial client retains full confidence in the security standards. Businesses must have a central monitoring system to monitor in-coming and out-going correspondences, as well as dedicated channels with encryption between customer and vendor.

Intellectual Property

Recent research has shown that banks should fear insiders more than hackers. Because of the potential for corruptibility it is imperative that processes are implemented to retain firms’ intellectual property.

The HR team, when hiring, should be thinking about defending the firm’s intellectual property. Strenuous screening and background checks should ensure that unscrupulous applicants never become employees. Employees should be educated about the legal requirements and responsibilities of working for the particular organisation. Staff should be made to sign non-disclosure agreements and not be allowed to use USB ports / sticks, as this is an easy way to take data (physically) outside of the organisation.

Complying with local area regulation is vital, and India, following the aforementioned security breeches, is in the process of formalising an equivalent of the Data Protection Act. However, in its absence, suppliers are falling over themselves to demonstrate data security compliance.

In Eastern Europe, strict laws defend the intellectual property of companies. If an employee has signed appropriate documents (as they should do when they join), then they could end up in prison for breaches of data security. Coupled with this, IT employees, especially those from Russia, have a scientific mentality that dates back to the times of the USSR, whereby attention to detail means that people are very sensitive to the threat of security breaches.

Security in financial IT outsourcing is imperative. It is the glue that creates a positive outsourcing bond. The whole outsourcing deal is built on trust at the heart of the relationship and if trust is present, it is a good stepping stone to build a healthy relationship. On the flip side, if a vendor demonstrates poor security, this can undermine the whole relationship, even if the actual work is going well. The message to vendors and customers in the financial industry is this: a security system, properly integrated between end user and supplier can be the base on which to build a long and healthy outsourcing relationship.

Ivan Gavrilyuk is CIO of Luxoft. For more information on Luxoft www.luxoft.com.

Whilst the trend towards offshoring has led the way in the global outsourcing industry for a number of years, offshoring locations such as India and China are now finally seeing a dent taken out of their global advantage. Whilst in the early years of outsourcing India was the dominant offshoring location for the UK, due to language capabilities, graduate workforce and the wage differential, there is now a significant trend towards nearshoring. In the last few years countries such as Russia and the Czech Republic have joined the fray, launching propositions to the UK market. Distinct advantages such as highly educated workforces and close cultural alignment are cited by organisations sending their processes to these destinations, and offshore destinations are feeling the strain.

Offshore outsourcing emerged initially as the main supplier destination largely due to cost, but also due to the numbers of skilled graduates and the experience gained within the IT sector, with these factors boosting India especially. However, there were a number of high profile offshoring failures amid claims that some UK companies jumped too quickly onto the offshoring bandwagon without adequately assessing the consequences and without considering alternative options.

Nearshore outsourcing is now on the rise, with end users sending processes to locations with a cultural, regulatory and physical proximity to the end user either as part of a global delivery model or as a replacement for the offshored service. Despite being less widely used than India, Central and Eastern Europe was seen in a recent survey by TPI as equally appealing an outsourcing location as India, with both destinations rated attractive by 59 per cent of respondents. The TPI report states that: ‘it appears likely that Central and Eastern Europe will make up ground on India’s lead over the next few years’.

There are undoubtedly advantages and disadvantages of offshore and nearshore models and generally they tend to be aligned to variables such as: the type of process that is being outsourced; the level of complexity of that process; the working culture of the client organisation; whether the process needs to be conducted during the office hours of the client organisation, or outside office hours etc.

One of the key differentiators between offshoring and nearshoring is the difference with management costs. Calculating the cost of offshoring is not as simple as comparing the wage differential between India and the UK. Cost assessments need to take into account the full range of variables that must be considered to confirm the immediate advantages and other benefits that are realised over time. Management costs involved in offshoring are often overlooked – evidently the further away a process is based from the country of origin, the higher the management investment of that process will be. Companies currently analyse cost savings on offshore deployments based on the current differentials with offshore and onshore employment markets alone when actually they need to take other factors into account, such as management time, wage inflation, attrition rates etc.

Certain functions will be more suited to offshoring, such as commoditised functions that require more generic and easily acquired and replaced skill sets. In contrast, more complex functions, such as those that require industry specific knowledge, are more susceptible to security risks and will have significantly different cost and risk profiles to commoditised functions. It is likely that processes of this kind will warrant tighter management control. In this scenario, a nearshore strategy could prove more effective, as it will enable access to the necessary skill sets, plus the mitigation of the risk and management problem as the geographical differences will be less. It will also enable the organisation to realise significant cost savings. When referring to offshore outsourcing’s capabilities, a recent report by KLG on current trends in global sourcing opined that “the savings profile for more complicated functions will have a markedly different profile and in some cases less savings than that offered by nearshore deployment opportunities”.

The offshore advantage held up until recently due to its remarkable advantage in terms of cost. The slow, but steady, erosion of this competitive advantage, including the shift away from cost as the most important reason behind an outsourcing agreement (a recent survey by the National Outsourcing Association found that 83 per cent of respondents saw a healthy relationship, as opposed to cost, as the key differentiator between success and failure in an outsourcing deal) means that offshore suppliers are facing a real challenge within the global outsourcing industry. As well as a healthy relationship, end users are now focusing on the need for regulatory compliance and tight security when entering an outsourcing agreement.

The negative publicity that offshore suppliers have received, particularly within the recent ‘Dispatches’ programme on Channel 4 (about data security breaches in Indian call centres), may or may not be merited. Either way it adds further weight to the increasing number of questions posed to offshore suppliers on a number of key outsourcing issues, including security and regulatory compliance. Whilst offshore outsourcing retains a lead in terms of sheer quantity of contracts in service, the nearshore dimension is adding a new element to the global outsourcing industry that cannot be ignored.