How will the General Election impact on IT outsourcing services?

by Ferenc Szelenyi, managing director EMEA, Dell Perot Systems

Saving money
The current UK government expenditure now stands at around £680 billion a year, of which only around £80 billion worth of activity is outsourced. Currently, much of that spending is at a local level, but it is my view that this should eventually be spread across national government sectors. With every sector currently looking to reduce their operating costs, it is apparent that IT outsourcing has crucial part to play.

This is because currently, organisations in the public sector are looking to maintain services as best they can while recognising that there will be less money. Therefore, outsourcing is an ideal fit. Personally speaking, whoever takes over the key to number 10 this year should be more concerned with commissioning the right outsourcing services rather than taking tasks on themselves. Therefore, managers in the public sector should turn to IT outsourcing at a time when improving efficiency and cutting costs is imperative. A successful outsourcing strategy provides a medium to long-term solution, which can not only deliver the necessary cost savings to ease the burden of the current deficit, but also provide improved operational efficiency and access to specialist skills and technology. This allows any new or existing government to focus on core (in-house) activities. But just what are these services and how can government sectors best take advantage of them?

Releasing the pressure
If you take IT services as a prime example, an outsourcing service provider is better placed than a government body to transfer paper to electronic records, having already made the investment in the required technical equipment, training and skills. These are assets that government departments simply do not posses in house. Therefore, outsourcing these services enables them to transfer the processes to a supplier who has a stronger ability in handling them, while allowing the public sector to concentrate on its core responsibilities.

Health care is a prime example of a sector that is always being asked to fulfill the escalating needs of the patient, not to mention having to comply with the ever-changing government rules and regulations. A change in power could potentially increase these headaches, as any new party is likely to make changes to stamp their authority early on. Therefore, every health care service should look to grow with the ever-changing technology in order to provide high quality health care services and therefore survive in the exceedingly competitive market. One possible way is if the industry adopts health care IT outsourcing. As the health care industry has to continually deal with the mission critical information, highly important data and high network connectivity, the challenges could be outsourced to a specialist services provider.

Meeting new goals
Furthermore, service providers from across the globe with expertise in this critical sector have been engaged in electronic billing records, medical billing, transaction processing systems, document management, integration of existing back end systems with highly new and advanced tools.

However, in order for the healthcare sector to fully benefit from the services provided by their chosen outsourcer, continued innovation form the service provider and trust in the form of a public/private partnership needs to be established. 

Innovation and trust
Government must work with their selected service providers to increase trust and develop new innovative processes. Previously, a lack of trust has been the major barrier preventing successful public/private partnerships. The public sector must learn to trust the contractor‘s ability to do things better. For this to happen, contractors need to prove that they can deliver projects more efficiently. Suppliers must also work to ensure they operate in a transparent way. They must be forthcoming with new ideas and innovative suggestions to improve traditional delivery methods.

Firstly, barriers to innovation must be reduced. There is willingness in the outsourcing service industry to match fees to outcomes, for example to match the management fee to educational outcomes in schools. However, this rarely happens because the people who own the contract don’t have the ability or intention to challenge the process. Another problem is that often the public sector wants something easy to measure, and that is usually cost. Achieving high-level outcomes in a changing environment requires institutionalising innovation as part of the outsourcing process. This could include innovation such as utility computing, the packaging of computing resources, such as computation and storage, as a metered service similar to a traditional public utility.

Secondly, trust between the two parties must be developed. This comes from the outsourcer providing regular communication with their specialist sector. I believe this can be assisted greatly by having a CIO in place to handle technology strategy on the government side. This would make life easier when co-coordinating with the chosen service provider, as they will be able to communicate on the same technical level.

The future
In summary, no matter which party is in power after this year’s general election, government will need to cut the costs of delivering public services without compromising quality. It is clear that service providers can assist and add value to this process.

However, the re-commissioning of ineffective services must stop and the elected government must look to service providers to do things differently. This may mean radical changes in the way services are delivered. One thing’s for certain, outsourcing complex IT processes has to allow expert providers to work on behalf of or in partnership with the government. Only then will the government in power be free to do what it should be doing– making policy and acting as custodian of standards.

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The end of ‘quick win’ outsourcing

by Daniel Naoum, co-founder, Valueshore

As the green shoots of economic recovery begin to show, a number of reports are stating that outsourcing is ‘on the rise’ – declaring that businesses across a range of industries are now ready to look again at investing in offshore outsourcing. Businesses once more see outsourcing as a way of reducing costs, take advantage of the world’s most skilled workforces and generally improve their business processes.

Yet with this good news come equally striking warning signals. For many organisations, immediate cost savings remains the number one concern when looking to outsource. However, taking a cost-only approach is dangerous as businesses will often look to outsource to the regions with the lowest costs, ignoring things like quality and business innovation.

Although it’s easy to see why initial cost savings would be attractive, especially to companies struggling to survive day-to-day, such benefits aren’t necessarily enough to sustain long-term success. In order to be successful, businesses must change the way they work with outsourcers and change the focus of that relationship. In short, long-term benefits led by continued innovation – whether in technology or business processes - must now be the heartbeat of the industry.

Moving away from the familiar
Historically, businesses looking at offshore outsourcing have been attracted by initial cost savings such as lower staff overheads, lower land or rent charges and so on. However, focusing only on these areas means that organisations can be hit by hidden costs they weren’t anticipating.

Traditional offshore destinations, such as India, don’t always lend themselves to continual cost savings and efficiency. Firstly, these regions are far away from UK business hubs and therefore sites can be very difficult to manage effectively.  Many businesses are now finding that offshoring to a different time zone can be disruptive.  If mistakes are made it can take 24 hours to have them rectified rather than making a quick phone call.  Face-to-face meetings can be even more problematical, as this will require days out of the office rather than just hours.

Outsourcing based on cheaper day-rates means companies are risking drops in quality and therefore does not support long-term success. Simply put, an organisation outsourcing its business functions is not guaranteed the highest quality of service if it has opted for cheap rates. The old rule ‘you get what you pay for’ may have been unpopular in the recession but it’s a fact. If businesses want to get the most out of outsourcing, investment with one eye on the future is needed. This may means higher initial costs but it will result in more substantial gains in the future.

With this in mind, it’s clear that the focus must shift from day-rates to sustainable savings that will ensure stability within the offshoring industry and within the businesses buying into it. In short, cost cutting should no longer be the outsourcing industry’s most effective selling point.

Innovation is the key
A key advantage of offshoring is you can work with regions leading the way in a particular industry. Companies benefit from the knowledge-base and put in place the kind of infrastructure and business process that’ll set them apart in the long-term. As always, the region a company chooses can dictate how substantial any savings will be. However, this shouldn’t be based purely on where the cheap labour lies.

Nearshoring to regions within the EU is one option for UK companies, potentially offering more long-term savings that will last years rather than months. There is a wealth of highly-skilled staff, who have extensive experience in complex projects, not to mention a close geographical and cultural affinity with the UK. For instance, regions such as Spain have proven track-records, developing efficient business processes for global brands such as Zara and Santander.

Look to the future
Although day-rates remain the priority for many companies looking at offshoring, it’s up to the outsourcers to show them that ‘quick win’ focus only gives brief respite. It does not lead to success in the long-term and offers little benefit to a global outsourcing market trying to prove its worth as budgets become available post-recession.

As businesses come out of the recession and look again at outsourcing, it is imperative to both the survival of those companies, and to the outsourcing industry as a whole, that innovation and value for money become the number one priorities.

In order to rise out of the economic gloom, companies must start to think strategically – the more advanced a company’s business methods, the more sustainable and substantial cost-savings will be.

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What does the future hold for IT application outsourcing?

by By Ferenc Szelenyi, managing director EMEA, Dell Perot Systems

Application outsourcing, the management and upgrades of packaged or customised software that is contracted out to a service provider, has come a long way since the Y2K projects of the 1990s. The Y2K, or millennium bug as it became commonly known, was a problem for both digital (computer-related) and non-digital documentation and data storage situations, resulting from the practice of abbreviating a four-digit year to two digits. Consequently, many projects related to the Y2K syndrome were outsourced on a large scale, with organisations seeking to acquire additional competence especially in applications during this stage.

Traditionally, the process of an application outsourcing strategy can improve business effectiveness by promoting a tighter focus on managing costs. With the Y2K era potential costing companies millions in lost revenue, this approach made perfect sense. Since then, as marketplaces have expanded to global proportions and competition has increased, application outsourcing must remain cost-effective, by providing development and maintenance resources at price points that organisations could not previously obtain locally or internally.
Time for change
However, post Y2k, it hasn’t taken long for organisations to realise that application outsourcing’s attractiveness, as a cost-cutting exercise, is only one part of the story. While there will always be a place in every business plan for cutting costs, there is also room for new opportunities and fresh approaches. Organisations now have access to new talent, advanced techniques and technologies that can deliver additional benefits, most notably faster time to market for new applications and upgrades alike.

For example, if you take the healthcare sector, many hospitals can now provide a hosted application platform that enables them to gain access to advanced clinical IT solutions in a shared resource or dedicated server environment. Application outsourcing platforms can also enable hospitals to deploy technology faster, more affordably and using fewer internal resources.

As application outsourcing solutions continue to evolve, transforming from a strictly tactical solution to a strategic one, companies will be able to deliver measurable business value and competitive advantage. However, in order for organisations to embrace this, they need to overcome a number of challenges. 

Success brings new challenges
In the near future, it is my view that application outsourcing will need to address a variety of challenges, some external and some created by the very opportunities it has itself created. For example, application outsourcing’s ability to deliver significant cost savings has enabled organisations to put new downward pressure on IT budgets. As a result, many IT departments are being challenged to transform one-time or short-term savings into repeatable, consistent efficiencies. Many CIOs are also looking for application outsourcing solutions to provide sustainable savings that can be used to self-fund new business-oriented projects.

Secondly, Governance is another area where, up until now, application outsourcing may have created as many challenges as it has solved. For example, organisations that have embraced application outsourcing with numerous projects and vendors have begun to realise they may actually have made their processes and models more complex. Moreover, they may even lack adequate processes when integrating across cultures, languages and time zones.

Thirdly, risk management is probably the most obvious challenge inherent in application outsourcing. CIOs are constantly looking for new ways to offset the risks that come with offshoring. These risks arise from such varied sources as language barriers, political unrest, or natural disasters such as typhoons or earthquakes.

However, not all the challenges application outsourcing will have to address in the future are of its own creation. As CIOs and their organisations become more comfortable with the concept of application outsourcing, they are asking themselves if their current outsourcing solutions are doing everything possible to help the business achieve its objectives. Therefore, it is down to the vendor to combine this new emphasis on business objectives with the existing emphasis on IT objectives.

The future
The application outsourcing choices that an organisation makes can now help to ensure that future is more company-friendly, allowing themselves to embrace change without having to commit to massive disruptive transformations over a short period of time. To achieve this goal, application outsourcing solutions will need to work hand-in-hand with infrastructure and a myriad of application solutions, from in-house custom applications to new Internet applications.

As CIOs continue to align their internal efforts with an organisation’s business goals and objectives, outsourcing solutions will, by necessity, follow suit. In the near future, it will no longer be the CIO and his or her department who are solely responsible for this business-IT alignment. Outsourcing vendors in general—and application outsourcing vendors in particular—will be retooling their processes and methods in order to measure and substantiate an outsourcing solution’s business value.

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BSkyB v EDS: Avoiding “Joe Galloway” syndrome

by By John Buyers, Partner, Stephenson Harwood

The long running case between British Sky Broadcasting ("Sky") and Electronic Data Systems, now HP Enterprise Services ("EDS") has now finally been decided in a decision that has taken 15 months alone for the judgement to be released. 

In his recent 468 page judgment, Mr Justice Ramsay of the London Technology & Construction Court (a division of the English High Court) recently ruled that major IT and outsourcing provider EDS was partially liable to Sky in relation to the failed implementation of a new customer care or “CRM” system.  Sky are now anticipated to be awarded damages in excess of £200 million.  We summarise the facts and the outcome of the case below.

The Facts
Following an extended tendering process, in November 2000 Sky entered into a CRM implementation contract with EDS to refresh their subscriber and customer relationship systems.  The implementation services under the contract were priced at initially £48 million and the contract had a liability cap of £30 million. 

EDS committed to deliver a system which would “go live” in July 2001 for a baseline budget of £47.6 million.  The implementation did not go as planned and the contract was renegotiated twice, in July 2001 and March 2002, when Sky took over as lead integrator.  Sky alleged that by March 2002 EDS had repudiated the contract and it was effectively terminated.  It was claimed that the CRM system was finally completed (by Sky) in 2006 at an approximate cost of around £265 million.

In August 2004, Sky issued proceedings against EDS, claiming in aggregate around £700 million under various heads of loss.

Because the contract contained a limitation of liability clause which would otherwise have constrained its ability to recover contractual damages at large, Sky not only alleged breach of contract, but also in the tort of deceit (ie for fraud) and for negligent misstatement under the Misrepresentation Act 1967. 

The Judgment

Deceit
The Court found that EDS did not make fraudulent representations with respect to having sufficient resources, or in the estimate of costs in providing the system. 

However EDS was found to be fraudulent in the timescales it provided Sky as it did not carry out a proper analysis of the time it would require to deliver the system and it had no reasonable grounds for its representations.  The key factor in the judge’s decision was the credibility and evidence provided by or in relation to the lead on the EDS side of the project, EDS managing director Joe Galloway who Mr Justice Ramsay found “demonstrated an astounding ability to be dishonest”.

Negligent Misstatement
Mr Justice Ramsay concluded that the “Entire Agreement” provision in the contract did not prevent Sky from claiming negligent misstatement (a crucial drafting error).  EDS were thus also held liable for negligent misstatement under the Misrepresentation Act 1976 for its statements which induced Sky to enter into a subsequent Letter of Agreement.  EDS were found not to have “carr(ied) out a proper analysis and re-planning exercise” in producing the reviewed programme for it to be achievable.

Contractual Warranties
The court held that EDS breached warranties of use of reasonable skill and care and good industry practice as it failed to properly resource the project, delayed in carrying out the work and failed to capture the requirements or manage processes effectively.

Lessons to be learned
Whilst the damages that Sky anticipate to receive are huge, most of the allegations against EDS were actually dismissed.  EDS have indicated that they will seek an appeal, disputing that they misled Sky.  The case must therefore be seen in this context, and there is of course a possibility that the legal outcome will change.

Nevertheless, the case is part of a clear judicial trend and is a stark warning shot to suppliers of services in all sectors (not just those in the IT and outsourcing markets) who must now take time to consider their sales generation cycles and in particular those of their employees who are leading discussions with customers. 

What this will mean for both vendors and customers is that “sales talk” and unattainable promises, combined with customers who are unsure of what they want and/or with unrealistic goals may have devastating consequences.  Both sides will have to be careful in the way they describe the project and how that project will be delivered in the tendering, selection and contracting stages. 

The outsourcing industry in particular is characterised by a model which is to drive sales “at all costs” and to incentivise this behaviour by aggressive use of commission driven sales teams.  Local sales managers are in the very worst cases not subject to management oversight at all.  The Sky case is perhaps an extreme case of this, particularly in light of EDS’ managing director Joe Galloway, who was completely discredited and shown to be, in its classic sense, a liar.  However, especially in hard economic times, it is perhaps time for the industry to take stock and consider how the risks of sales cycle processes and lead generation can be mitigated.

So far as outsourcing agreements themselves are concerned, the judgement also dealt with a range of other issues that will have wide implications not restricted to the industry, including:

• unless a standard Entire Agreement clause is worded carefully, a party could still be liable for misrepresentations made before the contract was signed;
• how the phrase “full and final settlement” may not be adequate if it does not explicitly cover “all known claims and unknown claims”; and
• clarifying the impact of the words “subject to contract” in the question of the enforceability of a Memorandum of Understanding.

What can you do ?
From a sales cycle perspective it is vitally important that you understand what your sales force are empowered to do, and how they are incentivised to write new business.  Whilst no-one wants a complacent sales force, targets that are too aggressively set may amplify a natural human tendency to exaggerate and put your organisation at risk.  It is clear from the facts of the Sky case that Joe Galloway was a “loose cannon”.  The fact that no-one was aware of his tendencies at EDS was a clear indictment of the supervisory management process within that organisation.

From a drafting perspective, in light of the comments made in the judgment, you should at a minimum revisit whether your standard agreements are effective, particularly in relation to limitation of liability and entire agreement provisions.

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Can the cloud be a silver lining for outsourcing?

by Ferenc Szelényi, managing director, EMEA, Dell Perot Systems

As cloud computing, the process of delivering and sharing applications online from a web browser, continues to grow in popularity, many service providers have been left wondering how it will impact on the traditional outsourcing model.

The concept of cloud computing has all the attributes to support a global outsourcing environment, eliminating hardware to lower infrastructure and energy costs, as well as offering the scalability to meet demand in an unpredictable global market. 

We are experiencing a global delivery continuum, where many organisations are evolving from crude business process outsourcing (BPO) environments (a lot of lift and shift), to SaaS delivery, in order to optimise that environment, and deploy a cloud computing “plug-in” model. 

Seeing through the clouds…
While outsourcing providers should be embracing the benefits of the cloud process, it’s worth noting that it is by no means a silver bullet to alleviate the challenges of all organisations. However, it does represent a tool that can be quickly added to the arsenal of IT solutions for many companies. Large organisations may have sufficient resources internally to accommodate routine business requirements, but should a need arise to quickly ramp up a business unit or product line, the cloud delivery model becomes a valuable tool, enabling agility. For companies of all sizes, that have a seasonal business or product line, accommodating peak demand periods without having in-house servers sitting idle at other times is crucial. Financial indications suggest that we’ll start emerging from this economic slump in the coming months ahead, and companies need to be ready to scale-up their support infrastructures in a smart fashion to respond.

Cloudy competition…
Increasingly, buyers will reap the benefits of cloud delivery as more major providers enter the market. Many established providers with robust infrastructure, skilled staff and a legacy of delivering high quality services are finding their traditional markets saturated with competition. Cloud computing provides a logical emerging market that offers opportunities to grow their business. The scramble to offer more benefits at a lower price could well rival the marketing wars we see today in the automotive industry. This can only result in brighter prospects for organisations seeking cloud cover in an economic storm. Outsourcing for the sake of cheap labour will always generate some savings in the short-term, but these costs will soon return if you don’t follow through with the improved processes and technology that allow for a global operating model. Simply shipping out your ‘mess’ for less is never going to make much of a difference to your bottom-line, and will often end up costing you more in the long haul. The bottom-line is that when an organisation moves into a global outsourcing model, it must transform the way its business deploys technology platforms and business processes if it is to generate real cost-efficiencies.  Embracing the new developments in the cloud is a sure way to make an outsourcing experience work on a continual basis.

In summary, as the outsourcing industry goes through another transformation, driven by cloud computing, businesses will continue to depend upon the services of a skilled and trusted systems integrator partner. Experience really is invaluable when it comes to configuring the right computing environment that addresses unique business needs.

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The age of uSwitch

by Sandeep Aggarwal, Executive Vice President of Intelenet Global Services, India’s second largest BPO provider

The age of uSwitch took many companies by surprise. The fact that customers can simply ‘up-sticks’ and buy services from a competitor virtually instantaneously, still confounds many companies. An industry hit badly by this customer-led revolution is the utilities sector. Some providers have begun to offer increasingly attractive deals, hoping to tie customers in for long profitable contracts. The mobile phone industry, by its nature saturated, has responded to the switching culture with instant ‘gifts’ for taking out seemingly never ending contracts. Orange, for example, has recently introduced the 36 month contract tying customers to £10 a month for three whole years. Yet amid the price wars and contract battles, companies are in danger of neglecting a key component of the equation – keeping customers happy.

As the UK approaches the end (possibly!) of the recession, it would do well to consider this point. A widely reported survey from market research firm One Poll, released this year, found that six out of ten people had switched companies because of a poor level of customer service. Also, in a 16-country survey, Genesys Lab found that poor customer service costs $338.5 billion per year in lost business. It is clear that short-term promotions and long-term contracts are not the solution. 

At the centre of all customer relationships is the ability of an organisation to communicate promptly, rapidly and usefully with customers. The ability to please a customer in the first instance, placate where things have gone wrong and provide support for technical problems are all part of a company’s commitment to each new customer. The recession has caused companies to lose focus as they go for the quick new business wins, and attempt to gain business at any cost. For example, can you ever remember there being so many sales and reductions on the highstreet before Christmas?

Of course there are other factors at play, for example, the continued move to internet retailing. These factors serve to confuse the most important issue - if companies want to properly adapt to the age of uSwitch and online shopping, they need to reassess how they look after their customers. Only by providing a consistent and outstanding customer service from end to end, can companies ever provide the added-value necessary to stop customers ending up ‘down the road. And this means polishing everything from the shop floor to the call centre.

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Government commercial resources: is a surge needed?

by David Cole of international law firm Pinsent Masons

Barack Obama’s recent decision to initiate a US troop ‘surge’ in Afghanistan has received support in the UK from both the Labour party and the Conservatives, and the UK’s own funding for military operations in Afghanistan may increase in the short term. It appears therefore that even in the context of major cuts in public spending generally, there are certain areas where, for special reasons, political parties are willing to maintain or increase the level of public expenditure.

The challenge for UK politicians is that Afghanistan is not the only area where there is pressure to commit additional resource. The UK’s National Audit Office (NAO) recently issued a report entitled “Commercial skills for complex government projects”. In this report the NAO highlighted that value for money on major government projects valued at around £200 billion is at risk because of weaknesses in commercial skills and expertise in government departments. Should there be a ‘surge’ in commercial resources on complex government projects, in light of this report?

In the current economic and political climate additional spending on commercial resources appears unlikely. In May this year, for example, HM Treasury announced, as part of its ‘Operational Efficiency Programme’, details of a plan to significantly reduce spending on back-office operations, including commercial functions. More recently the Government announced its intention to achieve ‘efficiency savings’ of £12 billion a year in departmental spending by 2013/14. Requests by project teams for additional commercial support may be met with a frosty reception in light of this.

However, the Government should think carefully before cutting back commercial resource on complex projects. The NAO suggests in its report that the resource reductions envisaged in the Operational Efficiency Programme could “potentially conflict with the need to invest in staff with the commercial skills to deliver complex projects”. Government departments are frequently criticised for entering into major contracts on complex projects which do not deliver value for money. This failure is often due to inadequate commercial input at the procurement stage. Even if sufficient commercial expertise does exist during procurements, it is not always available post-contract when contract management skills are required. An unwanted ‘less is more’ position often arises as a result: limiting spending on commercial resource can lead to greater cost overall on complex projects.

The NAO does not advocate a ‘surge’ in the sense of simply throwing additional resource at the problems identified. Although it does raise concerns over reductions in commercial resources, the NAO’s overall message is directed at ‘surgery’ on the existing government commercial function: using what already exists more effectively.  Indeed, spending on certain types of commercial expertise may be cut if the NAO has its way. To fill gaps in their internal commercial teams, government departments employ substantial numbers of temporary staff and consultants. The NAO suggests that government departments should implement staff retention strategies for complex projects and apply a cross-departmental approach to commercial resource needs, including facilitating secondments between departments. As a result, gaps in internal commercial resource could potentially be reduced, leaving less room for consultants and contractors. 

In addition, re-use and standardisation are advocated by the NAO. Standard project methodologies and standard form contracts are already common on government projects. The NAO’s view is that the use of standard approaches should be increased. In a similar vein, increased levels of joint working between the Office for Government Commerce (OGC) and government departments are encouraged, to ensure that departments are making the best use of the OGC’s initiatives and are avoiding duplication of effort.

Implementation of the NAO’s recommendations will not be easy. Joint-working between departments and sharing of resource will require a degree of cultural change. Equally, standardised processes and contracts can be very blunt instruments. Government commercial teams, for example, often find themselves locked in negotiations with suppliers over so-called ‘standard’ contracts and spend long periods amending the terms to fit the needs of the project in question. Standardisation has to be implemented intelligently in order to achieve the right result.

In any event, the NAO’s recommendations will achieve little if there are significant cuts in the commercial resources available for complex projects.  The concern is that any such resource cuts could prove to be a false economy, resulting in further cost-overruns and inefficiency on complex government projects, and could leave the Government no closer to meeting its targeted spending reductions. A dramatic ‘surge’ in commercial expertise may not be needed. However, a measured ‘spend to save’ approach to departmental commercial resource coupled with intelligent implementation of the NAO’s recommendations may bring major benefits for complex projects and achieve significant cost savings.

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The key to a successful multisourcing strategy

by Dr Roger Newman, UK head of manufacturing and digital convergence relationship management Mahindra Satyam

Gone are the days of outsourcing and offshoring business processes and IT functions being a simple matter of choosing between a select few providers. The emergence of so many new providers with different skill sets, along with numerous potential offshore, nearshore and even homeshore locations has created a new complex global delivery paradigm known as multisourcing. But just what is multisourcing and what are the reasons behind its growth?

Multisourcing is simply the disciplined provisioning and blending of business services, most of the time IT related, in order to find the optimal set of both internal and external service providers. As a strategy, multisourcing treats every functional area as a portfolio of specific activities, some of which are then outsourced to third party providers while in house employees continue to perform other activities. Likewise, so-called multishoring or the use of multiple offshore, nearshore or homeshore locations can easily be considered an offshoot or, very much, a key component of any multisourcing strategy.

Benefits of multisourcing
Multisourcing offers an organisation superior flexibility and greater adaptability when choosing outsourcing solutions. In addition, multisourcing allows an organisation to objectively compare their internal shared services arms with external third party vendors. Thus, a larger resource pool is tapped and competition is initiated between providers to deliver the highest service quality for the best possible price.

Furthermore, with the traditional outsourcing approach of utilising one service vendor, there is always the risk that quality will deteriorate over time. Given the high costs associated with switching vendors and the subsequent loss of institutional knowledge after any switch, significant risks are associated with having all of your processes and projects tied up with one vendor. In the same manner, having one vendor who sends all of your work to one or two offshore locations may be considered unstable and pose significant risks to an organisation.

Potential risks and pitfalls
Although in theory, a multisourcing strategy offers less risk and fewer pitfalls than the traditional outsourcing model of using one provider, it is not a perfect solution. In fact, there are still potential pitfalls and added costs associated with a multisourcing approach. For starters, there is always the possibility that both the organisation and the vendor will under-invest in the assets necessary for the strategy to work or in the relationship aspects of the arrangement. After all, neither the client nor the outsourcing vendor is completely dependent upon each other.

Using multiple vendors may limit their capacity to use their economies of scale to achieve significant cost savings for organisations. Furthermore, there are inevitably larger management overhead costs associated with managing and monitoring multiple vendors. In addition, managerial turnover on the client side can, in fact, make it more difficult to switch vendors or to shift work between vendors.

Despite these potential risks, a successful multisourcing strategy can significantly reduce all of the risks associated with traditional outsourcing and have the added benefit of increasing operational efficiency.

Implementing a multisourcing strategy
Once an organisation has reached the appropriate maturity level and is ready for a multisourcing strategy, planning for, and implementing, a well planned strategy will be the critical key to success. The multisourcing strategy is a general outsourcing framework, consists of:

• Organisational Readiness
• Vendor Selection
• Contract Negotiation
• Project Planning
• Transition Management
• Metrics Tracking

Each of these phases has its own collective set of goals and challenges that will be critical to the overall success of any multisourcing strategy. In summary, successfully implementing a multisourcing strategy will still depend upon the maturity level and capabilities of the organisation seeking to pursue it and how well the implementation process is planned and then implemented and monitored. A successful implementation will not only save organisations money but it will also reduce the traditional risks associated with outsourcing and improve overall operational efficiency. 

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Private firms pay for lack of business skills

by Howard Teale, General Manager, Indicia Training

It’s fair to say that the number of people out of work in the UK - at 2.47 million - is at the highest level in 14 years. And more than one in three 16-24 year-olds, about 366,000, have been out of work for over six months. That’s the highest number of long-term unemployed young for 15 years. If things don’t start to improve, we could be facing losing another generation from the workforce, similar to what happened in the 1980s.

So what can be done to reverse this year-on-year rise in unemployment that the UK is currently experiencing? First of all, we must look at the skills people have to succeed in the workplace. And it’s here that a huge irony becomes immediately apparent. The UK’s young people are more skilled in IT than ever before - their use of social networking platforms, computer games, file-sharing and multi-media applications leaves most people over the age of 35 baffled. But they can’t operate most office systems. It would appear to me that their appetite for computer-based knowledge is being unexploited by our education system.

At Indicia Training we have seen the number of basic IT courses being booked by UK firms rise dramatically over the past few years. Courses on how to use Microsoft packages – the most commonly used computer programmes in business – have risen by 55% over the past year. And there is a simple reason as to why - more than half of all jobs in the UK are office based, and need these skills. Feedback from clients suggests that unfortunately, our young people are leaving school or college without these skills.

As such, private sector businesses are increasingly having to pay for the shortfall in these crucial skills by turning to private providers for training in basic business competency. 

For many private sector firms, these skills mean a matter of commercial life and death. Take Scotland for example.  Having done their bit to bring out the talent than undoubtedly exists in these intelligent and lively young people, the business manager wearily reads the words of the Scottish Government’s report Skills for Scotland: A Lifelong Skills Strategy “from cradle to grave.” One of the key areas was “a response to the needs of the economy and the demand of employers.” So far we have yet to see these plans put into practice. 

Standards of literacy and numeracy in Scottish schools have been stagnant for nearly two decades - 25% of 17-25 year olds are illiterate - and many academics fear the new curriculum is unlikely to resolve the issue. If basic literacy and numeracy skills aren’t increasing, how can young people be expected to grasp the skills needed to survive in business?

And it seems the Government has realised they’ve got it wrong. Education Secretary Fiona Hyslop has recently been demoted, to be replaced by Culture Minister Mike Russell. Hyslop has come under fire for months now over everything from class sizes, teacher numbers to the new curriculum. In his reshuffle, First Minister Alex Salmond stated that education needed a “fresh look” – an admission that his Government got it wrong?

So why are companies happy to fork out so much on training? I believe that research from the Federation of Small Businesses, which shows companies that invest in training are two and a half times more likely to survive the recession, has spurred a lot of firms into taking action. And with the UK economy on track to come out of recession by the end of this year, according to a variety of business monitors, it will be these firms, the ones that have invested in training, who will be the ones that begin to see the benefits. They will emerge stronger than before and will be better placed than their competitors to capitalise on the available opportunities.

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Software Development: It’s About People

by Serhiy Kharytonov, EVP Consulting Services, SoftServe

Anyone involved with software development projects knows they have a very high rate of failure.  According to the Standish Group’s 2009 Chaos Report, which tracks IT software project success rates, less than a third of surveyed IT software projects undertaken in the past two years were rated successful, meaning they came in on time, on budget and with required features.  44 percent were challenged, meaning they were late, over budget, or lacked required features, and 24 percent failed completely, meaning they were cancelled or never used.

As if the risk of failure wasn’t great enough for in-house projects, many of today’s software projects are outsourced to overseas partners as a way to cut costs, speed time to market, and focus an organization’s internal resources on what it does best.

When handled intelligently, outsourcing can be a very successful way to build new software quickly and inexpensively.  However, when companies outsource solely as a way to cut costs, they invite failure.  Why is this?  Because there’s much more to successful software development than low cost, technical expertise and intelligent processes.  Perhaps more than most undertakings, successful software development depends on people.

Software development remains a predominantly collaborative, creative endeavor requiring just the right mix of hard skills, such as software programming, architecture, and engineering, and soft skills, such as communication, collaboration, and project management.  When teams are separated by oceans, the value of both soft and hard skills is magnified.

That’s why if you intend to outsource a development project, it’s preferable to seek out a development partner that goes beyond typical mainstream certifications.  Ideally your partner should provide its own structured, effective system for training and developing its employees with the education, certifications, and experience they need to acquire the most advanced hard and soft skills.

Hard Skills

Hard skills are about more than the requisite Java or .NET skills and certifications.  A growing number of today’s development projects require expertise and experience in complex software architecture and engineering.  Resulting applications must be able to scale appropriately to meet a client’s shifting and often unpredictable needs in the Internet age.

A company with very mature IT operations and in-house expertise can outsource successfully to just about any competent overseas partner.  However, many IT departments will not succeed without the benefit of equal partners who come with the education, experience, and confidence to ask the right architectural questions, point out missing or conflicting requirements, and suggest improvements in the process or solution that benefit usability, functionality, scalability or security.

Project Management

Software development projects often have complex requirements with many dependencies, and involve multiple players with different agendas and interests.  Changes in requirements are frequent and unforeseen issues can suddenly arise at any phase of the process.

Achieving success at low cost requires project managers who not only have the requisite PMI or related certifications, but also the project management experience on projects of similar size and complexity to your own to handle these issues.  A truly skilled, experienced project manager will discover, correct, and prevent project flaws and weaknesses early in the development process and help to guarantee high quality consistent results on time and on budget.  Good project managers can also identify process improvements that will get your project out the door more quickly, saving significant time and expense.

Soft Skills

Software development is by definition a collaborative process between technical people who are often not completely familiar with the business units and processes they’re working to improve and business users who often don’t understand the possibilities, and impossibilities of the technical solutions under development.

Both sides have to be able to communicate with, understand and trust each other in order to produce a solution that is usable, adds value, and enhances a company’s competitive advantage.

• Cultural compatibility – Aside from the expertise required to collaborate and question aspects of a project when necessary, project success may also depend also on partners from a culture that considers such questioning acceptable.
• Communication Skills – As one outsourcing company CEO put it, development partners need to have a good feel for the type, frequency and detail of communication the client needs to be able to sleep well at night. They need to have a level of comfort bringing up problems and issues to higher-level managers at both the client and outsourcing ends of the project.

Start at the Macro Level

So how do you decide on an outsourcing firm with the right level of hard and soft skills to take on your development project?  Cost is an obvious factor to consider, but it may be better to begin by choosing the area of the world that offers the right skill set for your particular project.

For example, India can be a perfect, low-cost source for typical mainstream Web development projects that don’t require a heavy technical, mathematical, scientific background or the use of emerging platforms and technologies.  India’s outsourcing firms tend to have large numbers of competent professionals certified in database development and programming in a variety of programming languages at low cost.  Language compatibility is not a problem if English is your native language.  Other emerging areas with this type of competence are China and Latin America.

For more complex projects you may want a mix of programming skills, technical proficiency, cultural compatibility and communications skills.  Eastern European countries such as Russia and Ukraine are known to have large pools of technically proficient development professionals trained at the regions’ internationally respected technical and scientific universities and other educational institutions.  Most have become proficient in English by the time they graduate, and certification levels in a variety of programming and development skills are equivalent to those of India and other major competitors.  Keep in mind that, while they are significantly more competitive than in Western Europe and North America, salaries of Eastern European developers tend to be a little higher than in India.

Eastern European outsourcing firms have a positive reputation for their solutions-oriented approach to complex projects and cultural compatibility with North American and Eastern European clients.  Project management skills and certifications are growing but still somewhat patchy compared with Western Europe and North America, so it’s important to investigate a potential outsourcing partner’s project management competence if you choose a vendor in this region.

Do Your Homework

Once you have chosen your general region, the next step is to investigate some outsourcing firms to determine which ones can offer the type and level of expertise you require.  Can the company provide the requisite technical experience in the type of project you’re undertaking, and will they allow you to speak with a few references to confirm that expertise and understand how they work with their clients?  Is their staff made up primarily of coders or do they have more technical and architectural education and experience?  What was the attrition rate on the projects they were involved in?  Did the vendor tend to have to replace team members frequently?

It helps to ask for resumes and conduct interviews with those who would be likely to be involved in your projects.  Ask for as many as you can get and interview as many players as you can, as some companies will provide resumes for a few highly qualified project leaders and major players, but provide significantly less experienced people for much of the rest of the team.  You want to avoid having your project serve as your partner’s internal training vehicle.

As you speak with prospective partners, see if you can gauge their communication skills and listen carefully to the types of questions they ask.  It will become clear whether they have the complex problem-solving capabilities you need and will truly add value to the project.  Consider whether your prospective provider can offer the right people in the right roles to complement your team and ask how they handle communications with the client.

Aside from external certifications in programming techniques and languages, ask questions about any additional certifications provided internally and how the company trains and promotes its employees. Does the company go above and beyond external certifications, enriching employees with additional training and internal certifications, and does it make a point of giving them experience with a variety of projects? Find out what internal certifications and training vehicles they have and what level of certified employees they will provide for your project. Are their certifications based on real-world experience and accomplishments or simply course or text book learning?

What type of development process, such as agile, waterfall, or scrum, do they specialize in, and does that process match your requirements?  More importantly do they have the experience and knowhow to conduct an agile project, which requires a lot of close communication, as a remote participant?  Ask questions about their engagement process and how they take early steps to ensure that all project requirements are understood.

Any software project is a risky undertaking.  Depending on the provider you choose, outsourcing a development project can either heighten or reduce your risks.  The key is to choose the company that can provide the right people with the right hard and soft skills for the job.  When it comes to software development success, people make the difference.

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What can UK banks gain from outsourcing to Spain?

by Graham Underwood, Managing Director, GFT UK

Despite these straightened economic times, compliance issues are still driving offshoring in the financial services sector and enterprises need to be sure they have the most efficient, and cost-effective, outsourcing strategy. For many this is a new opportunity to examine how the business works and improve it, to get it into a position where it can best take advantage of the upturn when it comes. But where are the top destinations, the most effective people and the greatest value for money?

The UK financial services sector sees itself as a mature market, because of the high levels of competition and international knowledge collected together in the City of London. Outsourcing for these firms is often just seen as procuring cheap people, rather than experienced knowledge workers who augment the local team. This attitude does not allow banks to get the best from their outsourcing deals. Although it may surprise many UK banks, Spain is emerging as a new, cost-effective and yet highly knowledgeable centre for skilled financial sector consultants. Perhaps large UK banks should now be asking themselves whether they have something to gain from the Spanish experience.

Once derided as an over-cautious approach to retail banking, the Spanish strategy has embraced the challenges of compliance, risk and IT investment which the UK has been guilty of putting off until the proverbial tomorrow. This over-caution may have stood the banks in good stead when it came to weathering the recent economic storm.

The system’s experience of complying with strict regulation has its origins in the Spanish government’s response to the fallout from reckless industry loans in the 1980s. These included tighter central bank control, a ban on off-balance vehicles and an insistence on making extra provision during boom times. Rather than being seen as an obligation, compliance was instead viewed as providing significant benefits with respect to financial performance, operational excellence and business relationships with partners.

Although the smaller banks suffered considerably from bad loans to the property sector, in terms of risk management the larger Spanish banks took a strategic approach, creating well-remunerated and long-term risk committees. As Emilio Botín (Chairman of Banco Santander) commented last year, “[risk management] consumes a lot of our directors’ time. But we find it essential. And it is never too much.”

In addition, and in stark contrast to the UK, real-time banking, rather than next day (mañana) reconciliation has already arrived in Spain. Strategic investment in modern platforms means that the consumer has access to real time reconciliation of their personal financial information, via multiple channels, including the ATM.

The experience of the last twenty years has created a knowledgeable workforce in the Spanish financial sector. One which Forrester identified in its Spotlight on Spain[1] report, where it recommends the country’s “large, well-qualified IT labor pool [and] world-class vertically-focussed services resources”. Noting the rise of Spain as an outsourcing destination, Forrester goes on to suggest that the country is an ideal nearshore complement for European firms outsourcing to India, or a first step for those new to outsourcing.

As the outsourcing sector in India increasingly suffers from attrition, wage inflation and skills shortages, its cost advantages are beginning to narrow against European rates. For the financial sector, Spain’s banking experience and strong cultural and linguistic ties with Latin America allow the potential to scale. This makes Barcelona, plus somewhere like São Paulo in Brazil, an effective alternative to India or Eastern Europe.

Successful outsourcers know that the so-called soft costs, such as travel time to the offshore destination, the impact of distant time zones and cultural differences, can have a significant effect on budgets. Correspondingly, close proximity and real-time collaboration can generate cost-efficiencies, reducing management overheads, travel costs and the need for repeated internal change requirements.

Forrester does not see outsourcing going away, claiming “there is no doubt that interest in remote IT delivery is on the rise”.  So perhaps UK banks could benefit from tapping into the Spanish outsourcing solution and considering a new approach to compliance, risk management and investment in technology platforms? UK financial institutions need not adopt Spanish practices wholesale, but it’s time to face these issues, which the sector has postponed for years. City financial institutions could finally shake off their mañana approach to efficient banking and, during this difficult economic period, take advantage of the expertise and knowledge of their Spanish counterparts, through outsourcing.

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Businesses need to pass the ‘trust test’ to stay competitive

by Philip Michell, Consulting Director, Vertex

As customers we demand a good service from any organisation that we come into contact with.  If we don’t receive it, we’re more likely than ever to share our frustrations with our increasingly connected peers.  This will over time, define the organisation in the minds of its customers or in the case of public sector organisations, its citizens.

Of course ‘good customer service’ is just a helpful label that can mask a myriad of complex interactions – from the first contact with a customer through to an after sales issue resolution and everything in between.  Given this complexity, delivering a consistently good experience will always be challenging so how do some organisations manage to make this look effortless while others struggle to keep pace with their customers’ expectations?

Vertex recently commissioned an Ipsos MORI research study to find out why this gap exists.  We asked consumers to share their experiences of contacting organisations across a range of different sectors and to highlight the issues that they were witnessing.  The research confirmed a fragmented picture with the discovery that some organisations are outpacing their peers.  In fact, a majority of consumers told us that they find the high street retail environment delivers better customer service than any other sector including its online cousin with 68% claiming it to be ‘fairly good’ or ‘very good’.  This is in sharp contrast to Central Government agencies, which are rated ‘fairly good’ or ‘very good’ by only 28% of respondents.

What makes retailers so good at customer service?  In our view one of the biggest differentiators between retailers and other sectors is the way in which they embrace the insights that good customer data can provide.

Take online shopping where customers often receive tailored reminders about products or services they might have forgotten to add to their baskets on each visit. This approach – facilitating better experience - is now being adopted elsewhere.  We are all used to airlines offering travel insurance when flights are booked or music stores making recommendations based on past purchases. When this kind of customer engagement is delivered in an appropriate way it is seamless, helpful and customer loyalty is increased.

Smart use of customer data can go further still. If, for example, an insurance company knows that a customer has both household and car insurance through them, they are better placed to price the risk of insuring a second car whilst better understanding the customer’s value to the company and the potential for cross or upsell of other products and services.  It is also easier to intervene around renewal dates, lock in loyalty and of course save money along the way.

This data-centric approach has significant appeal but it is not without its challenges.  Firstly there are the obvious technical questions – can we deploy the appropriate infrastructure, are our people skilled to use this information and what underlying technologies are needed to capture and then deliver the analysis?  Typically, businesses focus time and resources around these critical infrastructure hurdles and build solid, reliable IT platforms.  But to leap to a technology-led solution without first considering the wider customer engagement requirements would be to overlook one of the most fundamental pieces of the jigsaw – the end beneficiary.

These ‘softer’ challenges require a different set of skills and a fundamentally new way of examining the way in which organisations interact with their customers.  The key questions that must be posed here are: how can we engage with our customers in a way that improves their experience whilst delivering greater efficiencies and improved loyalty and acquisition whilst reassuring them our use of data is appropriate?  Beyond this it asks businesses to scrutinise how ready willing and able it is to learn from and respond to the insights this data yields.

These are significant challenges.  If an organisation builds its business around data it will quickly amass significant quantities of information.  If it misuses this – intentionally or by accident - for example by calling a customer to try and sell them a service when they’ve specifically asked to be contacted via email rather than over the phone - customers will quickly lose confidence.  Of course some organisations handle much more sensitive data than others and here the potential risks are magnified.  In every situation organisations must choose where to ringfence data that will never be shared, even internally, and how to appropriately convey this policy to its customers.

Our research brought this challenge into stark relief.  While we found retailers and financial services companies are seen as the most trustworthy when it comes to protecting personal information, significant concerns remains with around a third still claiming they are ‘untrustworthy’. This lack of trust rises to an incredible 55% for Central Government agencies.

So how can organisations gain customers trust so that they open up the channels of communication and offer the company their personal data? The key is being transparent in explaining why you are collecting information, what you plan to use it for and the benefit it will bring the customer. Organisations need to demonstrate that the customer will benefit through closer collaboration by offering special deals or more targeting marketing and promotional offers.

Improving customer insight data doesn’t necessarily mean companies capturing more data. The first step is to analyse and then use the data already held and in our experience this can be as straightforward as overlaying an organisation’s existing interactions with the customer to build a more accurate picture of their requirements. 

Greater insight can also be generated by leveraging new technology - an excellent example of which is speech analytics. By analysing the specific words used and their frequency on a customer call it is possible to identify the reasons why a customer called. As a result, organisations have the chance to address the underlying root causes and make the overall customer experience both more pleasurable and more cost effective.

As the quality and visibility of data improves organisations can begin to build a single view of the customer. Then, with all the information about each customer in one place, they can start to offer more joined-up service and tailored offers that improve the experience to customers and the capability for the business.

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The ‘Risk to Reward Factor’ for outsourcing providers

by Dr Roger Newman of Mahindra Satyam

The ‘Risk to Reward Factor’ for outsourcing providers
Naturally, perhaps, customers have been previously more inclined to focus on the risk element - in terms of shifting risk on to their outsoucer; whilst service providers have been more interested in the reward and less interested in accepting risks over and above their standard model.This can lead to an ineffective standoff that is portrayed as a risk and reward arrangement but does little to drive the right behaviours by both sides. It is therefore imperative that the service provider changes this process and adopts a more co-operative stance to share risk with their customers in order to build confidence for a long term relationship. As organizations become more mature in managing their outsourcing partners they can start to move to Outcome Based Agreements (OBA), where suppliers are contracted to directly achieve business outcomes for and with the customer.

Many organisations often talk about building in risk and reward into their IT services or outsourcing relationships, but what does “risk and reward” really mean in practice and is there really such a thing as a genuine, balanced “risk and reward” offering?

Risk to Reward’ – What’s it all about?
Risk and reward can mean different things to many providers and their customers. At the simplest level, it can mean introducing a system of service performance. So, for example, an outsourcing provider may receive a bonus payment if they consistently exceed service performance over a defined period of time. Therefore the reward for an outsourcer could include a financial bonus for over performing.

Furthermore, the reward for over-performance could, alternatively, be the ability to off-set or earn-back previously incurred service credits. At a more collaborative level, the incentive could include a share of the improvement achieved or a percentage of the revenue achieved by the business.  The risks, however, could include a penalty payment for underperforming such as not completing a project at a set deadline.

A successful Risk to Reward System
A successful risk-reward system is often based on projected revenue generation or cost savings and predefined Service Level Agreements (SLA’s).
The most obvious way of measuring performance for the purposes of service reward is against defined SLA agreements. Incentive mechanisms could also be linked to overall industry performance. Therefore the service provider could, for example, be rewarded with extra incentives if its performance in certain key measures over a defined period of time puts it in the top quartile of industry performance in that particular set of metrics. Alternatively, a customer may prefer to tie risk and reward to their monthly SLA measurements, key business events or overall customer satisfaction measures.

It’s important to realise, however, that a critical success factor in a risk and reward system should be aligned with the business needs of the customer. The outsourcer, regardless of economic conditions, should be focussed on what gives true value or benefit to the customer. There is little point in penalising a service provider for failing to meet a response time service level in a non-critical area of the business or, conversely, rewarding a service provider for meeting a specific availability target if the target, whatever this may prove to be, has no material impact on the end-user’s ability to function effectively.

In one very successful example of risk and reward the service provider offered to pay the customer the projected cost saving up front in cash and then got on with reaping the rewards by exceeding the original cost savings estimate. Nothing like ‘putting your money where your mouth is!’.

As an industry, IT Services is still fairly immature in its approach to Risk and reward. At a recent Customer Forum one of our banking customers was asking why Service Providers did not take a broader view of risk (as the banking industry does) and price their services by individual transaction rather than by Project e.g. a standard price for all SAP upgrades delivered in a factory mode rather than a different price for each individual customer. Certainly it is an interesting argument and one that service providers may migrate to if they had the same transaction volumes as banks.

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Risky Business?

by Mitesh Patel, Managing Director of outsourced technology infrastructure provider, Fifosys

Many SMEs have simply not read or understood the service and support level that their IT contract provides. In many cases the in house IT department has not shared the risks with the business or, even worse, is unknowingly jeopardising the business through a lack of understanding and insight. Whilst most organisations now recognise that good technology is key to business success, from 24x7 access to email, to robust storage of sensitive customer data, many have no idea that such core functions will not be immediately restored in the event of a disaster under their existing arrangements.

IT Delusion
Most companies blithely assume that an IT support contract covers all the major issues – from email failure to data loss. But that is simply not the case. Look more closely at the not so fine print and organisations will be stunned to discover just how vulnerable the business is to server failure, severed connections and software glitches.

How many organisations recognise that failure of an email server could result in the business losing access to all email for up to five days? Most assume that restoring the server within hours is part of the service contract – but is it? If the hardware fails, the onus is likely to be on the hardware provider, not the service company, to repair the fault or provide a replacement, a process that could take days.

Failure to read the contract means that when problems do occur, organisations put the blame firmly on the IT department or support organisation, whilst suffering significant business loss. But has anyone asked the right questions of the IT support team – whether internal or external? Getting the right IT support contract requires a real understanding of the business risks associated with IT and demands technology service delivery and remediation is prioritised to match business needs.

Failure to do so adds significant business risk. Take a busy city centre bar. A brief power outage at 9am will have limited business impact: there are no customers and the till is not in use. Should that same failure happen at, say, 10pm on a Friday night, when the bar has perhaps as much as £10,000 in customer tabs, a loss of till functionality will result is massive financial cost as the organisation has no way of checking customers’ charges and payments.

Risk Assessment
To mitigate the risk associated with technology delivery, organisations need to identify the single points of failure across the IT infrastructure. Yet while businesses routinely assess the single points of failure in core operations, from manufacturing to distribution, they are patently failing to apply the same robust operational practices to IT. Take as an example a manufacturing company with 12 machines on the production line and, as a result, two machines – at £100,000 each – on system stand-by at all times in case of failure:  a massive £200,000 investment that is rarely used.

Meanwhile this same organisation, with 150 employees, has only one email server. The company is sending 1000s of emails daily both internally and externally to customers and suppliers, yet there is absolutely no email resilience. If the single email server, or any one of its key components, goes down the business will stop until it is fixed. It is clear that no-one in the organisation has asked the right questions about IT risk.

So why are SMEs failing to take steps to understand IT risk? In part the problem is one of culture: individuals within the IT team are neither encouraged nor, to be frank, have the skills to map business needs with IT risks and availability. But continued failure to consider IT requirements in isolation from business need will compromise business stability and undermine the value of IT investment.

IT Insight
Mid-market and SME businesses face a real challenge: for any organisation with less than 250 employees, it is simply not possible to justify one full-time IT Director role.  Yet far too many organisations of this size not only have an IT Director but also a team of up to three staff. More often than not these IT Directors are long term employees who have progressed to senior status through longevity and loyalty. As a result they may not have the strategic skills required and it is unlikely that an IT team of this size has the breadth of skills needed to manage today’s complex network and application infrastructure.

This expense of full-time employed, in-house IT staff is really not the best approach.  Organisations should be considering best practice above all other factors. That means accessing the best skills as and when required in the most cost effective and efficient manner – from strategic direction to network support.

Organisations, of every size, need a team with the ability to deliver real risk assessment and strategic IT decision making. By opting instead to promote long term IT staff to a Manager/Director role, organisations probably end up with an individual who is overpaid to undertake the mundane day to day tasks associated with a small IT team, from plugging in cables and manning the help desk. In addition, the organisation is highly unlikely to have provided the support for this individual to have the resources, time or expertise to assess business risk or undertake strategic planning and long term IT budgeting.

This is simply not a viable model and is adding untenable risk to SMEs. Furthermore, unless organisations continue to invest in new technology, in-house skills will rapidly become out of date. In this fast changing technology environment organisations cannot possibly attain the breadth of skills required to support today’s complex IT requirements – from online order taking, to 24x7 email services, local and wide area networks, as well as business continuity – within a one or two person IT department.

So just what value are these individuals providing to the business? They are not generating revenue nor providing an essential administrative role. Indeed, combining a lack of skills with the organisation’s inability to accurately define ongoing requirements, internal IT departments are incapable of effectively managing third party service and support contracts, adding both further risk to the business and unnecessary cost.

Business Focus
As the recession looks set to continue towards the end of 2010, SMEs need to maintain and win as much business as possible, and can therefore not afford to take any risk at all. Businesses cannot continue to waste money on unfocused technology investments that fail to support short or long term business needs or mitigate operational risk. Nor can they justify third party supplier service contracts that fail to reflect true operational requirements.

A simple, but frank and honest IT infrastructure audit from a competent professional can provide immediate insight into the single points of failure. Now you need to translate that into simple statements, in business terms, that the board can comprehend. Put it plainly and clearly with real timelines.  From the risk of how many hours or days of email downtime, to the implications of the loss of access to data and premises? This enables directors and management to determine and prioritise IT needs and investment based on real business requirements.

With this understanding, it is far simpler for an organisation to attain an IT service and support contract with a relevant and, critically, measurable Service Level Agreement. And, once in place, SMEs can look to build on this relationship to attain quantifiable technology value, including advice on strategic investment and long term budgeting.

It is this shift in emphasis away from a grudge purchase towards a demand for value that is essential for mid-market and SME businesses. All IT service and support contracts are not the same. Cost is obviously a key consideration but too many organisations are actually spending too much money on contracts that are failing to reduce operational risk. The objective must be an effective solution that reflects the organisation’s appetite for risk based on real, in depth understanding.

It is only by taking a step back, assessing and understanding the current levels of risk associated with existing IT deployments, that an organisation can truly determine its ongoing IT requirements and then put in place the technology, skills and resources to reduce operational risk and transform IT from a cost centre to business enabler.

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Give customer service a seat on the board

by Neil Anderson, Managing Director of Qcom

We all know the world is changing at an ever-faster pace and on many fronts. While this rapidly shifting economic landscape is creating new business opportunities, it is also forcing companies to respond to new client expectations.

Whether this is fixing mobile technology on the move rather than returning it to the workshop, or providing a ‘same day’ response to a call about servicing, customer demands are growing.

All this is overlain by trends in globalisation and overseas innovation, as well as the emergence of ‘Generation Y’ both in the workplace and as consumers. Generation Y is impatient when service is perceived to fall short, they expect to have information on a product or service ‘at their finger tips’, and they require free and open access to a company’s knowledge base. 

Thanks to Generation Y, ideas, news and information travels faster than ever before, with social networking sites delivering feedback direct to thousands of potential customers within minutes. 

The reality is that UK business strategies need to be more agile then ever before. They also need to be alert to sector trends and the expectations prevalent within the environment they operate within.  And they must adapt quickly to enable them to survive. 

What this requires is a company-wide focus on customer service; a vital part of any and all transactions. This is where service providers should come into their own because managing this process in future is likely to be very challenging. 

The world is becoming a more complex place, moving at an ever-faster rate.

I think that the big global conglomerates in future will be built around multiple offerings. And I believe that the requirement for agility, flexibility and dynamism will bring with it greater borderless collaboration between companies. 

Outsourcing, I think will be far more, not less, common going forward; joint ventures and partnerships, on-shoring and off-shoring offering companies size and scope as well as a more “agile” business model.

This creates a scenario where customers and suppliers become part of a complex, interactive network of companies where, ultimately, who is “the customer” is not an easy question to answer, and where brand influence will need to extend beyond several companies in order to deliver the brand promise to the end user.

In the IT sector that Qcom operates within, there is already a complex web of customers and suppliers. We operate as an accredited service partner to manufacturers, providing customer support. However, our customers may be distributors, who sell their products to end-users through resellers, or resellers themselves; it’s a linked chain of customers and suppliers through to the end user. 

IT manufacturers, resellers and distributors understand that customer after-sales packages add value, build customer loyalty, and impact directly on the bottom line. The challenge of delivering good service for everyone, however, has been made harder with the advent of the aforementioned mobile technology, the need to reduce down-time, and a demand for bespoke service packages.

Each of us needs to play our part in order to ensure our processes meet the needs of both customers and end users.

It is for these reasons that corporate thinking needs to be aligned (or realigned) around customer-centric activities and responsibility for delivery should rest with the Board.

There needs to be far greater awareness that customer-facing staff, such as service engineers, are important brand ambassadors. They can act as the eyes and ears of a company, capable by turns of spotting trouble brewing, and (just as importantly) identifying new business opportunities. 

With this should come an understanding that around half of the modern service call is fixing the customer not the technology, educating the user on the best use of the systems they are operating.

In other words, product servicing is about people and every service call should be treated as a ‘moment of truth’ which can either add value or seriously damage a product/company in an instant.

Where all or part of a service operation is transferred to an outsourced supplier, it’s usually done to allow the client to concentrate on their core business, to move into new (unfamiliar) markets, or to allow them to complement the service they already offer customers in these areas.

Technical outsourcing expertise, for example, can help resellers and distributors enhance their profitability and it can support business development and expansion across the UK and Europe.

But the relationship needs to be managed and where possible, companies should be looking for this notion of borderless collaboration with their outsourcing partner.

Our relationship as an outsourcer goes way beyond being placed in a ‘supplier box’ with clients, or indeed just white labelling our services.

We are now at the point where we are invited to collaborate with clients when they are pitching for new business, helping to formulate strategy around areas such as customer service.

Achieving this requires the relationship to go far beyond that of supplier-client, but instead brings best of both companies to bear in order to deliver a superior outcome.  And that, surely, will be a partnership that ultimately serves the customer better. 

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Testing times?

by Brian Shea, CEO of Sogeti UK

As increasing numbers of UK-based organisations choose to update and upgrade their software applications to meet new sets of business targets, many are struggling to find specialist quality assurance and testing professionals capable of delivering high-level results. Why is this?

First of all, I don’t think there is any UK skills shortage in practical technology services. It is true however to say that, in some areas, standards are very low in terms of professionalism in test methodology. One contributing factor is that it seems that every failed developer becomes a tester; everyone who can’t find another entryway into IT becomes a tester; and even people with no professional knowledge of IT whatsoever can choose testing as a place to start their careers. This can breed a perception of a lack of truly insightful testers who understand that software development is actually a business issue, and not simply a technical issue that they should be trying to ‘fix’.

So how do these people get away with being inadequate testers? Well, they lower their day-rates for their clients rather than getting thrown off site, and remarkably some businesses simply accept that. In some cases, these businesses could be accused of just going through the motions of having their applications QA tested, rather than showing any genuine desire to work through problems with a professional testing team that has the integrity to identify risk and resolve business issues. But this is rare. It would be wrong to think that the majority of companies act in this way, and most are able to put testing in its correct perspective.

Learning past lessons
There are certainly historical excuses/reasons for some of these negative perceptions of the testing industry. In the mid-nineties, individuals within organisations with development responsibilities began shipping projects offshore for development work. Their thinking was that ‘a coder is a coder’ and often, on a one-on-one basis, a focused offshore developer could outstrip an onshore developer.

Problems began to arise though when development teams scaled up to ten or more. In those days onshore teams were already employing project management methodologies and policies, whereas the offshore facilities had yet to adopt those approaches fully and understand the impact.  The cost of adding more people was less than the cost of process and training.

By 2001, offshore providers/facilities had fixed that issue. Offshore software development became much better generally, and those facilities ultimately won the war against onshore because they were cheaper.

Problems arose once more when businesses sending projects offshore failed to specify them to a high enough degree. Development teams without English as their first language needed client specifications and designs to be delivered in good shape, so that they could take them on and understand quickly and fully what was required. But the specification and design simply wasn’t being written comprehensively enough. Of course when this was finally realised, specification levels were mandated and the offshore facilities once again began winning on that front too. But this problem with specification taught professional testing houses an important lesson about the importance of balancing the skill-sets and advantages of both onshore and offshore testing facilities.

In-house QA teams continue to play a key role in maintaining good practice in testing. They work hand-in-hand with offshore partners, head and tailing the process. These teams have to be able to take the risk appetite of senior managers and translate that into a package that details the breadth, depth and scope of testing projects, and that explains why it is being done. They must also define the testing strategy: Is it end-to-end testing because it’s a consumer product? Is it risk-based testing particularly suited to financial products? Is it industrial testing because the project is testing 5,000 handsets on 2,000 applications? The QA teams need to understand the risk appetite and turn that into risk management, and then turn that into quality assurance.

Today, it’s perfectly possible for 100% onshore testing facilities to be competitive as long as they know what they’re doing, understand their market, know how to price their services, and deliver on their commitments. Onshore testing has a big future, but the brightest future lies with companies that are able to deliver a blend of onshore and offshore testing – something independent contractors and the smaller companies simply can’t do effectively. It’s just not possible for companies on that scale to run profitable testing facilities at home and abroad, and manage the client/business interaction and communication efficiently and smoothly enough. Any offshore facility needs to be substantial if it is to have any hope of harbouring sophisticated skills such as experience in SAP, Oracle, IBM, HP and more.

A Golden Age?
The final, crucial part of the Software Development Life Cycle (SDLC), before firms go live with software, is of course the testing. I firmly believe that we are now coming into a ‘golden age’ when the light will be shone on the testing function and it will never again be regarded as an activity that can be conducted by whoever happens to be on the test bench, whoever is available, or whoever is deemed to be cost-effective. I believe businesses are finally taking this seriously, and are asking themselves important questions: Who really understands testing? Who are the thought leaders? Who are the people who are going to make this work for my business? Who can I trust to tell me when I can go live and what my risk levels are in doing so?

Recent economic trends have only served to accentuate this need for professional testing. In financial services in particular, the industry has actually experienced a growth in testing over the last twelve months. Companies that were already underway with projects needed to go live, and had to be sure, more than ever before, that they would work first time – they just couldn’t afford to risk any downtime at all.

Rewards for professional testing
So what are the major factors today that are driving businesses to ensure they have highly professional levels of quality testing, and not simply testing ‘at a price’? Well, if an organisation is spending hundreds of thousands or millions of pounds on a project, typically that is a significant proportion of capital budget across the business. For that reason it is essential to have a well-informed assessment of the chances of that project going live, when it is likely to go live, and what the risk will be once it does go live. That’s a big enough driving force to identify solid testing partners up front.

As well as the millions of pounds of risk exposure to business, there are day-to-day implications for those businesses of inadequately tested software applications. Thorough software testing is a means to an end. Businesses are rarely transparent in publishing results of testing for stakeholders to see and, in itself, testing is hardly ever used by businesses to differentiate themselves in the marketplace to win business. Rather, it is the lack of bugs and issues affecting productivity that become selling-points over less rigorous competitors. This situation is unlikely to change, because opening up further insights into testing practices would likely reveal vital information and set public baselines that would be detrimental to organisations and negate any business advantage. Instead stakeholders now simply anticipate that all applications will be bullet-proof, and they only shout if they discover otherwise.

Conclusion
If there isn’t a skills shortage as such, but a shortage in some areas of the levels of professionalism and quality in testing that responsible businesses deserve, then how do organisations make sure that they avoid inadequate testers altogether and use only experienced, quality QA partners?

Well the first step is always to look closely at the organisation that offers the services of professional testers. Big testing companies must protect their brand integrity and so are extremely unlikely to be duped into hiring ineffective testers. It is also perfectly acceptable to ask testers to demonstrate the level of certification they hold: Are they ISEB (Information Systems Examinations Board) certified, or ISTQB (International Software Testing Qualifications Board) certified? Are they trained in relevant toolsets and methodologies? And do their CVs prove continual and recent experience in the field?

Ultimately, a professional testing house will stand behind the portfolio of work that it has conducted for many companies over many years, and this is something that a less reputable/experienced independent contractor will be unable to demonstrate. The company you choose should be able to demonstrate its ability to understand you the coustomer, demonstrate its thought leadership but most of all show you how it can deliver real benefit to you both onshore and offshore.

Professionally trained quality assurance specialists are so beneficial to the daily operation and performance of any software-based business. Good testing companies understand how to take competent testing capability and put it into any environment. Quality testing is readily available in the UK - businesses just need to ensure that they partner with an experienced professional technology services company that can blend onshore and offshore facilities with a wide range of skills and years of specialist expertise.

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Offshore outsourcing for small and mid-sized companies

by Nick Rowley, Managing Director of Oceanus

Now it’s the turn of the smaller ISV to reap the benefits of offshore outsourcing. Tapping cheaper labour overseas isn’t just for large companies anymore as small and mid-sized businesses are increasingly taking up outsourcing and offshoring. If you are looking for a highly flexible workforce that is readily trained in the current broad spectrum of multi discipline technologies, then outsourcing can provide a valuable resource. 

A good starting point to finding the right offshore outsourcing partner is to talk to your peer groups, your customers and other technology partners to get a feel for their experience both good and bad. A potential outsourcing partner needs to be able to demonstrate real knowledge and experience. It is therefore, absolutely crucial that you conduct a thorough due diligence. Interrogate their level of experience in the market place and ask if any of their staff have been onshore before and to site previous projects and customers. Examine their human resource department to look at their staff turnover and ascertain what their cultural appreciation is like, particularly if they should need to come onshore to a customer site in the latter stages of a project.

As an ISV, you may well be considering two distinct types of engagement:
• Development of your product
• Development work on a customer project.

Time, effort, quality and resulting costs are ‘unknowns’ to start with and need to be seriously evaluated.

Ideally, start with a low value, low input project to test the company’s ability and the processes. Before embarking on a project it is essential that you set out clear areas of responsibility, understand where their services start and end.  Find out if they are a truly customer focused organisation and are committed to quality.  Ideally both the ISV and the outsourcing partner should be jointly responsible for the risk so agree up front on how you both want to share the value of the project.

I found that two of the main issues were quality and consistency across all disciplines in order to maintain the required standard of work.  It is important to have well defined and easy to follow processes that are very clearly documented. You also need to step up to the management challenges and be prepared to closely supervise a project’s progress. Don’t sit back and expect your outsourcing partner to guess what is needed.

When you generate an outsourced team, try to keep them on the project as continuity for your customer is paramount. Visit the offshore teams regularly to make them feel part of your organisation.  When you tread carefully there is no reason why you can’t achieve great value from offshore outsourcing and gain the benefits that have traditionally been the domain of the big boys.

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The Incredibly High Cost of Saving Money on Outsourcing

by By Robert E. Gelinas, Technology Executive, Author & Novelist

Outsourcing is supposed to save you money.  Right?  This is especially true when it comes to outsourcing mission critical work like software development, typically done offshore, with companies who enjoy very low labor rates.  Why pay a software developer $80,000 to $150,000 a year, when you can get one overseas for $40,000 or less?  That math gets especially attractive when you need a lot of them.  At least the promise of big savings is supposed to be the idea.  Unfortunately, the saying “Outsourcing will save you money,” is a lot like the old adage of, “Practice makes perfect.” They’re both half-truths.

The real truth is: “Only perfect practice makes perfect.” If you repeat the same mistakes again and again, practicing something wrong for any amount of time won’t make it right.  Similarly, only outsourcing with the right partner will save you money in the long run.  Pick the wrong one and you’ll pay dearly for that decision.

The Parable of the New House

Once upon a time a man wanted to build himself a new house.  He had a good idea of what he wanted, how many rooms, the style, basic space requirements, and specific amenities.  However, when he talked to a few builders, he was shocked by how much they wanted to charge him to build his new house.  He only wanted to spend $100,000, but the lowest bid he received from a reputable builder was well over $300,000 to get exactly what he wanted.

He theorized that the real problem was that all of the builders’ workers were probably union workers and union wages were sure to be the basis of the high construction costs.  So he decided to attempt to “save some money” and go another route.  He bought his own “Home Architect” program for his PC and designed the house himself.  The program produced blueprints and a materials list.  He shopped for the cheapest materials he could find, and even “recycled” some materials he was able to “find” here and there in the neighborhood.  He tore down his old house with a rented excavator.  He moved his family in with a relative while the project was going on.  He hired his brother-in-law who was recently out of work, but used to be a general contractor many years ago to actually oversee the construction.  Cheap labor was actually pretty easy to come by – i.e. his brother-in-law would pick up a crop of day laborers in front of the Home Depot every morning, and off they’d go to work on the new dream home.

Needless to say, several months later, far longer than the man thought it would take to build his house, he didn’t get exactly what he’d imagined in his mind.  He’d spent far more than the $100,000 he’d budgeted—why, he spent almost as much as the builders he had originally spoke with told him it would cost.  Most of that was attributed to going back and fixing problems that arose, redoing work that wasn’t right, correcting mistakes.  And it looked a mess.

To this day he and his family still live with a relative, saving money to try and rebuild later.  You see, the city had the house he built condemned and torn down, and he was heavily fined for lack of all the proper permits and violations of building codes.

When asked by a friend why he was so foolish to waste so much money and put his family through such terrible inconvenience, he replied: “Well, the guys building my house only cost $5.00 an hour!  I was saving money!”

The Short-Sighted CIO

Once upon a time a CIO needed a mission critical software application developed.  It was going to revolutionize his company and give it a powerful competitive edge.  He knew he didn’t have all the resources he needed to pull it off in-house, so he sought third-party help.  The top outsourcing companies quoted him bids far in excess of what he’d budgeted.  He was getting frustrated and stressed.  Then one day, a friend told him to look into the idea of outsourcing the project to an overseas firm, somewhere in Asia.  The friend made a point to tell him, “Just make sure you never pay more than $40,000 a year or $20.00 an hour for offshore work.”

Hey, those numbers fit into his budget perfectly!  So he initiated a vendor search, instructing his staff to find a short list of offshore firms, but with the explicit instructions to make sure that developers didn’t cost him over $20.00 an hour.  In practically no time, he was able to find several offshore development shops that would write code for him for only $16.00 an hour!  That would even bring him in under budget by almost 20%.  He was going to be a hero – and save money.

And so contracts were signed and the project began.  Needless to say, many months later, far longer than the CIO thought it would take to develop his software, he didn’t get exactly what he’d imagined in his mind.  He learned the hard way that $16.00 an hour developers aren’t System Architects, Business Analysts, and Project Managers that are critically needed to ensure that requirement are well-defined, the software gets architected and designed properly, and processes are set up to ensure project success.

He learned $16.00 an hour also didn’t get him senior developers, only very junior ones, many with barely a six-week certificate in basic programming to their credit and spoke little to no English.  That hourly rate also didn’t afford him the best Quality Assurance testers to ensure the application was built right and functioned properly.  In fact, when bugs were found, it took even longer to go back and retool the product to fix them.  Some pieces had to be completely redone.  What was supposed to take only six months took well over a year and still didn’t work right.

The company never was revolutionized.  In fact, their biggest competitor beat them to market with a product very similar to what they were trying to build, but did it six months faster and captured a leadership position.  The CIO was summarily encouraged by his CEO and board to “seek other career opportunities,” which he did, deciding to take his brother-in-law up on a request to help him build a new house.  He’d been a general contractor earlier in life, and figured he could apply all of his expert business acumen to turn over a new leaf in home construction.

Life Imitating Art?

These two characters described above are just fools, right?  A real CIO or other senior technology executive would never be that stupid, would they?  Unfortunately, it happens every day.  Many senior executives make incredibly myopic decisions on the vain promise of saving a buck, which usually ends up costing them dearly—and often in more ways than one.

Which is cheaper?  A software developer that costs $16.00 an hour, but who takes a year to complete a project; or a software developer who costs $25.00 an hour, but who can complete the same task in six months?  Let’s see:  52 weeks in a year, times 40 hours a week, times 16 equals $33,280.  But 26 weeks, times 40 hours a week, times 25 equals, $26,000.  Wow, the developer that costs 36% more per hour actually was 28% less expensive when it came to the actual deliverable price.  How is that possible?  Oh, yeah, productivity matters, not just activity.

Quality matters, too.  Why did it take the cheaper guy twice as long as the more expensive guy?  Is he just a slower typist on the keyboard?  Probably not.  More likely, the more expensive guy had greater experience, needed less time to solve problems he’d encountered in the past, made less mistakes, and therefore eliminated a lot of extraneous QA and bug fix time. Ergo, guys who know exactly what to do and get it right the first time can be far less expensive in the long run.

Process and tools matter as well.  Is the cheaper guy using a mature development process and state-of-the art tools like the more expensive guy?  Does the cheaper guy have access to proper revision control, regression testing, integration, and all of it overseen by seasoned technical leads and project managers?  And if he’s working offshore, how are his communication and language skills?  Is he getting ongoing training like the more expensive guy?  Not likely.

But don’t misunderstand – there’s still good money to be saved with offshore firms.  A US-based developer might cost from $50.00 to well over $100 an hour to employ.  So finding a good offshore development firm who charges even in the $30.00 to $40.00 an hour range can still represent a dramatic savings over hiring domestically.  Plus, “renting” instead of “owning” development resources can represent a much lower HR and management burden, and be especially convenient if a large team is only needed for fixed window of time, not long-term.

The point is that when you’re comparing US labor costs to offshore, the savings will always be pretty dramatic.  But when you start comparing offshore to offshore, you must realize that the less you pay in terms of an hourly or monthly rate for a resource, the more you’re not getting.  What are you giving up to get the better rate?  What hidden compromise are you making?  Productivity?  Quality?  Expertise?

These are but a few of the factors that can cause many a senior executive to be “penny wise and pound foolish.” When it comes to choosing an outsourcing vendor, the idea of “Total Cost of Ownership” (TCO) is paramount.  What does it really cost for the project to succeed and the ultimate deliverable to be fully realized?  And what’s the cost of product failure after it’s been delivered in terms of ongoing support?  TCO requires a lot more for you to consider than just underlying labor rates.  And there’s one more thing to keep in mind.

There an old story told about Henry Ford and his assembly line.  Allegedly, he had an engineer who had designed a very important machine and who faithfully maintained it for many years.  After the engineer retired, one day the machine stopped working.  The engineers on-hand tried in vain for a long time to repair it, but had no luck.  It is said that Ford himself ended up calling the old engineer out of retirement to come in and try to fix it.  The old man agreed.  He came in, opened a covering on the machine, and being a small man, he physically crawled inside it, tinkered for about ten minutes and then reemerged.  The machine fired back to life to everyone’s delight.  The man then proceeded to present Ford a bill for $10,000, a fortune for that period in time.  Ford was outraged.  “How can you charge me this much for ten minutes of work?” he demanded.  To which the old man replied, “I charged you one dollar for my time, Mr. Ford.  And $9,999 for knowing what to fix.” Ford paid the bill.

Just realize that if all you’re paying for is someone’s time to build something for you, and yet you choose to do so with no consideration of productivity, quality, process, tools, and ultimately knowledge and expertise, then that’s probably all you’ll get—a lot of time spent with very little to show for it.

About the Author
Robert E. Gelinas has been a senior executive in the IT industry for over twenty years, and in addition to his extensive technology background is also an internationally published novelist and public speaker. His most recent works include The Mustard Seed and Anticipation (ArcheBooks Publishing).

The article was first published with ExecutiveBrief, a technology management resource for business leaders. Visit ExecutiveBrief at http://www.executivebrief.com

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The problems a partner faces: Outsourcing to gain control

by Richard Barker, CEO of Sovereign Business Integration

A reluctance to undertake capital expenditure and a ‘necessary evil’ attitude to technology remain endemic among UK partnerships. The resultant poor skills and a lack of senior level understanding of and commitment to IT is leaving these accountancy, surveyor and solicitor practices vulnerable to system failure and data compromise.

With part time IT directors and an in house IT department that has neither the skills nor the authority to deliver relevant, cost effective systems, the result is an expensive technology mish-mash that fundamentally undermines operational effectiveness.  Not only that, but there is a very limited career path for an IT professional in a practice.

Despite this lack of interest and proficiency in technology, partnerships have traditionally avoided outsourcing the IT function for fear of losing control. In reality, getting an experienced, highly skilled third party to proactively address the technology infrastructure will not only pave a way for targeted investment that doesn’t impact the bottom line but also establish for the first time the control they have asked for, argues Richard Barker, CEO of Sovereign Business Integration.

Capital Barrier
Strong operational control has become an ever more critical tenet of business practice as organisations look to drive down costs in the current financial climate. Yet for the vast majority of UK business, especially partnerships, IT remains an area of perceived questionable value with costs out of control and benefits hard to quantify.

However, while IT costs are undoubtedly high, it is the partnership’s attitude and approach to IT investment and deployment that also play an important role. Partners in firms of accountants, solicitors and surveyors have long been loath to make major capital expenditure for fear of diminishing the retirement pot.

In recent years, this clear constraint to operational expansion has theoretically been addressed by the shift to Limited Liability Partnerships (LLP). Yet the culture remains unchanged: capital expenditure, especially on IT, is anathema to these organisations. And the result is poor IT processes, a lack of coherent strategy, limited in-house expertise and critically, an IT infrastructure that is neither robust nor secure enough to support current business demands; nor flexible enough to adapt to changing corporate direction.

Part Time Role
One of the key problems for partnerships is a lack of commitment to IT. Typically the role of IT Director is assigned to a partner – often the finance partner – and it is a part-time role. Not only do these individuals lack the experience and expertise in IT required to oversee this business critical environment but, more often than not, technology issues will be sidelined in preference for revenue-generating business.

Partnerships typically survive on a shoe-string IT department and, as a result, must regularly buy in expertise – currently the highest IT cost in a world where hardware is virtually free.

This lack of expertise and experience has also led many practices to fall foul of the growing trend for fashion IT. From the ubiquitous Blackberry demanded by partners and managers alike to the adoption of MPLS networking and the VM operating system, too many organisations are making knee-jerk IT investment decisions without adequately assessing the real impact on the business.

Wasted Investment
One accounting firm, for example, recently implemented an MPLS network. The investment was apparently successful, with the practice experiencing no major problems or bottlenecks. Looking closer, however, the firm is not running any significant data over the network and is now committed to paying £100,000 per year for a network it patently does not need.

Such pointless investments are, at least, less likely today as organisations now look to retrench further as the economic situation worsens. But blindly slashing money from the IT budget can, and will, leave the business less secure and lacking robust business continuity processes. How many solicitors, accountancy firms or surveyors can survive a loss of sensitive customer data? And in these highly time-sensitive businesses, significant operational downtime can have a catastrophic impact on client relationships.

Indeed, many clients rely on direct access to case files and payment facilities via the corporate extranet – failure or compromise to these IT systems could undermine confidence and drive clients straight to a competitor.

Outsourcing Control
Yet what is the alternative? Many partnerships are reluctant to, as they perceive it, relinquish control of IT to a third party. In fact, these organisations currently have minimal control over IT; data is insecure, even if it is located within the organisation; operational performance is jeopardised by limited IT skills; and business change or expansion is compromised by the lack of IT expertise required to assess the merits of new technology opportunities.

In reality, opting to outsource the IT function to a third party not only delivers far more control but it can significantly drive down costs by leveraging economies of scale and providing low cost access to a broad, experienced skills set.

Outsourcing IT allows a partnership to enjoy far greater control over its business processes. Working to a clearly defined service level agreement and contract, the outsourced organisations will ensure networks and software are maintained to deliver continual high levels of performance.

Facing financial penalties for poor performance, the outsourced organisation is far more committed to service continuity than a complacent in-house department. The expert IT outsourced service provider will also be adept at managing a crisis and be fully equipped to successfully deliver a disaster recovery operation.

Business Focus
Critically, the adoption of a third party provider paves the way for a business-focused technology debate that ensures any new investment is focused exclusively on achieving business benefits and return on investment. Critically, the outsourcer will address capital expenditure concerns by placing the investment on its own balance sheet.

This provides an organisation with a flexible, responsive IT infrastructure that enables the business to respond to the changing business climate and strategic objectives - such as a move towards Middle Eastern expansion to minimise reliance on the state of the UK economy – without demanding an unpopular capital expenditure.

By combining this business-led approach with up-to-date processes and policies that deliver far tighter IT management, a partnership can achieve good operational performance and a reduction in downtime that delivers quantifiable bottom line benefits whilst reducing overall IT costs.

Couple this increase in productivity and efficiency with a highly visible service and a responsive, motivated supplier and partnerships can achieve unprecedented levels of control.

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Perils of Prediction - when it is better not to listen to the ‘experts’

by By Sukhendu Pal, Managing Partner, Centrix Consulting

Prediction is one of the pleasures of corporate life. Conversation would wither without it. When the economy is in recession and companies are struggling, many chief information officers (CIOs) turn to the ‘experts’, who make a living either predicting the obvious or forecasting future trends. In recent months, some of these experts have predicted that IT spending is going to decline. Other experts suggest that outsourcing is one of the latest trends to feel the pull of gravity as companies take steps to reverse some of the relentless dis-aggregation of supply chains that has taken place in the past two decades.

What failed was the collective thinking of those in large consulting outfits that specialise in IT-spend forecasting. The obliviousness of these companies to the imminent rise of outsourcing may lead them to search for justifications, one being the rationality of companies researched was too pessimistic, and another that data captured by banal surveys was from managers too far down the line in the decision making process.

There are some other reasons why IT spend forecasters are unlikely to be very good at predicting the future. Because, too much of what happens in the business world depends on the economy, and when the future direction of the economy is uncertain, IT spending remains uncertain and unpredictable. To get it right requires truly experienced people.

So, do we need an expert from an IT-spend forecasting company to tell us that CIOs will have to do more with less, when almost all publicly traded companies are tightening their belts? It is interesting that when the experts say that outsourcing is in decline, and outsourcing service providers are going to be in difficulty, we find that notable outsourcing service providers, such as IBM, TCS and Infosys produce better quarterly results and higher profits and more clients than before.

As the recession starts to bite hard, we see an increased intention among senior executives to outsource, it certainly isn’t in decline as the experts predicted. This is driven partly by cost imperatives, but mainly by shortages of talent in home markets and the growing availability of skills in countries such as India and China. However, the dis-aggregation of the supply chain must be weighed against the challenges of finding suitable suppliers, recognising operational and structural risks involved, identifying suitable locations, and managing operations that are increasingly far-flung and disparate.

Outsourcing is no longer a blunt cost cutting tool. Instead, it has become a strategic move – yet many CEOs remain unprepared. In the current recession, many companies have no option but to consider outsourcing as a strategic imperative, if they wish to come out of the recession faster than their competitors. However, outsourcing initiatives that have cost savings as the only reason simply do not allow companies to capture greater value from the market. This is because such companies do not commit themselves to the organisational changes that are necessary for outsourcing to help them. In addition, when outsourcing is only about cutting costs, businesses are reluctant to outsource complex processes, even though doing so will have a bigger impact on their performance and bottom lines. However, when companies begin with the real passion to create strategic advantage through modern ways of outsourcing, they commit themselves to transferring complex processes early. Companies would do well to remember that the manner in which they start their outsourcing initiatives will determine how they will end.

Prior to the current recession outsourcing activities were driven by the suppliers. Companies outsourced their business functions and other IT activities in an ad-hoc manner to cut costs and re-engineer balance sheets. They underestimated the upfront planning, internal capabilities and ongoing governance required. What’s more, they also ignored organisational changes needed to capture the increased flexibility and the ability to scale up or down rapidly to respond to new business needs, such as the current recession. These are the companies, who have found the promised cost savings illusive and may consider bringing back outsourced functions in-house. Companies that outsourced in a methodical manner to make their companies lean and lasting - making their value chains more elastic and their organisations more agile - will have had the positive experience required to empower them to make outsourcing an imperative part of their business.

The reality is that many CIOs rely on the ‘experts’ - whose predictions are, worryingly, mostly inaccurate. What can CEOs and CIOs do to spot the real experts from their pretenders? Here are some clues:-

· When looking for advice, go to boutique firms with a small number of highly experienced staff; it’s quality, not quantity that counts.

· A real expert will have experience, perhaps having worked as a CIO, CEO or board member of prominent publicly traded companies;

· Real experts always take an independent and fact-based view and bring their experience and judgment to formulate future trends;

· A real expert brings facts, as these provide clarity and objectivity in decision-making.

· Real experts say things in black and white, even if it is an uncomfortable truth.

· Real experts work directly with CEOs, CIOs and senior board members, which allows them to better understand what trends are around the corner. 

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Asia – turning the tables on the conventional wisdom of outsourcing

by Harry McDermott, CEO Hudson & Yorke Ltd

The routine outsourcing of core elements of business by European and North American companies to developing economies in Asia has had a dramatic macro-economic effect. 

During the last fifteen years, western companies (whether they realise it or not) have been funding the R&D of the Asian region and have effectively invested in the creation of a new breed of competitor. In particular, India has emerged as a significant economic force in its own right.  Although the effects of the global economic climate are still being felt in the region, with the IT sector likely to miss its target of $60billion worth of exports by next year, India is faring better than most, and its economy is expected to grow at six per cent this year, according to the Reserve Bank of India.

Whereas India was originally positioned as an outsourced off-shore low-cost destination by western firms, ambitious indigenous Indian firms are rapidly altering the dynamic of the outsourcing sector by becoming major providers of international services in their own right.  This can be clearly seen in the IT sector, with Indian service providers such as Infosys, Cognizant and Wipro Technologies now considered important IT players on the international stage. Interestingly, Wipro Technologies recently announced its intention to increase its US and European staff – the company currently employs 97,000 people of which about eight per cent are outside India.

There is no reason to suppose that other sectors won’t soon follow suit. For example, consider the Indian telecommunications sector, which has a domestic market of 1.2 billion people with a reported 15 million new mobile telephone users signing up each month . Indian mobile operators are currently driving growth by offering call rates for less than Rs1 per minute, and with the new government in place, India is poised to see 3G, WiMax, unrestricted VoIP (Voice over Internet Protocol), number portability, MVNOs (mobile virtual network operators), and large investments in infrastructure that should augur well for the tech sector in the long term. Likewise:

• Reliance Communications acquired Vanco in the UK, a respected provider of VNO (virtual network operator) services to European corporate customers until running into financial difficulty
• Tata Communications is building a global fibre network
• Bharti Airtel is bidding for MTN in Africa.

This solid growth and investment in the face of global recession are indicators of India’s emergence in the telecommunications arena.  Whereas Asian telecommunications operators may not currently compete to provide western multinationals with global managed network services, it is probably only a matter of time before this market is shaken up by the emergence of some new contenders from the far east. Vendors and consultants in the West must take note.

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Being sustainable really can pay

by Mark Greenlaw, Cognizant’s CIO

Businesses across the globe are under severe pressure to decrease their carbon footprint and make their operations greener and more sustainable. But, with cost pressures stronger than ever, will the current economic climate dampen the enthusiasm for IT companies to proceed with sustainability initiatives?

A recent report by carbon market analyst New Energy Finance (NEF), suggests so. It highlighted that although reduced economic activity due to the financial crisis will decrease levels of CO2, in the long term a lack of funding for carbon-reduction initiatives is likely to have an adverse effect on emission levels. Nevertheless, the importance of reducing carbon emissions is an issue that will not go away, regardless of how the economy stands. As we’re frequently reminded, we need to act now. Worryingly, at the March 2009 Climate Change Summit in Copenhagen, scientists predicted that sea levels could rise by a metre by the end of the century - endangering 10 per cent of the world’s population. This new estimate illustrates the crucial need for organisations to take accountability for the environmental impact of their operations.

Businesses are already facing an urgent requirement to comply with upcoming environmental legislation as governments across the world look to reduce humanity’s impact.  To help them, governments will provide much needed support for sustainable business practices through tax-breaks and incentives. For example, in the United States the green stimulus package recently signed by President Obama, includes $71 billion allocated towards energy and environmental initiatives and another $20 billion for green tax incentives. The aim is to stimulate economic demand and at the same time make it greener, cleaner and more sustainable. Britain, Germany and China are all using stimulus bills to make huge new investments in clean power and drive growth in smarter, more efficient and more responsible ways.

As a knowledge-based industry, IT outsourcing is not considered a major contributor to greenhouse gases compared with greenhouse gas intensive industries. However, the industry’s major players often have huge numbers of employees (over 63,000 in our case) who are distributed throughout the world, so there are opportunities to generate significant internal carbon reductions. At Cognizant, our aim is to reduce waste and improve natural resource productivity to reduce operating costs and green house gas emissions. These savings that can be passed onto customers, and lay a foundation of return-on-green-investment to prepare companies for upcoming regulation.

In addition to being green themselves, IT service providers now have to be prepared for environmental measures to be included in contract negotiations. Providers and their customers – the end-users – need to be clear on exactly what they want to achieve. Consider the following example; a company is trying to run its business as sustainably as possible.  It decides to outsource a portion of its IT function, which currently contributes 100,000 tons of green house gases (GHG) per year. When it moves the work to the outsourcer, ideally they should meet the company’s business’s Service Level Agreements (SLAs), and should also be able to perform the work at a reduced level of GHG emissions, say 80,000 tons.  If the outsourcer is less efficient and does the work at 110,000 tons, then the decision to outsource has actually increased the overall GHG emissions and is contradictory to their sustainability goals.

By collaborating to formalise targets at the planning stage, all parties can make sure that any goals set out in the SLA are tangible and realistic. This means that progress can be easily measured, reviewed and redefined as required.

In the public sector this has been formalised, with the UK government announcing last year that sustainability would be a factor in all procurement decisions. However, it remains an important issue in the private sector too. Government regulation and concerns about corporate accountability mean companies need to pay attention to sustainability, even if the recession has pushed it down the agenda. A survey conducted as part of The Brown-Wilson Group’s Black Book of Outsourcing revealed that 21 per cent of European and American companies that outsource have already added green elements to their contracts, with a further 36 per cent wanting to switch to a greener IT partner over the following 12 months. With this in mind, outsourcing providers who ignore the environment do so at their peril.

An effective first step in any sustainability process is to focus on reducing the demand for energy through conservation efforts; this yields the highest immediate environmental benefit and return-on-green-investments for both individuals and corporations. A McKinsey study has estimated at a global scale that there is $900 billion in energy savings, which could be captured with $170 billion in efficiency investment. Energy efficiency is now frequently referred to as “the fifth fuel” since it represents such a tremendous opportunity to reduce the consumption of the other four primary fuels: coal, oil, natural gas, and nuclear.

When Gartner included Green IT in its Top 10 Technologies for 2009, it suggested that shifting to more efficient products and approaches can allow for more equipment to fit within an energy footprint. Gartner also warned that organisations should consider the impact environmental regulations will have on the business and consider alternative plans for data centre and capacity growth. Outsourcing firms present a more sustainable option here, since they will generally use more efficient data centres and can exploit economies of scale.

Virtualisation also appeared in the Top 10 Technologies for 2009, both in terms of server virtualisation and virtualisation in storage and client devices. While virtualisation isn’t a panacea for carbon reduction, and if poorly managed can create a complex IT environment, it’s also a major tool in driving down overall IT costs and environmental impact. Cognizant has virtualised over 450 servers in its data centres to reduce energy consumption, virtualising eight per cent of current servers with the goal to reach 80 per cent over next three years.  As a result of virtualisation, Cognizant reduced server procurement by 35% in 2008, despite growing by 32%. We’ve used our knowledge in this area to directly help our customers. We worked with a major PC peripherals manufacturer to reduce its number of servers by more than 50 per cent through server virtualisation. We also implemented a programme to help a major publisher reduce its data centre energy consumption by 40 per cent, resulting in comparable energy savings and a big reduction in carbon emissions.
There are, of course, less complex measures that can also be taken, such as individual power consumption, paper use and travel. These projects are often relatively simple to implement but provide dual benefits – a reduction in carbon emissions and significant cost savings. Service providers can also put these into practice within their own organisations, generating further savings that can be passed onto customers. 

One such project Cognizant has implemented is a power management program that puts desktop PCs in hibernation mode after-hours. It’s a simple step, but one that will save Cognizant an estimated 18.75 million kWhs of electricity annually, resulting in $2.5M annual cost savings and an estimated 17,500 metric ton annual reduction of carbon emissions – the equivalent of flying back and forth between New York and India over 5,500 times (according to The Carbon Neutral Company).

When it comes to paper, any company irrespective of size can re-evaluate the need for printing and introduce simple measures that make vast differences. For example, Cognizant implemented a green BPM solution for a large pharmaceutical company, helping it save 1.2 million pages annually and resulting in a CO2 emissions reduction of approximately 20 metric tons annually.

Business travel in a global company can also be a major source of emissions. Along with others in our industry, we are working hard to reduce this. Cognizant is focussed on reducing its travel by encouraging the use of collaborative tools such as online meetings and telepresence. For example, we hold an annual IT management meeting in India to formalise plans for the coming year. This year, we conducted a virtual offsite meeting instead, using Microsoft Live Meeting to virtually bring together 25 of the management team from around the globe. Achieving a 10 per cent reduction in travel would lower our carbon emissions by 2,800 metric tons annually.

Environmental legislation will only increase over the next few years as the effects of global warming become more apparent. As legal requirements become more complex and far reaching, demand for green outsourcing partners and engagements will increase.

The business community needs to understand that going green and cutting costs are not mutually exclusive. Implementing a green initiative can be difficult as it requires a new mindset across an entire company – but often even simple steps can reap significant financial benefits, and the best outsourcing firms can often help. As inherently globalised businesses developing best practice across many fields of IT, outsourcing providers can draw on their experience of working with blue-chip IT firms and instil the knowledge and process developed internally within their client base. With increasingly demanding legislation expected over the next few years, companies should prepare now and let IT lead the way in their green programmes.

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Bankers, autos and tech - Oh my!

by Joshua B. Konvisser, Partner, Pillsbury Winthrop Shaw Pittman LLP

This week’s landmark bankruptcy filing by General Motors is just the latest example of recession-driven retrenching across industries, a trend casting a shadow on outsourcing companies with large client bases in the hardest-hit industries.  Depending on restructuring terms, outsourcing firms may be at risk to have large, long-term, ongoing revenue streams rejected in bankruptcy or terminated by an acquiring entity after a ‘fire sale’ purchase.  You only have to look at the lists of the top 50 creditors for each of GM and Chrysler to see recognizable outsourcing service providers with a great deal at stake.

One can trace the beginning of the outsourcing sector’s current challenges to the financial meltdown last year, as bankruptcies and sell-offs of leading financial services institutions began to jeopardize outsourcing providers’ revenue from these customers.  This was compounded by early termination of outsourcing agreements as the industry eliminated redundant service contracts in newly consolidated firms. 

Wall Street’s shake-up was followed in short order by crises in the auto manufacturing sector, typified by recent dramatic ownership changes and organizational revamps at Chrysler and GM.  From information technology services, transaction processing and customer service to parts delivery and facility management, each of these hard-hit industries relies extensively on outsourced services.

Bankruptcies and reorganizations are having a profound effect on some outsourcing firms because these service providers typically invest in technology, facilities and other assets early in long-term outsourcing contracts, expecting to recover these costs in later years.  The vulnerability in this strategy emerges when ongoing revenue streams are cut off in bankruptcy or other circumstances without allowing for a complete recovery of providers’ early-term investments.  This lost investment compounds the loss of expected revenue from having long-term agreements terminated early. 

The net result is that we may begin to see a sort of “domino effect,” given the interdependence of the IT and outsourcing sector on the industries it serves, such as financial services and auto manufacturing.  Companies in the current environment would be well-advised to not only perform thorough due diligence on existing and potential suppliers and partners, but also to prepare contingency plans in the event access to key suppliers, distributors or business critical software and services is jeopardized.  In our practice, colleagues and I advise managers pursuing outsourcing to meet commercial and financial objectives to bear in mind the risks associated with outsourcing – especially long term arrangements – and factor these risks into their decisions and plans.  We also urge them to revise the thinking around certain contract terms that might be appropriate in light of the new economy.

While the larger and more well-diversified outsourcing providers should make it through this downturn, smaller and mid-tier providers that are focused on limited service offerings or a single vertical market could face difficulties, even bankruptcy themselves, if revenues decline to levels triggering loan covenants, for example, or simply fall too far below the operating costs of supporting customers.

The last six to twelve months have brought massive changes in the global economy, making it even more critical for organisations to pay careful attention to new risks confronting the outsourcing industry at the same time they evaluate its ability to transform their business.  This does not mean that companies should forego an outsourcing if there are significant commercial benefits.  However, it does shift the cost-benefit analysis for outsourcing and demand an increased level of diligence and planning.  This advice applies equally beyond the sourcing context to any key supplier relationship.

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The Nearshoring Bug: Why it’s Catching

by Jaroslaw Czaja, Chief Executive of Future Processing

Despite the recession, or perhaps because of it, outsourcing remains big business.  I recently read that more than half of UK companies still regularly outsource business critical applications.  However, if we are to believe the papers, outsourcing is in decline: the value of outsourcing deals is falling, contracts are being renegotiated in an effort to cut costs and we are in the middle of a supplier price war! 

Whether or not this is true, it certainly isn’t the whole picture, or at least not from where I am standing. It seems to me that certain types of outsourcing are performing better than others.  For example niche services like software development and bookkeeping still seem to be growing. I believe we are actually seeing two phenomena that will continue whatever the economic climate, because they make sound business sense in a globalised world. First, different regions are emerging as off-shore centres of excellence for particular requirements. For example, Eastern Europe for programming skills or the Philippines for call centres. Second, nearshoring is becoming more popular.

The first phenomenon has been predicted for a long time and we have seen it many times before in other industries. The second and its causes are, in my view, more interesting.
A decade ago the primary objective of outsourcing was to improve costs, hence the success of traditional offshoring centres. Today, priorities have changed:  while saving money remains important especially in today’s business climate, it is being caught by the requirement for outsourcing to actively support the business and contribute to the achievement of higher-end strategic goals. I see this on a daily basis from my customers - cost reduction is no longer enough to swing an outsourcing decision. Many customers these days are asking about long term relationships, skills, security and quality as much as they are asking about pricing.

In addition, some of the advantages of offshoring further afield are slowly eroding. The costs of software development in Brazil (for North American organisations) and Eastern Europe (for European ones) are now on a par with Far Eastern destinations. Some perceived disadvantages of farshoring are seen as increasing: security in some destinations has become a greater concern. As the managing director of a UK company I met recently said: “Although a terrorist attack is unlikely, I’d rather offshore to somewhere safer, if it meets all my other criteria.”

At the same time, some of the advantages of nearshoring destinations, particularly in Eastern Europe are creeping up the value scale.  For example, countries in the European Union (EU) adhere to EU Intellectual Property law. A short time difference means ease of management and many problems can even be resolved within a single working day. Most nearshoring destinations like Ireland, Poland and Russia offer extremely good higher education systems and therefore can provide a highly-skilled work force: here in Poland we have a higher percentage of school leavers going on to study at university that in Britain.  Furthermore most nearshoring destinations currently offer a low average churn rate. Surely these factors are all contributing to a rise in demand of nearshoring services.

I also think it is important to remember that some near-shoring destinations are deliberately not geared up to offer large-scale, fast-ramp up operations. Instead, some are choosing to offer more niche, bespoke services, trading on quality as their differentiator. If organisations are shifting away from outsourcing from larger contracts to multi-sourcing then this approach will sit very well with them.

Multisourcing is not short-term “quick-fix” outsourcing. Because it involves managing multiple parties it is a more long-term strategy and companies taking it up are looking to develop lasting relationships with suppliers who can really become an extension of their core in-house team. This sort of relationship involves more face time, high-quality niche skills, two-way consultancy and often dedicated teams at the outsourcer. These are all attributes that today’s nearshoring destinations excel at.

At the beginning of the year I read that 2009 would be the year of nearshoring. This is now looking more likely than ever.  Most of the companies I have met in the last twelve months have either decided to go straight to nearshoring without trying farshoring or are switching from further afield to nearshoring. It appears that a growing number of UK companies looking to outsource IT services in particular, consider just the UK itself, Ireland, Poland, Russia and the Ukraine.

While nearshoring may not be right for all organisations, when it is part of a thoroughly planned sourcing strategy it can deliver impressive bottom-line results with little effort from the company outsourcing the project. The ever increasing number of companies outsourcing to nearshore destinations is a clear testament to this.

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Waiting for a Decision – The BSkyB and EDS litigation

by Micheal Swinson, Morrison and Foerster

The English High Court is expected soon to issue a ruling on a complex and long-running dispute arising out of an IT services contract between BSkyB and EDS.  It is rare for such disputes to reach the Courts and this decision could set an important precedent since, amongst other things, it will test the circumstances in which: (a) a service provider can be held to account for its pre-contract sales pitches; and (b) service providers can rely on, or customers overturn, contractual limitation of liability clauses.  This article looks ahead to the possible outcomes of the case and anticipates some of the consequences it might have for the UK IT and outsourcing services industry.

Observers have been waiting for the Court’s ruling since the trial ended in October 2008.  However, the dispute originated as far back as 2000 when EDS won a £48 million contract to provide BSkyB with a new customer relationship management system.  Unfortunately, the project soon ran into trouble and, in 2002, BSkyB brought a claim against EDS alleging that, during the tender stage, EDS had misrepresented its ability to deliver the project.  BSkyB said that, were it not for those misrepresentations, BSkyB would not have awarded the contract to EDS.  EDS countered by arguing that BSkyB had no clear idea of what it wanted from the project and had continually altered its requirements, resulting in delays and other problems.

Up to this point, the argument between the parties was serious but not unusual, as parties in the IT industry will often clash when a project goes off the rails.  However, the stakes were raised significantly when BSkyB set its damages claim at just over £700 million (around US$1 billion – an amount far in excess of the maximum exposure that EDS might have contemplated on entering the contract).  While the contract capped EDS’s liability at a much lower level, BSkyB alleged that the misrepresentations made by EDS were deceitful (as EDS had made the representations knowing they were false or at least being reckless as to their truth) and, as a result, the contractual liability cap did not apply.

The type of pre-contract representations that BSkyB has alleged were deceitful may sound familiar to those who are accustomed to service providers using what some may view as “sales talk”.  For example, BSkyB has pointed to:

• a representation that EDS had the “resources and ability to deliver the system and services you require”.  BSkyB has alleged that this was deceitful as EDS knew that it did not have available personnel with the relevant skills, knowledge or experience for the proposed solution

• a representation that the three key products that EDS intended to use in its solution represented “proven leading edge technology”.  BSkyB has alleged that this was deceitful as EDS had not previously used the products together and had not carried out a proof of concept or technical feasibility study; and

• a representation that EDS would “meet the financial and budgetary targets that you have set”.  BSkyB has alleged that this was deceitful as EDS had not carried out a proper estimate of costs and in later internal correspondence EDS staff indicated that they would quote a low price to win business and then increase costs afterwards.

For balance, it should be made clear that EDS has vigorously denied BSkyB’s allegations.  EDS has argued that BSkyB claims misstate the representations actually made by EDS, that the actual representations were not false and that there was no deceit by EDS.  EDS also asserts has also asserted that BSkyB has exaggerated the cost savings and other benefits on which it has based its claim for damages.

The size of BSkyB’s claim relative to the initial value of the contract has made headlines, but the principles to be decided in the case will have the most far-reaching impact on the IT and outsourcing services industry.  In particular, if the Court upholds BSkyB’s allegations of deceit, it may have the following effects on the industry:

• Service providers may need to become more circumspect in order to avoid the risk of misleading their customers.  Sales teams will need to ensure that they do not make hasty or ill-considered promises that could sow the seeds of a future deceit claim.

• There may be an increase in claims alleging deceit against service providers (which to date have been difficult to prove and rarely successful), not least because such claims may allow customers to by-pass liability caps that would otherwise limit the amount of damages they can claim for.

• If BSkyB can recover anything close to the £700-plus million it has claimed, customers may be encouraged to push the boundaries in their claims by seeking to recover damages for financial losses (such as loss of cost savings and loss of profits) that are usually excluded by liability caps.  In response, service providers may become more reluctant to take on difficult or complex projects, where the risk of failure (and, therefore, exposure to damages) is higher than normal.

On the other hand, if the Court finds that there was no deceit by EDS, then BSkyB’s case may be fundamentally undermined.  In this event, customers not wanting to be caught in the same position may start to exercise more diligence when conducting tenders, including by asking their service providers to provide firm evidence to support statements made in tender responses.  As such, service providers may need to work harder to justify their sales claims.

While the Court’s judgment is eagerly awaited, it is unlikely to be the last word on this case.  Having already invested so much into the case (not least an estimated £70 million in legal fees), unless the first instance judgement puts the parties in a position where there is real scope for compromise in a settlement deal, it is almost inevitable that one, or even both, of the parties will appeal the decision when it is finally handed down.

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Prepare IT for the upturn

by Simon Wayne, MD, Parity Solutions

Budget cuts and job losses may be at the forefront of people’s minds, but there are some ways in which the downturn could be good for business. With organisations wary of spending any extra money at all, IT departments are finding it increasingly difficult to gain approval from the Board on new investments. Instead, they’re having to look at what they already have: many companies are using this period as an opportunity to rationalise existing infrastructure and extract maximum value from current systems.

And those who follow this strategy will reap the rewards – not only will it impact the company’s bottom line in the short term; it will prepare the business, and the staff, for the upturn.

Right now, it’s a good time for IT leaders to get to grips with the real needs of the organisation. IT departments can support their company through the recession by aligning themselves with the business’ priorities. They must establish a strong IT strategy which will ensure operations across the business run smoothly, staff work efficiently and teams are truly collaborative, so the organisation can increase profits, retain customers and gain a greater share of its market. 

But this doesn’t necessarily require additional investment. At the moment, most companies are experiencing large budget reductions, with any increases relatively modest compared to previous years. Consequently, many organisations are shelving any non-essential projects and working with what they have in place already. By following three simple steps, businesses can sweat their assets, making the most of the technology, systems and resources they already have in place:

1. Re-organise, re-structure and automate
IT budgets are almost always spent in full, but all too often this just means people are buying technology for the sake of it. This results in complexity and additional management headaches, when what the business really needs is speed, reliability and ease of use.

IT managers need to establish what technology they have, what they need, and what they can manage. They may find they are over-subscribing to certain software programmes required for the number of the workforce that needs access, or it could be a case that some systems are no longer essential to the business’ operations.

A full audit of what is in use and what is of use will help rationalise the business. Any excess should be stripped out to avoid unnecessary complications and expenditure, making the whole company run more smoothly, more efficiently and more cost-effectively. It will also provide an accurate indication of areas that could make the best use of any future investment, as IT directors will be able identify outdated programmes or business critical tasks and systems.

2. Have your cake and eat it
Very often, organisations find they have invested in technology but failed deploy it. They end up wasting hundreds of thousands of pounds and losing out on increased staff productivity.

For example, Microsoft Office SharePoint Server has been around for some time, but there’s still widespread misunderstanding about how it works. It’s not like the Office suite, which is basically ‘plug and play.’ To take full advantage of its toolset, you need a fairly sophisticated installation, so many organisations are simply casting it aside.

But those who snapped it up and not utilising it are effectively sitting on money mountains. SharePoint provides the building blocks for gaining control over your unstructured data, moving towards effective enterprise content management. Once it’s up-and-running, it can improve workforce productivity exponentially. Organisations need to start realising the benefits of technology like this and stop wasting their investment by not using it.

3. Work smarter, not harder
Many organisations are already finding greater efficiencies through adopting different working practices that while reduce expenditure while supporting top-line growth. Shared services centralise back office functions, while remote and flexible working cut down on travel and office costs. 

Another initiative that can be achieved quickly and has immediate return on investment is collaborative information management. Unlocking the value of information assets is vital to an organisation’s success in a downturn, whether this information is stored in IT systems of people’s heads. And for any organisation shedding jobs, greater collaboration and better information management is vital. When workers leave, they take their knowledge and experience with them; but those left behind need not suffer.

By consolidating information centrally, staff are saved from ‘re-inventing the wheel’ and can access, find and view the content they need immediately. Instant messaging and collaboration enable employees from across the business to work together more effectively, sharing and exchanging information wherever they are. This will improve overall workplace productivity and create a more integrated business.

By following these three steps, any money the organisation does need to spend on IT will be a long-term investment, not a short-term expenditure. In this way, the company can feel confident that it will outgrow the competition rather than just stay in business.

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Don’t sweat the recession; sweat the IT assets instead

by Scott Nursten, MD of s2s and network security consultant

According to a recent report UK businesses are taking six times as long as their US counterparts to react to the dramatic changes in the current market. This situation is largely due to the UK’s complex and time consuming employment laws, and is forcing UK businesses to respond to resourcing requirements a lot slower than they ought to as once someone is on the payroll, it becomes very difficult to let them go. The lure of lower IT costs is directing business owners towards considering a managed technology service over an in-house function, which with the right supplier can be a very cost effective move.

But is a managed service really right for the business? Cost is a key consideration in any tactical operational change but organisations must not only address the business plan as a reaction to the short-term macroeconomic climate, but must also consider how best to take advantage of the future market recovery.

An effective managed service offers the chance to reduce costs, improve operational performance and stability, add agility and mitigate risk. But achieving a managed service that delivers value requires some tough questions both internally and of potential suppliers, argues Scott Nursten, Managing Director, s2s.

As the effects of the recession are felt across every part of the UK economy, organisations are increasingly looking for ways to cut costs fast. For many organisations this has already resulted in a reduced in-house IT head count and attention is now being turned towards IT systems and services.

In addition to staff costs, organisations are questioning the energy footprint, data centre and office space requirements of internal IT resources. With shrinking revenue and a trend towards lower staff numbers across the board, fixed and inflexible IT costs which offer limited potential represent a significant business risk. This doesn’t have to be the case. Joining forces with the right supplier can offer controlled costs with the necessary flexibility to mitigate risk in the short term and drive business transformation when good times return.

But every organisation is now also aware of the risks associated with under-funded IT systems and the implications for stability, productivity and customer service. So while it is no surprise that increasing numbers are looking to assess the value of a managed IT service, the near universal focus on a cost-based decision is raising alarm bells.

Basing a key operational decision such as outsourcing IT solely on cost is not sound business practice. Not only are organisations potentially putting untenable pressure on suppliers, which is likely to lead to reduced levels of service and increased risk, but they are severely constraining their ability to react to the upturn as and when it arrives.

Without a doubt, a well run, efficient and effective managed service can deliver far more than cost savings. The expertise of a good managed service provider will deliver more from existing infrastructure allowing the business to ‘sweat the asset’ and improve the return from capital and operational expenditure.

Leveraging economies of scale, the Service Level Agreement (SLA) based contract should offer 24x7 UK based support at a level that completely eclipses the potential of an in-house team in terms of cost efficiency. It should also be based on a proactive strategy that means once a problem occurs, it either won’t happen again or the time to resolution decreases with every occurrence.

Critically, by opting for a third party resource an organisation can avoid the risk of being virtually held to ransom by experienced in-house staff for additional pay and benefits. The IT department is freed from the administrative overhead of employment regulations and resourcing issues and can focus on its primary purpose and objective: providing efficient platforms for business operations.

If the deal is structured correctly, a managed service should offer a company the agility to flex up and down as required. In the current volatile market, the ability to reduce IT costs or increase service level delivery in line with business performance is a compelling argument. Add to this the benefit of aligning IT services with the business’ security policy, ensuring compliance and data protection in this challenging climate and providing a critical edge in an increasingly competitive market place, and the true value that the right managed services provider can bring to an organisation becomes clear.

Yet a managed service is not the right solution for every organisation – however tight the situation may be today.

A key consideration is the level of talent and experience that exists within the IT team. While cutting costs is a primary goal today, business decision makers need to consider which actions best support the medium and long term key business strategies. Only through a broader and more holistic approach of both financial and strategic implications/drivers can the business arrive at the right decision.

When making any radical operational change such as outsourcing the IT function it is essential to understand the business case. What is the medium-term strategy? Does that include a new product or service launch that will require considerable IT input and support? Would a managed services provider be in a position to provide that level of insight? Indeed, would the organisation be happy to even share that strategic vision with a third party? And, critically, what is the risk associated with in-house IT versus a managed service?

If the business case stacks up, the pressure is now on to get the right contract to support the organisation not just through this recession but into the future. Check the contract! There are far too many managed services contracts that include massive hidden costs that can result in the overall deal costing up to three times the expected fee.  The majority of contracts can also not be flexed up or down without incurring huge penalties, creating the same inflexible cost model as the in-house resource.

Furthermore the majority of contracts are designed from a legal rather than service level perspective. Understanding the business requirements and determining the right SLA is key – from the coverage required to the location of the support staff – if the overnight cover is in India, will the problem really be resolved by 8am?

And, of course, if a key objective is to mitigate risk, it is essential to undertake rigorous due diligence on potential suppliers. In this market there are clear signs that some organisations are struggling to keep afloat. In their bid to raise finance, many are looking to cut corners and are failing to focus attention on the provision of service to customers.

Before entering into any new contract, an organisation must be tough: verify the level of cash reserves, check the number and qualifications of staff today – and how that figure compares to 12 months ago. As an example, those providers working primarily in the finance sector may have genuine reasons for headcount reduction but they should be open to such questions.

A good provider should also be innovative as well as transparent. Costs today are an obvious driver and organisations should offer not only contracts that flex up and down in line with business needs but also newly designed services that offer a lower level of service, with less reporting, for example, to provide additional customer choice.

In a recession there is a very understandable temptation to look only at the cost aspect. But while that may help the business weather the storm in the short-term there is so much more to consider if an organisation is to determine whether or not a managed service is the right strategy. 

Will a managed service deliver return on investment? Will the company be brave enough to outsource all IT functions to a third party, or will it opt to keep a couple of key staff ‘just in case’ – a move that may reduce the cost benefits? And has the organisation really assessed its business needs? Setting expectations in terms of up time, resolution time and business goals is key before, not during or after, discussions with potential providers.

It is only by undertaking a thorough price versus value comparison and assessing just how a managed service will affect the business when the economy improves that an organisation can make the right decision and, critically, opt for a provider that can actually deliver value to the business over the next few years, not just the next couple of months.

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The Impact of Uncertainty

by Ravi Krishnamoorthi, European VP, Collabera Solutions

Uncertainty has reached a fever pitch since the onset of the financial crisis.  Though the recent G-20 summit in London has made markets across the world respond with a spirited show, the real impact on various industry sectors will take time. However, the rejection of protectionism by the G-20 members in the summit should certainly bring some cheer to the global IT outsourcing business.

Challenged by the change in reality, the IT outsourcing industry is already reeling under the need to reposition itself to sustain its high growth trajectory. Compared to 2007 when the business of outsourcing was on a roll, 2008-09 has brought more competition and greater demands on cost controls for most players in the segment. The volatility in exchange rates has made the case even worse. And with some belt-tightening by clients during a recession, little choice is left for most. From cost structures to human resource and portfolio of product and services, everything is going under scrutiny. What might emerge is anybody’s guess. But, I believe that we will see a more conservative mindset taking over the business of IT outsourcing.

While IT outsourcing companies will continue to be optimistic, their decisions to innovate in 2009-10 will be prompted by the prescribed need of the client. Innovation or big solution implementations will not happen unless it leads to better Return-on-Investment (ROI) and cost improvements. Open ended efforts will have no place in future schemes.

Convergence
The lines dividing discrete services like IT consulting, upstream application development, business process outsourcing will become even more obscure. Large service providers will face increasing competition not only from each other but also from outsourcing specialists working on a consortium basis. In short, outsourcing will move away from doing work in isolated pockets, thereby creating new opportunities for fringe players to join the game.

The next couple of years may also witness acts of merger and acquisition in this space. Led by situations where business process outsourcing is considered a natural extension of a relationship, many IT vendors may acquire smaller BPOs to look complete and offer more. In absence of a suitable option, two outsourcing entities may even merge to create one compelling proposition. However, there will be space for all, given the fact that recession will only fuel global sourcing demand, with corporations attempt to do more with fewer dollars.

New Opportunities
New verticals are emerging and will soon replace the historical mainstay. With the bastion of IT outsourcing - banking and financial sector - being in trouble, business of IT Outsourcing is now focusing more on recession proof industries verticals like manufacturing, healthcare etc., for growth. The healthcare industry globally has been a good adopter of global outsourcing in the last couple of years and trend is expected to continue. Other sectors like manufacturing, retail and telecom will be attractive industries as they look for opportunities to cut cost. 
However, the client, with reduced IT budgets, will be more selective - demanding stringent Service Level Agreements (SLAs), and greater contractual flexibility.

Everything is Negotiable
In an environment of cost-cutting and flat budgets, businesses will increasingly look for service providers that can guarantee business outcomes. Contracts and pricing models are increasingly including components of risk associated with the business outcome. Going by the present day trends, the traditional pricing structure will soon give it in to a more dynamic pricing model. An alternate that’s already gaining traction is outcome based pricing. Related to a higher risk-reward incentive, this model ensures that the complete processes, technology and the supporting infrastructure are priced under a single scheme with unified Service Level Agreements.

Alternate Delivery
Alternative delivery and acquisition models (ADAMs) will be more pervasive in many aspects of IT development, delivery and management and become part of the mainstream. ADAMs will deliver IT services through new approaches, such as software as a service (SaaS), business process utility (BPU), infrastructure utility (IU), remote management services (RMS) and Web platform/cloud computing. These services promise lowered capital investment, greater flexibility and speed, and pay-for-use models.

Risk Hedging & Newer destinations
In the coming year, we will see more clients asking for alternatives to traditional Outsourcing locations like India to de-risk their service delivery. They will seek newer geographies with similar or niche capabilities. Countries like The Philippines and Vietnam has exhibited spectacular growth, with aggressive marketing strategies to increase traction in the global market.

Conclusion
Despite the global slowdown, the business of IT outsourcing seems to be rightly positioned for growth. Even though business margins may shrink, the industry will continue to grow in the future. Service providers with geographic diversity, well-managed overheads, and strong and long-term customer relationships are more likely to thrive in this period of consolidation and business realignment.

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Managed Services - new wave for Off-shoring

by Ravi Pandey, UK Head, NIIT Technologies

IT outsourcing has generated a great deal of interest in recent times with industry experts reporting that the market is now worth over $100 billion. It is expected to grow four fold over the next five years. In a harsh economic climate, Managed Services from a third party is proving popular as it takes over costly operations, such as management, monitoring and maintenance of systems, applications and IT infrastructure.

In particular, Outsourcing Infrastructure Management is surging in popularity because of the faster telecom speed and higher levels of data security, which make it easier for businesses to communicate with outsourcing companies. Apart from delivering financial and technological benefits, this superior level of support provides a greater level of stability when companies engage with their end clients.

The downturn in the global economy has put further pressure on businesses to reduce IT expenditure and “sweat” their existing assets. It is forcing companies to look towards their IT investments to boost productivity and enable innovation. Businesses are all grappling with the challenges presented by increasing complexity, spiraling costs and the pressure to deliver value from their investments.

Many businesses are also spending too much time and money struggling with the administrative, operational and maintenance aspects of essential day-to-day IT Management. Instead, businesses should be free to focus on IT activities which bring competitive advantage - such as Business-IT alignment which will add value and give an edge over competition.

As the sector matures and relationships develop between outsourcing companies and their clients we are now seeing the emergence of a new outsourcing model.

The previous wave of outsourcing was aimed at stabilising and standardising the IT environment and offloading non-core business processes. Outsourcing has now evolved beyond “offloading to a supplier” and aims to build a business focused solution with the client that leverages the IT environment for increased business benefits. 



The new wave of outsourcing is increasingly participating in the aims and strategies of the client’s business rather than being based on various components of the IT landscape.  To take advantage of outsourcing remote infrastructure management, suppliers need to systematically incorporate key factors in the managed outsourcing process that are critical to success.  The client must look for the right levels of support and monitoring from its outsourcing company.  The client must also ensure that the outsourcing company has the skilled manpower and process maturity for IT support and service delivery.  A strong and experienced team is a key ingredient in providing reliable service levels.

More and more of our customers are reporting the increased business benefits of managed outsourcing in the current economic environment as the speed and security allows companies to be more competitive and agile. In rapidly changing market conditions the financial flexibility and savings on infrastructure, especially routine operations, are invaluable for businesses operating across a variety of sectors. The recent trend towards business focused solutions is being complemented with a real understanding of what companies need from outsourcing.

For the editors reference
Gartner, one of world’s most reputable IT research and advisory experts, have awarded NIIT Technologies the highly coveted ‘positive’ rating in the research report “Remote Monitor Services (Global)”, and “Remote Support Services (Global)” based on its worldwide support to North America, Europe and Asia.
NIIT Technologies is a leading outsourcing company working with a variety of blue chip names in UK. Their increased attention to domain knowledge and investment in their chosen business verticals of Travel, Retail and BFSI has led to them being ranked the No 1 company in the world in Travel for Outsourcing by the Black Book. Similarly they have been ranked very highly for Insurance and as an organisation.
About NIIT Technologies

NIIT Technologies is a leading IT solutions organisation, servicing customers in North America, Europe, Japan, Asia and Australia. It offers services in Application Development and Maintenance, Enterprise Solutions including Managed Services and Business Process Management to organisations in the Financial Services, Transportation, Retail, Manufacturing and Government sectors.

NIIT Technologies’ software development processes are assessed at SEI CMMI – Level 5 Version 1.2. Its human resource processes are assessed at the highest level of maturity at PCMM Level 5. Further NIIT Technologies has processes and systems for information security management certified in accordance to the ISO 27001 standard, and its facilities offering Managed Services conform to ISO 20000 standard of Service Management.

For further information please visit http://www.niit-tech.com

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Seeing Around The Corner – Succeeding During An Uncertain Economic Climate

by Tom Blodgett, Executive Vice President and Group President for ACS’ Business Process Solutions, Affiliated Computer Services

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every
difficulty.” – Winston Churchill

These turbulent economic times are a growth opportunity for the outsourcing industry. We like
to say we are a good company in good economic times, but a great company in bad economic
times.
During the last economic slowdown, industry growth continued despite tighter budgets in the
commercial and public sectors – largely because BPO service offerings were valued and sought
after. Once again, there is a sense that enterprises have not only a hunger - some say even
desperation – to look for ways to save money in this economy.
This growth will lead to job creation in the outsourcing industry. As an anecdotal example, ACS
recently completed the hiring of more than 1,100 people in the Raleigh, N.C. area, over a four
month period. We expect our renewal rates to be at about 90% for the remainder of FY09, which
will also lead to job growth.
Companies that in the past have been hesitant to embrace outsourcing, are now likely to look at
new opportunities and will also be willing to outsource higher tier services. Companies are
looking at short term solutions that can bring savings in 30-60 days, because some firms may not
survive much longer. Once these new customers experience these new solutions and are
comfortable that they are not losing quality, but are saving money, they will see that what was
once viewed as a short term solution actually also adds long term value to their bottom line.

Again, creating new opportunities and jobs in the outsourcing industry.
The jobs will be located all over the world and will include, at home workers, rural sourcing,
domestic, near shore and off shore. Businesses will have to determine which model best supports
their needs and buffers their bottom line. Those decisions will vary by company.
Not every outsourcing firm will be as well positioned to seize this opportunity. BPO firms not
only have to offer a high quality mix of horizontal and vertical solutions, their diversity will have
to include a variety of alternatives to meet a customers needs such as location, cost and other
sensitivities. Companies that can offer experience, expertise and expediency will thrive in this
economy.

Many small to midsize companies may incorrectly believe they cannot afford outsourced
solutions. They may not be able to afford customized solutions, but Business Process Utility
(BPU) offers a standardized solution that may be a perfect fit for smaller businesses. This
innovative offering will also help grow the industry, possibly adding jobs.

BPU is an emerging trend—a faster, more economical level of outsourcing that can be applied to
almost any industry. Instead of creating a customized outsourcing solution, BPU applies existing
standardized systems designed by using best practices.
Implementation time is faster. In many cases, transaction-based pricing lets companies pay only
for what and how much they use. Economies of scale and standardization keep costs down.
Some BPU examples include payments such as loan processing, claims administration, toll ticket
processing, and payroll processing.

There is another scenario where the outsourcing industry will grow, but not create any net new
jobs. Asset acquisitions are gaining in popularity. BPO firms can take over the real estate,
personnel and other recurring costs, eliminating a variety of problems for a customer – an
inefficient process, an inexperienced work force, a facility that is not filled to capacity and other
issues – and make them our own. Depending upon the way the deal is structured, the customer
can also see an immediate infusion of cash as well as a long term solution that will generate
efficiencies and savings over time for the company.

Due to the current economic situation, the industry should expect more activity and larger deals.
That trend will continue based on the fact that we are also seeing a more aggressive approach
from customers. Even companies that are on solid financial footing can and are using the current
business climate as the rationale to make changes that while not essential to their survival, will
result in a marked improvement in their bottom line.

About Tom Blodgett
Tom Blodgett is Executive Vice President and Group President for ACS’ Business Process
Solutions line of business. Tom has nearly 20 years of senior management expertise in business
process outsourcing (BPO). Blodgett is a pioneer in the BPO arena. In 1985, his family founded
Unibase, a data entry company acquired by ACS in 1996. The acquisition expanded ACS’
capabilities in the relatively new BPO services market and created an entire service segment
dedicated to delivering superior business process solutions. His Business Process Solutions
group represents $1.3 billion in annual revenue.
About ACS
ACS touches millions of lives every day. As an outsourcing partner to some of the world’s most
complex corporations and governments, we focus on serving their business operations so they
can serve their clients.
As a FORTUNE 500 company with approximately 70,000 people, our presence is wide,
supporting client operations in more than 100 countries. But our contribution to our clients’
business success runs deep – by simplifying their business processes and improving their
information technology capabilities
You can earn more about ACS at http://www.acs-inc.com.

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Understanding Indian Culture for Successful Business

by Shalini Agarwal, Intercultural Trainer, Farnham Castle International Briefing Centre

Understanding Indian Culture for Successful Business
By Shalini Agarwal, Intercultural Trainer, Farnham Castle International Briefing Centre

With a population of over one billion, 3.29 million square kilometres of landmass to cover and a multitude of languages and customs, the Indian market can be a daunting place for businessmen.  Business success can depend to a large extent on an understanding of the culture, the people, the land and the business environment that a foreign company and investor would be expected to operate within. 

However, India promises great business opportunities and many organisations have already turned to this vast country, seeing potential in a substantial developing workforce and a cost effective geographical base for offices and factories.  Yet, how is it possible to overcome the challenges of doing business in India due to a lack of relevant information, political uncertainly, the geographical scale that the country presents, the regional variations that exist and above all the cultural complexity that needs to be contended with? 

The answer lies in gaining a general understanding of the culture.  India is diverse with varied and distinct geographical regions each having its own language, customs and festivals.  The country is comprised of a rapidly developing, population.  At present, 70% still live in villages and work in agriculture, 13% work in the industry sector and 17% in services.  Literacy is highest in the South at almost 90%.  This is contrasted with Northern regions where the literacy rate is only about 45%. 

It is critical to also note the importance religion plays amongst all communities.  The four principle religions are Hinduism (80%), Islam (14%), Christianity, and Sikhism with a small fraction of the population also practicing Buddhism, Zoroastrianism, and Judaism.  Festivals are celebrated with much fanfare, so it is important to respect the major festivals of Holi, which is celebrated in the spring and Diwali, which is celebrated in October/November.  During these holidays work comes to a halt.

As with most countries India has its own unique and subtle manner in which business is conducted.  People in India tend to categorise most foreigners into three main groups, namely, Americans, English and German.  With this classification comes a certain amount of preconception - fuelled by Hollywood - of how a foreigner is likely to behave.  Likewise, many foreign business westerners enter India with pre-conceived notions of what the country has to offer based on media reports and fleeting first time impressions.  It is important to give oneself time to adjust to the new cultural surroundings and not be taken in by initial reactions.

There are several idiosyncrasies attaching to the country which also vary from state to state. Consider the following:

• As a sign of respect it is customary to address persons by their family name as opposed to first names.  Very often younger people will persist in using family names together with an appropriate title, such as Mr./Ms, as a sign of deference and respect.  If a foreign business person wishes to be addressed by his Christian name he may have to request this several times over.

• Indian society remains patriarchal and thus it is important to understand the importance of hierarchy.  When dealing with Indian businesses it is important to ascertain who is the authority figure and who has the final say.  Many businesses are still family run and thus power vests at the top.

• Hierarchy also runs within middle and junior management.  An understanding of this culture of dependence expected by a boss from his subordinate is important when running a team of local staff.  There is often a tendency to seek support and advice in situations that may not warrant this level of dependency by junior staff on his superiors.

• Indian time keeping is better known for its lack of punctuality.  Indian Standard Time (IST) or better known as Indian S t r e t c h a b l e Time means that deadlines are not always strictly adhered to in the work environment.  Hence strict guidelines and enforcement may be necessary to adhere to western style fixed deadlines.

• It is important for a foreign visitor to understand gestures, body language and non verbal communication.  The well known Indian rolling of heads is often a sign of acknowledgement and affirmation and not a negative.  It is also not meant as a sign of any disrespect and should thus be acknowledged appropriately.

• Use of mobile phones, even during meetings, is customary and not intended to be a sign of disrespect.

• Giving and receiving business cards is also common and expected even at social gatherings!

• Religious sentiment runs high and many Indian businessmen may defer business decisions based on what may considered “good and auspicious” days.  Superstitions may also have to be accounted for in various business dealings.

• Allow enough lead-time for projects and budget for unexpected costs – everything takes longer in India and therefore can be more expensive.  Similarly, it is advisable to handle red tape with caution – exchange controls do exist and regulatory procedures can be highly bureaucratic.  Exit strategies must also be considered up front.

With any foray into India it is imperative to ensure one creates and maintains a paper trail.  Unlike the UK, India has a written contract act, namely the Indian Contact Act of 1872.  This legislation applies to all agreements in India including letters of intent and memorandum of understandings. The position in relation to enforceability of letters of intent/memorandum of understandings can be ambiguous.  It is advisable that any intention of making a preliminary understanding enforceable is clearly reflected in the documentation.  An ‘agreement to agree’ is, in principle, not enforceable under Indian law. 

It is also important to ensure that one contracts with the correct legal entity.  These days many Indian companies have bases abroad.  However, this is also an area which requires caution.  Companies have been caught out in the past where they have signed agreements with foreign branches of Indian organisations (a UK branch of an Indian company for example) which in effect can be shell companies.  Thus, in case enforcement for damages is necessary the foreign party would find it difficult to get redress against an entity that has no assets and where the parent company has not been made a party to the agreement. 

Indian tax implications also require attention.  Often foreign companies inadvertently create a permanent establishment [“PE”] in India without realizing the regulatory and tax consequences of doing so.  India continues to have exchange controls and any movement of foreign exchange into or out of the country is regulated by the Reserve Bank of India.

Protecting intellectual property rights (IPR) is another critical facet of doing business in India.  A well thought out IPR strategy can save much time and cost in future.  It is advised that IPR is protected in the early stages of negotiation and that the IPR is registered with the relevant registry.  Although there is no legal requirement to register trademarks or copyright material doing so facilitates the enforcement of one’s rights in case of infringement. 

As with most countries, India has its own unique and subtle manner in which business is conducted.  Success can depend on an appreciation and understanding of the cultural aspects in addition to patience and a high level of long-term commitment and personal attention and involvement.  Establishing and maintaining strong relationships with Indian business associates is fundamental to successful business in India.

Farnham Castle International Briefing Centre specialises in cross cultural management development programmes and international assignment briefings for every country in the world in addition to those coming to live and work in Britain.  For further information about programmes visit http://www.farnhamcastle.com or call:  01252 721194.

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Skills shortage looms for IT sector

by Edge Zarrella, Global Head IT Advisory Services, KPMG

These are strange times for the IT sector. The ICT skills which its people boast are in constant demand. Vast IT workforces sit in regional skill centre hubs around the world. At the same time, the demand for skilled IT people ‘on the ground’ has seen huge recruitment surges in numerous countries. Behind all this though, there lurks the growing, nagging suspicion that a very real skills shortage may be starting to open up.

A number of factors lead me to think this. Rapid globalisation has heightened the need for specialists who can work with, and connect, any number of different systems globally. The flow of mathematics, engineering and computer science graduates into the sector has started to slow down. And people who had left the sector are having to be tempted back into employment to work on the older systems which newer graduates are not being taught how to use.

Unless all relevant parties come together to address this looming skills shortage, I believe that the industry could have a significant problem on its hands over the next few years. This is no trifling HR issue; this is a very real Board level concern which should be acted on now.

The reduction in the inflow of graduates into the industry is a worrying development. For sure, our industry may have had its peak — in terms of career attractiveness — at the turn of the century. Thousands of young graduates poured into the industry as the millennium bug and the dot com boom made ICT skills attractive and profitable. Several years on though and the industry may be paying for that peak as many of the ICT skills which it made popular now appear commoditised. I’d suggest that many parents in mature economies may even be counseling their children against a career in the industry because the profession appears so commoditised; thousands of people with the same skills and with the constant threat of offshoring hanging over their heads.

This is misleading. While the perception may be of a commoditised industry, the reality is far from it. For sure, the more straightforward, back office ICT skills are being outsourced and offshored on a regular basis but the front end, high value skills such as systems architecture are not. These are the skills which are increasingly in demand yet they are tarred with the same ‘commoditised’ brush. The net result is a generation of graduates left unconvinced that ICT is for them; at a time when the industry is crying out for their abilities. Yet for those people able to offer high level, strategic advice and exhibit the combination of business and ICT skills now required, premium salaries are on offer — but I wonder whether this message is getting through.

If the industry is worried about people coming in, then it is becoming just as concerned about the people leaving. The skill base which those people represent is not being replaced. However, the IT systems which they trained with remain in place — but with an ever dwindling pool of professionals able to work with them.

Progress and technology wait for no man and I predict a very real explosion in the new kinds of ICT skills required as businesses embrace yet more new technologies. The lucky few who have those high-end skills may find themselves very much in demand around the world. With that in mind, it’s worth noting that those countries with rather more open-minded immigration policies may really be the ones to benefit here, enabling the rapid delivery of IT professionals to where they are needed the most.

I would suggest it is now beholden of all relevant bodies — companies, trade associations, governments etc — to come together and address this skills issue. Together, they should be actively lobbying to get more young people into the industry. Otherwise, all IT users face a double whammy — having insufficient people with tomorrow’s ICT skills coming into the industry while other vital skills are lost as older employees leave the workforce. Boards which promptly take the initiative in this area may be able to benefit from an aggressive talent management programme which adds real value to their business. Whatever happens though, after several years of feeling like we were on ‘easy street’ with so many people desperate to come and work in the industry, it’s time for an urgent reassessment of where we stand.

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Is Brazil emerging from its BRIC rivals?

by Graham Underwood, Managing Director, GFT UK

Is Brazil finally emerging from the shadow of its BRIC cousins?

Early in the decade, Goldman Sachs devised a new acronym for emerging economies. Unlike the tiger nations of the 1990s, these countries were to be known as BRIC and the 21st century was expected to be theirs. However; whilst Russia, India and China have forged ahead, Brazil has been seen as lagging behind, unable or unwilling to take advantage of increasing globalisation.

But, is the general scepticism about Brazil’s inclusion amongst the BRIC countries justified? The country is politically stable, it has a rising economy, a well-educated workforce and a burgeoning financial market of its own. Brazil is certainly also experiencing solid growth. Last year it became a net creditor to the world for the first time; in May Standard & Poor gave the country its first ever credit rating and in February, according to Morgan Stanley Capital International, Brazil became “the world’s largest emerging market”, as a rally for Brazil stocks combined with falls in China left Brazil with a slightly larger market value: “now accounting for 14.95% of the MSCI emerging markets, it is also bigger than Korea, Russia or India”.

Is Brazil finally emerging from the shadow of its BRIC cousins? Is its boom sustainable and is the time now right for increased foreign investment?

Certainly, there are still concerns about the country; its sluggish approach to fiscal reform and worries about inflation contribute to a sense of unease. Its GDP is steadily rising and represents firm progress, but at 5.4% a year it is less than the growth in other BRIC countries; India and China report 8.9% and 11.5% respectively.

It seems however, that although the numbers may be trailing the others, Brazil has many other benefits. Compared to other BRIC nations it has respectable corporate governance, there is a sustainable supply of well-educated people and the developing economy is supported by its convenient geographic location, making it better placed to service Europe and the USA. Brazil also doesn’t have the wild east reputation of Russia, the introspection of China, or the prospect of price/wage inflation that has bedevilled India. Perhaps it is this that is driving Brazil’s improvement against its rivals and luring foreign investment?

This, and the development of the financial centre, Sầo Paulo. With over 20m people, the city also has a massive student population. The university is the largest in Brazil and the third largest in Latin America, turning out a regular supply of well-educated, young Brazilians.

It would be missing the point therefore, to see Brazil as the new India for outsourced projects, or this growth as a temporary blip. We’ve all known for years that scouring the world for the cheapest day rate doesn’t usually get the best results for an outsourcing project. What’s important today is the level of service and commitment. Brazil is unlikely to follow India down the cheap and cheerful route. It understands the importance of tying service levels and deliverables to appropriate costs, especially in a multi-layered, financial services project.

This sector in particular can take advantage of Brazil’s increasing prominence. Most banking IT projects require a combination of skilled resources, which can be delivered in a variety of locations; the 4Ps of outsourcing - project, people, place and only then price. Brazil is exceptionally positioned to respond to this need. The idea is to consider the needs of the project first and then identify the right people to complete it. After that the various places and the price become obvious. With its high-calibre workforce and its association with Europe, Brazil is well-placed to fulfil the people and place side of the project.

Yet, this is not just about Brazil’s ability to service the rest of the world. Of increasing significance, is not only Brazil’s new economy and its geographical position, which makes it well-places to service both Europe and the USA, but its own, rapidly growing, banking sector. Brazil is becoming the project part of the 4Ps, the centre of the project and not just the service provider. For technology companies, particularly ones serving the banking sector, the country must now represent a logical investment prospect?

If the 19th century was dominated by Great Britain and the USA defined the 20th century, then it seems that the emerging economies, BRIC with Brazil included, are well-placed to impact the 21st century. As this decade progresses at least, Brazil is definitely emerging from the shadow of its BRIC cousins.

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Outsourcing - It’s about the Customer Experience

by Alastair Hanlon, director, Industry Solutions, Convergys

As recently as 2006, a Datamonitor survey found that while companies outsourced for a variety of reasons, including the need to expand hours, better handle off-peak traffic, improve staffing flexibility and achieve higher productivity, saving on costs was the lead factor.

But attitudes can change quickly. In the face of tough competition, a challenging economy and changing customer expectations, companies are beginning to use outsourcing not only to create a lean enterprise, but also to ensure a positive customer experience that contributes to growth. Driving this broader vision of outsourcing is a new approach called relationship management, which makes customers happier, more loyal and more profitable.

Relationship management optimises the value of customers to the enterprise by implementing a strategy that strives to perfect their experience in doing business with the company. This works well in an outsourced environment as relationship management builds on the traditional cost benefits companies have come to expect, while delivering the enhanced revenue that derives from providing a positive experience.

Among the most exciting new developments is a trio of options that can directly impact a company’s relationships with customers:

• Performance-based learning (PBL);
• Automated voice assist technologies
• Real-time predictive analytics

Companies that outsource may not feel it’s their job to worry about their contact centre provider’s training programs – but they and their customers will certainly feel the impact if an outsource vendor’s agent training is not up to par. Improving the customer experience begins with the agent, whose effectiveness, commitment and longevity directly correlates to training.

Relationship management experts champion a new approach to training called Performance-Based Learning (PBL), which combines instructor-led training, hands-on activities and role plays - transforming learning to make it more useful to agents, thus boosting work quality, job satisfaction, commitment and productivity. The idea behind PBL is to teach agents specifically what they need to know to serve customers. The confidence that comes with PBL improves morale, contributing to ever-improving agent performance and longevity on the job.

More importantly from the standpoint of the company that uses an outsourced solution, agents that have experienced PBL “hit the ground running,” and are able to quickly achieve higher levels of first call resolution and shorter average handling times.

The need for tailored training is even more important now, given intense competition has prompted an explosion of new products, services, options and pricing plans for many companies. Accompanying this boom are huge volumes of information that the agent must access and understand in order to quickly resolve customer issues.

New ‘agent assist’ technologies available from some outsource providers use voice recognition to pick up on key phrases during a customer interaction and instantly retrieve essential data needed to handle an enquiry or problem. Such voice assists automate common repeated activities on the desktop, adding relevant data or jumping to just the right screen, to speed the interaction and ensure an accurate response. For customers, it’s a vast improvement over waiting while an agent scrolls through screen after screen of data looking for the right information.

Automated agent assist is emerging as an important tool for delivering a stellar customer experience to today’s Internet-raised generation, for whom real-time is the only time that matters. By reducing manual navigation, page clicks and data entry, automated agent assist shaves vital seconds off average handling times. By harvesting data from existing applications, the technology eliminates the errors that can plague manual re-typing or ‘cut and paste’ actions. Where speed is of the essence, these features significantly enhance customer satisfaction, while at the same time reducing costs to the enterprise.

Given the vast amount of data generated, equally exciting for the future is the ability of ‘agent assist’ to trawl customer data during an interaction and prompt the agent on offers most likely to be of interest to the customer. In so doing, agent assist crosses the line from data look-up into data mining and real-time predictive analytics - an area that transforms the agent from a problem solver to an enterprise revenue generator.

Companies have long recognized that they have massive amounts of customer data. But how best to use it? Real-time predictive analytics allows companies to be proactive rather than reactive and gives the ability to leverage the data to drive maximum value from and to each customer - scalable to millions of customers simultaneously. Used primarily by the communications and financial sectors, real-time predictive analytics is rapidly gaining momentum and may ultimately span multiple industries.

Real-time predictive analytics continuously polls a company’s diverse databases to create a detailed 360 degree view of each customer. The ability to pull up real-time profiles of customers is a powerful tool supporting service and marketing objectives.

Thus armed, companies can:

* preemptively detect and correct problems before the customer is even aware of them

* proactively automate tailored offers to customers, based on known preferences or requirements

* deliver all pertinent customer data to the agent’s desktop during a customer interaction, providing an avenue to quickly resolve problems and then segue into cross-selling/up-selling.

Real-time predictive analytics offers another attractive twist: It lets a company tailor the level of service delivered depending on the customer’s current and predicted value. It’s a fact of business life that 30 percent of customers are responsible for 70 percent of revenue. Knowing which customers are most valuable enables a company to craft special offers geared to nurturing and growing these relationships.

Outsourcing has come a long way since the days when budget issues were its primary driver. While the cost-saving advantages of outsourcing will always be important, companies are now raising their sights. They’re starting to view operational efficiency as a key subset of the broader relationship management strategy, and to understand that the customer experience - not savings alone - underpins a company’s financial success.

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Healthcare: outsourcing options in a world of scarce capital

by Michael Bavington, Lloyds TSB Corporate Markets

Before the ‘credit crunch’ hit, it was estimated that the amount spent on public sector outsourcing would grow to £65.2 billion by 2009, largely due to pressure on the public sector to control costs and improve service delivery.  Following the crunch, some doubt has crept in as to whether this growth rate is possible, not because the public sector has lost its appetite, but because the credit squeeze may limit outsource providers’ ability to take on major new capital investment projects.

A huge change has undoubtedly occurred in the past six months.  Straight debt facilities are not as readily available as they once were, making it more difficult for outsourcers to raise the necessary funds that in the past provided the up-front capital injection that many projects in the sector require. 

This has to be a big worry for Healthcare Trusts who have become used to the many benefits of outsourcing.  First and foremost of these is direct access to services and technology without the associated risk or capital expenditure exposure.  This enables patients to get the healthcare they need, when they need it, allowing staff to concentrate on the job in hand; caring for patients.

Following the tightening of the credit markets and the resulting limited availability of cheap debt facilities, it can only be a matter of time before outsource providers are forced to rein in their offers.

On the face of it, this may sound bleak for the Healthcare sector, however, outsource providers needn’t become ailing patients themselves.  Firstly, it is important to state that not all outsourcers will be affected, and certainly not in the same way.  Catering and cleaning outsourcers, for example, may be relatively unaffected simply because they are less likely to have major capital investments to contend with.  On the other hand, high tech medical equipment providers could find the current credit climate more of a challenge. 

The real question will be: how will the outsourcers, and ultimately the Healthcare Trusts, cope?  Some outsource specialists will be cash rich, and therefore in a good position to fund capital expenditure direct from their own balance sheet.  Others will have contracts already in place, but without specific project related funding.  In these circumstances, there is the potential to free up normal banking debt lines to be used for other capital expenditure or other operating expenditure. In order to do this the banks would have to assess and conclude that there is a proportion of a payment in a service contract that is isolated from the majority, if not all, of the service delivery related payments due from the Healthcare Trust.

Similarly saleable, structured or asset-based financing can be set up at the outset of the contract that allow for the long-term value of the end customer’s service payments to be taken into account as a financial asset, so that in times where funding liquidity is a more scarce resource, outsourcers can open up additional avenues of financing.  In this circumstance it is clearly in the mutual interest of the Healthcare Trusts and the Service Providers to work together.  In doing so they will be in a better position to arrange funding secured on the payments in the service contract, helping to widen the funding sources available to the Service Provider, which in turn allows them to continue offering a service based solution to large capital projects.

However, the longer the current credit climate continues, the more likely it is that outsourcers will have to consider new ways of raising debt to overcome the reducing availability of banking facilities.  As a result, it is entirely feasible that Healthcare Trusts could find it an increasing challenge to identify outsourcers with sufficient funds to take on new large capital projects.

So does this sound the death knell for the outsource industry?  Well, no, but it may lead to a new era in which outsourcers and Healthcare Trusts need to work together in a rather different way.

Whereas in the past many outsource providers would have swallowed the cost of investment, tighter margins combined with lack of cheap debt means that outsourcers may now need to consider how they can reduce the impact of significant expenditure at the start of a contract.  As a result, Healthcare Trusts may need to work closely with their potential outsource partners to help them realise value in their contracts on which banks can then lend money to cover the cost of the up-front capital investment projects.

The good news is that there are a number of solutions available, ranging from structured loans to receivables based funding solutions, which can be used by outsourcers to raise funds.  In both these cases the financier will look to the value of the contract over its lifetime to identify the underlying payment streams within the outsource contract from which they can generate a pool of cash which can be used to fund capital expenditure immediately and in the future.

One way of managing the working partnership between outsource provider and Healthcare Trust is to look to an external financier who can fund the ongoing expenditure by identifying value in the underlying contract. The terms of the payment stream in the contract are key in this respect as they need to provide recognition for the recovery of set-up costs in such a way that enables the funder to attach value.  If funders are unable to identify future payments with a degree of certainty they are less likely to be in a position to provide front-loaded finance, so it is very much in the interest of the Healthcare Trusts to find ways that they can include an element of recurring payment to assist the outsourcers in their contracts. One way to do this would be to include minimum guaranteed throughput activity related payments, reviewed on an annual basis. The certainty around this element of the future service payment would allow it to be discounted and provide a present-day value funding sum.

In practical terms this may mean that amendments to financial schedules and contractual terms become more commonplace over the next year. But if Healthcare Trusts are to keep capital costs off their books, a new way of viewing value in outsource contracts may indeed be on the cards. Talking to specialist financiers will smooth this process enabling Healthcare Trusts to focus on the important decisions – such as identifying which outsourcer is best placed to provide the service required and how the relationship with the outsourcer should be managed over the life of the requirement – rather than being concerned about exactly where the cash will come from to finance service critical assets.

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Islamic finance: the key questions and opportunities

by Islamic_Finance.pdf

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Beyond BPO: the move to knowledge process outsourcing (KPO)

by Martin Kochman, Cognizant

Organisations have been outsourcing and offshoring business processes for many years now, to take advantage of the lower cost of labour in developing countries such as India or China. Many of these business process outsourcing (BPO) contracts have focused on large scale transaction processing, frequently in ‘non-core’ processes such as accounting or HR, or in areas of perceived lower value or complexity. Recently this trend has changed.

Low-value, ‘lift and drop’ contracts have run into some severe and well-publicised problems. In the UK, most of us have had or heard about a bad experience with an offshore customer service agent with inadequate language skills or a lack of knowledge. On the other side of the fence, the offshore call centre agents themselves often face daunting overnight shifts (to field daytime calls from the other side of the world) and work offering limited professional challenge for skilled graduates.

Under these circumstances it’s not surprising that offshore staff attrition can routinely be over 50% and sometimes over 100%, and that serious questions around customer satisfaction and operational stability have been raised.

As these problems have hindered the development of offshore call centres and even prompted some organisations to use their relocated, onshore call centres as a selling point, other factors have led BPO providers to offer more complex, knowledge-based services that sit far closer to the core business. These higher-value processes, while still offering reduced cost, also take advantage of the wider availability of very qualified talent in developing countries, exploit the benefits of operating in different time zones and allow added flexibility for ad-hoc or short-term projects.

The issue of global talent is key - onshore availability of skilled graduates is very small compared with a country such as India, where it’s estimated that around 2.5 million new graduates and 500,000 postgraduates enter the job market every year, and the price of offshore talent is far lower. In fact, the wage differential between near and offshore skilled professionals with significant experience is greater than that of the graduates with lower levels of skill and experience traditionally hired into transaction processing operations, meaning that knowledge-based BPO actually presents a better business case than low-value deals, albeit on a smaller scale.

Crucially, higher-value BPO arrangements give offshore workers a far greater degree of job satisfaction and potential for career progression - helping to address the high attrition rates and customer service issues associated with transactional and support processes. Tasks are typically analytical and require staff to be highly qualified, professional and mature.

With many organisations now operating on a global scale, using third-party talent sourced from worldwide locations also means that business can respond and serve customers regardless of the time zone they operate in. The flexibility of using a third-party BPO provider also allows organisations to easily and quickly scale operations up or down in line with seasonal or otherwise predictable peaks.

The cost savings offered by high-value BPO deals are important, but arguably of greater significance are the new results that were not available with onshore fulfilment. Most human-capital-intensive business processes within corporations were designed and based on certain underlying assumptions about the supply, demand and price for talent in the geography where the process needs to be performed. When this underlying constraint is relaxed through global sourcing, the results can be dramatically different.

The basic idea is that by applying new knowledge, skill-sets or business savvy that were not previously affordable or available, organisations can enable new services or capabilities that, in the past, could not be considered feasible, therefore achieving a totally unexpected outcome.

For example, one of our customers in the healthcare insurance industry has been taking advantage of skilled Indian labour to improve the effectiveness and extent of its investigation of fraudulent claims. Previously, with onshore employees the company wouldn’t investigate any cases below $1,000, as the costs involved would outweigh that of the potential fraud itself. Taking advantage of the lower cost of labour has allowed the threshold to be brought down to $500, allowing more leads to be chased and reducing margin leakage.

This KPO approach also has benefits for providers - involvement in these areas of a client’s business brings greater understanding of business issues and the opportunity to serve clients better. For those outsourcing vendors who also offer IT services, there are opportunities to bundle together different services and offer complete packages to their clients, taking increasing accountability for delivering business outcomes.

Cost remains a strong motivator in outsourcing decisions, but the ability to source global talent to deliver business processes brings new challenges and opportunities.

Organisations have to change their decision process to make the most of worldwide knowledge, and ask themselves not how much more cheaply and efficiently a particular process can be done, but why they are doing it in the first place and whether they could achieve a very different customer experience if they had access to skills, expertise and talent at price points which were not previously possible. 

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The need for Application Portfolio Management

by Julian Dobbins, Director, Product Management, Micro Focus

Two years ago, industry analyst Gartner predicted that, by 2007, “20 percent of large enterprises will implement a disciplined application portfolio management strategy” and that this will significantly reduce IT software portfolio-related expenses. Other industry commentators are also on record agreeing with both the growing trend for Application Portfolio Management (APM) adoption and the significant benefits now being realised, with Forrester citing savings of 20% - 30% on maintenance expenditure.

A more recent report from Gartner in December 2006, entitled “Gartner on Outsourcing, 2006” stated that organisations should seek to analyse their entire portfolio, and implement performance-based management if they are to see greater value coming out of their external application outsourcing work.

Both within the context of outsourcing, and in helping organisations meet the wider challenges facing them today, the need for APM is becoming more fully understood.

Driven by advances in technology the likes of which few people could have anticipated, the business world has changed considerably over the last three decades. Consumer expectation has exploded, demanding that everything be better, faster and cheaper; a truly global economy is now providing unparalleled levels of choice and, for the business, an increasingly competitive landscape. Managing the complex array of business systems upon which an organisation’s competitive advantage depends has never been harder or more necessary.

In the past, conventional wisdom in IT has dictated that new is better than old, with each new wave of technological innovation promising its own version of better, faster, cheaper. Sometimes the goals are realised. But very often the reality falls sadly short, as the complexities of integration with existing systems and business processes introduce costly delays and customer dissatisfaction. What benefits there are, whether they come in the shape of reduced costs or a greater responsiveness to business needs, are often isolated in nature - despite the potential for much wider relevance throughout the organisation.

Experience continues to teach us important lessons on the subject of old versus new, and has brought us to a period of greater pragmatism, with CIOs unwilling to accept the risks, let alone cost, associated with sweeping changes to an IT landscape they do not fully understand. And since it is now an accepted truth that there is no ‘one size fits all’ solution in IT, and that heterogeneity will not, and indeed should not, be eradicated, organisations are now embarking on their greatest period of internal control.

IT governance is firmly at the top of the CIO agenda, both for reasons of compliance and good business sense. The need to reduce the level of risk in any change, and to better manage the process of IT evolution, is paramount; for how can you manage what you do not understand? How can you introduce new technology and expect to fully realise its benefit when you don’t yet understand the benefit of what you already have?

Application Portfolio Management (APM) sets out to deliver that understanding, and enable the creation and continued evolution of an enterprise-wide IT strategy.

Outside the domain of IT, senior management have for many years possessed the tools to provide fact-based decision-making. It would be inconceivable to think of a CFO without access to timely financial reporting concerning the company’s assets and liabilities. Similarly, to consider the job of the COO without real-time access to sales performance figures, described by geography, or line of business, or even by individual sales person, is equally unreasonable.

And yet, despite IT assets comprising some 40% of a company’s capital, and despite organisations’ total reliance on the vital insight provided by its IT systems and the infrastructure that supports it, until recently there has been an alarming scarcity of decision support tools to assist the CIO.

The APM tool market continues to grow, as CIOs realise both the need and availability of such technology in helping them reduce their application maintenance burdens. As much as 80% of the IT budget is spent on maintaining existing applications. APM, both as a discipline and a set of technologies, helps direct investment to where it is most needed, and from which most benefit will be derived.

But what exactly is APM, and how does it provide such insight?

APM is a subset of IT governance; a subset which deals directly with the largest consumer of IT budget - the existing application portfolio. APM provides management insight through the creation of a knowledge base derived from all relevant sources, such as application code, rate of change, operational costs, problem reports and business value.
It enables senior IT managers to answer significant questions of cost and risk before committing further resources to particular applications. How much do we spend on maintaining this application? How frequently is it updated? What are the languages my systems are written in, and do I have the skills in place to maintain them?

APM provides IT managers with visibility into precisely which applications are consuming the bulk of their precious resources, how big or complex they are, where the dependencies or compliance issues lie and so on. This visibility, in the words of Forrester analyst Phil Murphy, “enables IT to communicate true costs back to the business application owners in a language they understand. The common language promotes understanding, which in turn will have a positive impact on IT’s relationship with the business.”
It is in this area of communication that many companies are already seeing tremendous advantages.

As more and more companies seek to outsource elements of their application portfolio, APM is able to provide a level of on-going control and management for the client, while enabling the outsourcer to gain both a comprehensive understanding of the scope and complexity of what they are agreeing to maintain at the start of any engagement, in addition to accelerated understanding of the applications they are maintaining.

HSBC is one company reaping benefits on both sides of the outsourcing equation. When its European IT organisation sought to improve its ability to support the bank’s large portfolio of applications, with a view to releasing resources into new project work, it sought a centralised support team approach. This approach was also expected to enable it to handle the dramatic increase in applications the team was being asked to support at the time. Part of the centralisation involved establishing a support team within HSBC’s Global Technology Centre in India.

One of the major challenges they faced in releasing IT staff for new project work in this way was the amount of time it took to replace their individual expert knowledge. Typically, this process involved bringing people with particular expertise into the central support unit in order to spread their knowledge around the team. Only then would they be made available for new work.

As Andy Givens, Head of IT, mainland Europe, observed, “this obviously took a lot of time.” This is where the use of APM tools helped to reduce their dependence on subject matter experts. Utilising their APM technology’s ability to automatically collect application detail from across the entire IT landscape, regardless of platform, HSBC was able to create an “entry point for its technicians”, resulting in a much faster circulation of knowledge between its globally separate divisions.

Andy Givens continues: “Applications that have been built anywhere in the world can be maintained and supported and changed at any one of our IT centres and the biggest impact that [our APM technology] is going to have for us is about maintaining these systems in a quality way.”

Through its use of APM tooling, HSBC was able to release 30 IT staff into new project work and has seen its ability to develop application understanding within its centralised team slashed from months to weeks. As a result, HSBC is projecting annual savings of 10% on the maintenance of its application portfolio.

Other companies, such as Barclays and Italy’s Banca Intesa, have seen tremendous benefits from their ability to more closely manage their outsourcing contracts. APM has enabled them not only to identify prime targets for outsourcing, based on better understanding of the portfolio, but also manage the ongoing quality of the work carried out. Through the establishment of engagement frameworks and a baseline set of metrics, companies have been able to implement much more rigorous service-level agreements, allowing for a climate of greater and more open communication around the common language that APM provides. Banca Intesa, for example, was able to identify 20% of savings across its multiple outsourcing contracts.

Clearly, these examples illustrate that APM is as much a question of culture as it is technology. To succeed, APM initiatives must be driven from the very top of the organisation, and absolutely not simply be limited to life as an ‘IT project’. APM provides the information, but only through action will the benefits be realised. Only by business and IT working together, setting those actions firmly within the context of business goals and a defined and on-going enterprise architecture roadmap, reviewing progress on a regular basis, can that perennial nirvana of an IT organisation that is truly aligned with the business it serves ever be achieved.

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Undestanding the nature of deals: a marriage made in outsourcing heaven

by Perot Systems

Successful relationships are built on trust and on mutual understanding. As with marriages, in a long-term IT outsourcing contract, if both parties are not communicating effectively and working together to reach the same objectives, there is a risk that it could all end with a costly and messy break-up.

Attitudes towards outsourcing have evolved over the years. In the early days, it was treated as nothing more than an afterthought, a cost-effective way of maintaining and possibly upgrading an enterprise IT function. But we have experienced significant changes in recent years. Gone are the days of the massive deals, the end-to-end model when entire IT functions were handed over to a single service provider. The reason being that one day companies woke up to the fact that they were no longer in control of key areas of its IT.

Enterprises decided to reduce the risk and switched to the new multi-sourcing model by using multiple vendors. And this has led to the trend towards companies looking for service providers that are focused on a particular industry sector.

In the current economic climate, the need for companies to streamline operations without losing their competitive edge has never been more acute.

With customers looking to reduce costs, and at the same time, transform their organisations, and IT outsourcers looking to secure deals that are commercially viable, how can both parties ensure that the relationship will be a successful one throughout the lifetime of the contract?

Both parties must work hard to set up a solid partnership based on transparency and an agreed roadmap with clear milestones and outcomes reflecting the aspirations of both parties. This must be established during the contract negotiations.

These issues can be addressed provided that the appropriate conversations occur from the outset at the negotiating table and throughout the negotiation of the contract. Tom Higgins, Managing Director, Commercial Solutions Europe at Perot Systems offers advice on how customers and outsourcers can ensure a sustainable long-term relationship from the outset.

Planning for the long-term: a five -step guide to successfully negotiating the best outsourcing deal -
1. Trust and transparency

As companies strive to reduce their costs, take advantage of new technologies and develop long-term IT strategies there is still confusion and lack of transparency when it comes to setting up outsourcing agreements. Trust is paramount in relationships, and there is no room for ambiguity when projects are undertaken.

It may sound clichéd, but the reality is that relationships between customer and outsourcer should be seen as a marriage where both parties are actively working together to ensure continuous, candid two-way dialogue. Failure to maintain the relationship will lead to a lack of trust and eventually result in problems.

2. Setting expectations
From the outset, the customer needs to define clearly what they want from an outsourcing relationship, if this is unclear or expectations are incorrect then the relationship will fail.

Both parties need to look very carefully at the details of the deal that they are signing up to and avoid falling into the trap of entering into an agreement that is based solely on the lowest, price. Contracts based exclusively on aggressive cost reduction can lead to problems further down the line when it becomes apparent that more investment was needed from the outset to achieve the transformation the customer was seeking.

Contractual agreements should be built on the principle that both parties will get something from the arrangement. The customer will gain a resilient partner that will help it to meet its business objectives and the outsourcer will be rewarded appropriately for supporting the customer’s ambition.

3. Joint responsibility
Despite the natural progression from the mega vendors to the smaller focused groups of specialist players that have more understanding of your business and are ultimately easier to manage, outsourcing is not going to transform a business overnight.

Change can be tough in any organisation and both parties have to be firm with each other about what they want out of the relationship. This applies to sharing responsibility for the management and delivery of the project. At the start of an outsourcing deal there is often a graduated level of dependency between the service provider and the customer. To avoid any confusion each party needs to know exactly who is responsible for what. This can be achieved through joint problem solving and a culture of working in collaboration rather than relying on the more traditional supplier-buyer relationship.

4. Good governance
From the customer’s perspective the whole point of entering into a partnership with an outsourcer is to make its business more streamlined so that it is agile enough to react to changes in the market or the business environment.

The outsourcer can make the most of the contract negotiations by applying good governance to really get under the skin of the customer’s organisation. It is one thing to be proficient in technology, but going that one step further by demonstrating a clear understanding of the customer’s business objectives and how to solve the problems it is facing in the market-place or internally is a great way to build trust and establish credibility.

5. Measurement and accountability
Many contracts require constant reassessment otherwise they will be scrapped before they come to fruition. The problems are mainly due to a misalignment of objectives at the start, the inability of the outsourcer to flex with the needs of the customer organisation or a failure to manage progress closely enough.

All too often contracts and deals can be convoluted and sometimes there are just too many SLAs for both sides to track effectively. The evaluation and review process should be scaled down to a more manageable level. The key to successful measurement is to focus on the five or six metrics that really matter during the lifetime of a project. This system will allow both parties to identify any problems should they emerge and make sure that key milestones are reached.

Ultimately introducing more transparency in to IT outsourcing agreements benefits both the customer and the service provider. It is also vital that both parties focus more on the commercial outcomes of deals and not dwell on the contract and the commercial terms.

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Construction: first to feel the pinch

by Neil Davidison, Maconomy UK

Casual observers could be forgiven for thinking that the construction industry is not doing too badly. The London Olympics, the Government’s housing scheme and infrastructure development such as CrossRail have had huge news coverage and paint a fairly rosy picture of the industry.

However, dig a little deeper and you find that the London Olympics is facing a shortage of over 180,000 skilled construction and building workers, let alone the spiralling costs and deadline extensions. The Government’s housing targets look likely to be missed and industry bodies are making worrying noises about a decreasing number of graduates coming through the system.

Furthermore, the construction industry is always vulnerable to take the initial impact from an economic downturn. Looking back at the dips during the 80s and 90s this certainly rings true. The recent credit crunch has therefore put even greater pressure on an industry which has been dealing with pressures on capacity.

Evidence of the effects of the crunch is now being covered on an almost daily basis in the media. One of Britain’s biggest building firms, Persimmon Homes, based in York, recently confirmed that it was to stop certain construction projects. The effect of the economy on new house sales was given as the reason for this decision. Just over the Pennines, Liverpool Football Club has postponed its new stadium project as owner Tom Hicks stated that the current economic situation was “the most difficult… I’ve seen in the last 20 years.”

The issue for the construction industry is that past experience has shown us that it usually suffers first in a slump. This inevitably dominos onto other sectors. Business investment could well be the next domino to fall which would have substantial repercussions on construction forecasts. In such uncertain times it is absolutely vital that firms plan for the long term so they are as prepared as possible to weather the storm.

With choppy waters ahead, all companies have to look at their available resources to make sure that they can be flexible and adaptable to keep their head above water. This means that firms will have to run a tight ship and manage their resources incredibly efficiently.

In a recent white paper conducted by the MCA (the Management Consultancies Association) it was reported that over 66 per cent of companies surveyed felt that resource management was the most important or second most important process in the company. However 55 per cent of businesses were only able to plan their resources for three months at a time- and the presence of a dedicated resource planning IT system was worryingly absent.

The importance of having a resource planning system can not be understated. It can provide substantial savings on infrastructure overheads, as well as improving management efficiencies dramatically - essentially it enables a company to align its processes better so that it operates more efficiently. 

Admittedly, it can sometimes be a fairly daunting task for staff - but it will make the overall running of the business much easier if you need to restructure or plan for increases, or decreases in capacity and demand.

In order to get the benefits as quickly as possible you need to keep things simple, yes this is an IT system that will change the processes of your business, but it must not stop people from talking.  Project managers will see the benefit of having a comprehensive capacity report for current and future projects so that they have a better foundation from which to make important decisions.

Project managers can maximise the resources they have at their disposal, reducing the risk of project overruns and lost time due to poor staffing deployment. Planning and organising the resources available means any project can meet the agreed targets successfully.

Every business must look to the future - there is conflicting opinions on the scale of the impact of the crunch, but in such uncertain times no one can afford to gamble. What is vital for businesses to consider is that the investment sector is vulnerable and this could dramatically change the landscape. With a planning system in place a firm is in a much better position to navigate the forthcoming peaks and troughs successfully.

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The e-Borders project: dispelling the myths about Government projects

by Simon Colvin, Pinsent Masons

e-Borders is a multi Government stakeholder programme aimed at further securing the UK borders. It involves the design and implementation of a database of data for all passengers travelling into and out of the UK. The data will be compared against suspect lists created by UKIS, HMRC, UK Visas and the Police, so that the Agency can decide whether to take action at the port of entry/exit.

Smarter Procurement Planning
The procurement process for a complex project can run to many months / years. Careful planning is required from the outset. Key success factors include:

Market sounding
Market engagement such as the OGC Concept Viability Process can be invaluable in ensuring that there is a sufficient source of supply and that the procurement will foster sustainable competition. Early engagement will also enable potential suppliers to consider forming alliances where a broad range of skills or niche suppliers may need to be involved.

Going to market only when ready
Once formal engagement begins there will be a step change in the level of customer and bidder resources and a resultant increase in pressure to achieve results. The planning and review process should ensure that the procurement goes to market only when ready, i.e. when there is certainty over budget and scope.

Certainty of scope from the outset
A significant reason for delay in complex procurements is lack of clarity over scope. Time spent prior to engaging with the market to ensure that the programme is clear about the scope of the requirements, the potential cost and the available budget will save significant delay later in the procurement. Changing scope once bidders are engaged will doubtless give rise to increased costs for all parties involved against pressure to complete the procurement within the original timeframe.

Factoring in contingency from the start
It’s unlikely that all possible outcomes of each stage in the procurement can be predicted at the outset. Project planners must be realistic in setting the timeframe for the procurement. This will reduce the chance of delay in contract completion (and subsequent implementation) and therefore the need to increase the budget for the procurement. These are hard messages to sell within a procurement programme, and careful and realistic planning is essential.

Holding readiness reviews
At each stage of e-Borders a readiness review was held. These involved a group of independent reviewers reviewing key documents and analysing whether the procurement was fit to move to the next stage. Also the process focused the procurement team on ensuring that the documents were ready for scrutiny. The programme planned for the results of the review and made time and resources available to deal with the outcomes before proceeding to the next stage.

Managing a multi-stakeholder project
e-Borders involves a number of Government and industry stakeholders. At the outset of the project the Programme developed a stakeholder engagement strategy focused on:

Knowing the role of each stakeholder
What are the roles of each stakeholder?  On the purchasing side, who takes the lead and how do others ensure their views are heard. It was essential to engage stakeholders early and ensure all parties involved were clear on their role in the procurement and post go-live.

Documenting the relationship
A series of memoranda of understanding were developed at the outset documenting the parties’ objectives and their roles both in the procurement and post go-live.

Governance is key
In complex multi stakeholder procurements, governance arrangements will be needed for each stage. The e-Borders model balanced the complexity of the stakeholder relationships (adapted to reflect government, carrier industry and supply side needs). 
Governance arrangements must be sufficiently flexible to adapt to emerging issues at each stage of the project, sufficiently comprehensive to allow stakeholders to have their say, but workable in terms of time and resource commitments. 

Ensuring the contract is workable - Use of the OGC Model Contract
e-Borders was one of the first complex procurements to go to market after the OGC issued its model contract and guidance. The Programme was able to adapt the contract to the bespoke requirements of the project.

OGC guidance is now well developed. It should be used to consider the following:

What is the proposed commercial model?
For more complex procurements, it will be helpful to develop a set of Key Commercial Principles – these aid development of the contract and can be used to explain the shape of the deal to governance boards and the wider stakeholder group.

What will the shape of the contract be?
The procurement / legal team will need to consider whether the structure of the model contract will need amendment. Are all schedules appropriate, are any more required?

No two projects are the same
Every project has its individual features – therefore ensure that sufficient time is set aside in the procurement plan to develop the draft contract to cover all aspects of the procurement.

Key Messages
As highlighted above, problems often arise due to setting unachievable goals, being unclear about the scope and the funds available to procure it, conflicting stakeholder demands and moving from stage to stage without assessing readiness. 

It would be unrealistic to suggest you can prevent any of these issues arising. However being aware of the possible problems and delaying factors at the outset and planning how they will be addressed will reduce the likelihood of your project making the headlines for all the wrong reasons. 

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Failure to comply is not an option

by Matt Fisher, VP marketing, Centennial Software

Times are tough for IT departments. Talk of recession is widespread, and the fear of an economic downturn is already having an effect on organisational spending, with predicted job cuts and budget tightening. When crisis threatens, CEOs are faced with the tough task of maximising revenue while reducing their outgoings, and often the IT department is the first port of call when it comes to cutbacks, despite its ability to increase efficiency and provide significant cost savings.

But unfortunately for CIOs, just as their own organisation is looking to make savings, so many of the suppliers and vendors they work with are increasingly seeking out ways to minimise revenue losses. For software vendors, this means getting tougher on software licenses - and particularly identifying when organisations are using more software than they are legally entitled to. As such, a growing number of software developers are exercising their legal right to audit customers’ software usage to uncover potential under-licensing, and dealing severely with firms found to be in breach of licensing conditions.

As a result, the current economic climate makes it more crucial than ever to ensure the organisation is correctly licensed, as a non-compliance fine could be devastating, crippling the IT department and potentially incapacitating the whole business. But how can the CIO juggle the need to control expenditure against protecting the organisation against the risks of fines and unwelcome negative publicity?

In simple terms, the trick is to avoid two common mistakes - under-licensing or over-licensing. Said like that, it sounds very simple, but in truth managing licenses is somewhat more demanding. While there will always be a small minority of CIOs who turn a blind eye to licensing laws, in the hope that the savings made will outweigh the potential risk of an audit, it is more likely that mis-management of software is done through ignorance rather than complicity.

It is easy for those responsible for the organisation’s compliance to lose sight of how software is being deployed and used across the IT estate. The ease with which software can be downloaded, installed and shared across multiple PCs means that even if the IT department thinks it has software procurement under control, actual usage can quickly outpace planned deployment.

But while this shortcoming is unintentional, it can still be seen as illegal activity and can leave businesses perilously at risk from vendor audits and subsequent fines. Alternatively, they may be so aware of the potential legal proceedings they over-invest on licences, just to be on the safe side. As such, what is needed is a solution that gives the IT department complete governance of their networks.

Software asset management (SAM) offers the key to both minimizing the risks associated with under-licensing as well as eliminating wasted purchases of software or renewal of unfavourable maintenance contracts. SAM is based on having both technology in place to understand what’s happening on the network as well as adopting best practices to manage IT operations, thus forming the foundation for effective software licence compliance.

Adopting best-of-breed SAM technology can quickly provide CIOs with a clear understanding the IT assets deployed across their IT infrastructure - which in its own right can lead to a significant ROI as redundant purchases are avoided and under-used assets are re-deployed.

The right SAM tools then make it far easier for CIOs and senior IT staff to record license entitlements and compare these against actual usage, giving an at-a-glance view of whether money is being wasted through unused software or whether the firm is at risk through over-usage. In reality, it is likely that both under and over-licensing will be found - meaning that while some new licenses will need to be purchased, the cost of this can be offset by savings in surrendering unnecessary software or renegotiating support contracts.

Tracking software usage (as opposed to simply detecting whether an application is installed) is critical to spotting opportunities to save costs. For example, removing unused software will eradicate potential over-licensing or re-deploying the application elsewhere in the organisation will avoid duplicate procurement.

The main thing, however, is that armed with this information, CIOs can rapidly take steps to put the situation right - simultaneously avoiding risks and driving savings.

One organisation that has seen the benefits of SAM first hand is the Telegraph Media Group, publishers of the Daily Telegraph. The Group saved £100,000 on over-licensing through implementation of SAM. With 1,000 employees and even more desktops, laptops and servers at five sites across the UK, the Telegraph Group implemented an automated software solution, which allowed the IT department to more accurately determine how much software was on the network and therefore what their licensing position was. In this case, they were immediately able to see that they were significantly over-licensed, allowing them to renegotiate their license contracts and redistribute any licenses which weren’t being used.

In the past, there has been a perception that it is hugely complicated and unwieldy to deploy a SAM project. However, recent developments which combine technology and best practices in an integrated ‘package’ have dramatically simplified SAM adoption and speeded up the time to see a return on investment.

Not only can businesses save money, but knowledge of IT assets can also improve productivity by increasing visibility across the company and ensuring that everyone is using the appropriate software efficiently. Since IT networks are prone to regular change, it is not enough to carry out a solitary audit and assume that the findings will remain the same. SAM recognises the need for constant awareness and enables businesses to alter their licensing status as and when necessary, helping companies to make the most of their assets.

In a time of uncertainty and instability, organisations cannot afford to take a gamble on software licensing, and with effective Software Asset Management in place, not only can this situation be easily resolved, but the CIO can actually prove their worth to the business by demonstrating tangible ROI.

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Outsourcing success with ALM: watch profits go up and costs go down

by Matt Scholl, COO and president of Aldon

The buzzword ‘outsourcing’ has been a much talked about trend in global business for decades and it’s more prevalant than ever. Faced with an increase in globalisation and the need to cut costs while ramping up productivity, organisations are moving services, processes and product development abroad – or simply out of house. One core function being outsourced more and more is application development. 

For many, outsourcing development will be the best decision they ever make because it promises cost savings and increased profits. Others are not so fortunate. Roughly 47% of outsourcing projects are being cancelled before they’re completed, according to research from Diamond Technology Consultants. Once you bring in a team of outside developers and consultants to take on specific areas of your application development, daunting challenges can appear, not least of which is maintaining communications and cohesiveness among the entire development team. 

Since you can’t rely on an outsourced organisation to share your IT culture or understand your rules, it’s imperative that you have systems in place to ensure everyone is communicating well and moving in the same direction. Fortunately, Application Lifecycle Management (ALM) solutions are designed to help meet this challenge. With ALM you gain control, processes, visibility and accountability at each stage of the development cycle.

DECIDING TO OUTSOURCE – THE BENEFITS
What if someone told you that you could double the size of your application development organisation without increasing cost; or that you could take advantage of a pool of skilled engineers in a wide variety of technologies without having them all on your payroll? Now more than ever, businesses understand that linking technology with best practices is the way to gain and maintain competitive advantage. Successful organisations are responding with outsourcing strategies—understanding that evolution and adaptation of business processes are essential for survival.

Outsourcing promises a list of benefits that you could probably find on any CIO’s wish list:
• Add high skill/low cost resources to your development team
• Add new areas of technical competency
• Increase delivery predictability
• Increase productivity
• Rapidly access additional staff resources in response to shifts in demand or for specific project needs
• Increase flexibility in managing staff budget

Taking advantage of the significant benefits offered by outsourcing while maintaining communications and cohesiveness across teams will ultimately be the difference between success and failure. 

DECIDING TO OUTSOURCE – THE MUST-HAVES

Keeping control in your court
Maintaining management control is a critical factor for successful outsourcing. If you lose control of the processes, the promised benefits of outsourcing will never be realised. You need visibility into the project backlog, resource allocation, and current status. You need confidence that the process you defined is enforced and automated, regardless of where the development is occurring. If you’re subject to compliance or best-practices audits, you must ensure that the appropriate tracking and reporting is in place for all development locations. All of these can be addressed by ALM.

Process visibility
One of the most important ingredients of your ALM solution is that it puts everyone involved—IT managers and developers, whether outsourced or in-house—onto the same solution. IT managers gain the much-needed visibility into the development processes—who’s doing what, how they’re doing it, how long it takes, and when goals are being met or missed. Developers gain a clear view into what they need to do next and, most importantly, what’s been done by other developers, whether they’re in the next cubicle or in India. This eliminates any wasted duplication of efforts. And this visibility is critical to the management of outsourced software development processes because without it, neither process definition nor measurement can occur.

Traceability for compliance
We all know regulatory compliance is no easy exercise for organisations large or small, so when you add a team of consultants across the globe into the mix, you have a whole new layer of complexity. But with ALM it doesn’t really matter. Since the outsourced team works from your ALM solution, you have a built-in, structured, repeatable, and auditable software development process. Compliance is simply a matter of setting up the appropriate processes and generating the necessary reports. The solution enforces your compliance strategy and stores the necessary historical information, regardless of the location of the users.

Managing access
ALM solutions are absolutely essential for remote, outside development teams to successfully work with the organisation. With ALM, you can carefully restrict access and ensure that only those parts of your code base that you wish to make available are accessible. A sophisticated ALM solution has both access control of software components and control for application releases. It provides the ability to grant access to a particular release of code or to create a specific release just for outside exposure. This limits exposure of the code base to outsiders and limits access to proprietary software. 

In addition, a complete ALM solution can combine task management with access control and release management for efficient, managed outsourced development. A development manager can specify tasks for code that’s released to remote developers and manage geographically distributed developers as easily as in-house developers.

Milestone checking
Since outsourcing contracts typically contain service-level agreements, it’s necessary to have solutions in place to check compliance. What better way to ensure you’re getting what you paid for than to have an ALM solution tracking every project and every piece of code that’s touched by the outsourcer? IT managers can track and manage every task throughout its lifecycle and proactively manage the outsourcing relationship. The solution provides the accountability necessary to enforce the terms of the contract and to facilitate the productive use of the outsourcing resource.

INDUSTRY EXAMPLE
One of the world’s largest international insurance companies is outsourcing a significant number of application development projects, and is using the Aldon application lifecycle management technology to ensure all involved - IT managers and outsourced or in-house developers - are on the same solution. This means that the communication, coordination and visibility of the applications being worked on in different areas is manageable.

With developers knowing what they need to do next and what has been done by developers around the world, duplication of efforts is eliminated and management can define and measure progress.

Another additional benefit that this insurance house has seen is being able to track the costs of performing a particular service. The technology maintains information about the benefits that the organisation expects to receive and what they actually receive, which allays the business’ overall greatest fears – that the effort won’t pay off.

OVERCOMING OUTSOURCING FEARS WITH ALM
According to the London School of Economics, by 2012 over half (58%) of the average corporation’s IT budget will be spent on outsourcing. To ensure success, the requirement for improving the management of outsourced development is becoming more apparent. By adding an ALM solution to the outsourcing formula you can address the development needs of developers, IT managers and CIOs alike, as they embark on new development initiatives like Web 2.0 and service-oriented architecture. Appropriate use of the solution allows IT organisations to take advantage of the flexibility, productivity and cost savings offered by outsourcing without sacrificing management control. At the same time it will help organisations remain competitive in their quest to evolve with trends in the industry.

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Outsourcing Data Banks

by Michael Porter, Director, Blake Newport

Recent headlines regarding the DVLA and the Child Benefit agency have highlighted how data loss as a result of negligence can springboard an organisation into the headlines for all the wrong reasons. With data controls set to get stricter, those companies looking at outsourcing data banks need to be aware of both the legal requirements, and the associated risks. Michael Porter, Director of commercial and contract management consultancy Blake Newport explains…

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 surronding 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.

Lets 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? 

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Communication: The challenge to distributed Agile

by Clive Jenkins, delivery and assurance manager, Exigen Services

There is a secret to successfully distributed Agile development, and it has nothing to do with AJAX, Java, .NET or perfect hours. In cases where English is a second (or third) language and employees have different cultural morals and religious affiliations, successful communication is the key issue. Challenges, such as working over multiple time zones, or simply working with a new colleague for the first time, can also present communication problems. The keys to successful communication are cultural awareness and team building.

Cultural Differences and how to Anticipate Friction
Distributed Agile projects with multinational team locations are becoming the norm. The primarily reason for this is cost reduction, but skill set is another driver. Each geographic region has its own cultural subtleties that must be taken into consideration. For example, in the Indian and Chinese cultures, it is considered impolite to say no or to disagree with someone in too strong a manner, while in the Russian and Baltic cultures, voicing strong opinions are expected. As you can imagine, both reactions can cause friction if a team is not used to these cultural nuances.

The manner in which team members feel comfortable communicating is another common source of friction, often English is the second or third language for a team member. Perhaps their writing skills are more advanced than their verbal, or vise versa. Typically, Baltic and Indian cultures feel more adept with writing than they do with speaking English. Conversely, the French and Latin American cultures are often more comfortable with the spoken English word.

Another issue to be aware of when working with diverse teams is that each culture has its own work ethic, holiday schedule and accepted office behaviours. These seemingly harmless differences can lead to a lot of friction. For example, the French believe strongly in a 35-hour working week, while Americans often work more than 50 hours each week. Holidays are another planning issue that needs attention. Each country has its own set of national holidays, and different religions observe different Holy days.  Finally, in regards to all planning, it is always important to be aware of daylight savings issues for the different locations.

Fortunately, these are all fairly consistent, easy to decipher differences. But, there are other issues that do not stand-out like these. Differing cultures have varying senses of urgency, such as the British and French. Their cultural norm varies greatly from that in China, India, Russia and the Baltic nations. What is considered appropriate conversation and behavior can also vary widely between geographies.

Team Building from the Start to Avoid Animosity
Much of the animosity and friction that can grow between members in any team, whether globally dispersed or crammed into one small office, can be avoided through strong, repetitive team building activities.

It is strongly recommended to arrange face-to-face meetings at the start of any release plan that involves, multi-site distributed teams. It is also best, if possible, to have periodic follow-up meetings after the launch.  It is true that planning can be done over the phone using collaboration tools such as WebEx or NetMeeting. However, even though the output may look the same, there is a distinct lack of chemistry and familiarity within teams that never meet face-to-face and rely solely on collaboration technologies. Developers are people, and they won’t bond with programs – personal rapport goes a long way. Face-to-face meetings are ideal for hammering out how to communicate within the team.

The travel costs involved in setting up these face-to-face meetings can easily run into thousands, and management will almost always refuse at first. Simply remind them of what the cost could be if the development team delivers the wrong functionality or the accrued cost of developer run-rate if they have to start over, which often happens when a team doesn’t meet regularly. In this case, the financial impact could be much greater than the cost of a few flights!  If you have a team of developers doing the “wrong” thing for a period of time and then getting into a blame situation with a product owner and vice versa, the cost can often be the entire sprint or even the project.

Plan to have team-wide meetings every week via audio or video conference where every sub-team reports on what they’ve done, issues they’re facing and something non-work related to share. The more conversation the team members can have that does not involve work, the closer they will grow to each other. Team member familiarity goes a long way to relieving tension, and letting each others know you have a sense of humour will help during the inevitable stressful moments. Be considerate of the team’s time zone issues too. Rotate meetings to share the burden of off-hours meetings so that the same geographic region isn’t always inconvenienced with a late or early meeting. 

Distributed Agile success is dependent on developing good communication skills between team members. Keeping an open mind, watching out for cultural differences and working to build kinship beyond the project at hand can be the difference between failure or success. This is not a hard process, but it does take effort from everyone. And, the likelihood is if your company has decided to try distributed Agile through outsourcing or its own distributed locations, you’ll end up working with these coworkers on further project.  Working to improve inter-cultural communication is an important investment that will continue to benefit your company throughout many future endeavors.

About the Author
Clive Jenkins currently serves as Delivery and Assurance Manager for Exigen Services. A certified Prince2 Practitioner and Product Owner, he has been working with distributed Agile teams for more than four years, with more than 20 years of development experience in total. Clive lives in Wiltshire, England and works in London.

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Addressing the contact centre habitat - homeshoring in perspective

by

Could the familiar contact centre setting, where hundreds of customer service agents sit at terminals wearing head sets become a thing of the past? So-called ‘homeshoring’ is the latest contact centre ‘hot’ topic, with experts making big claims that increased home-based work could save the UK industry substantial sums of money.

Using advanced technology and communication tools, moving jobs from the confinements of a call centre to the home seems a financially attractive solution. Analysts at research firm Datamonitor forecast global growth in the number of home-based customer service agents of 36.4% (one of the strongest expansion levels of any outsourcing market sub-segments) between 2008 and 2012. Their research suggests that home agents will number 224,000 by 2012, forming part of the mainstream customer service environment.

While in many sectors, homeworking can provide jobs for people previously excluded from employment, such as parents, carers, older workers and those with disabilities, selection of home-based agents will be based primarily on requisite technical skills, with hours of availability a secondary consideration.

But could the creation of a diverse and stable home workforce that enhances the customer experience through improved service really reduce the dependence on physical contact centre facilities?

The concept of ‘teleworking’ from home has existed for almost 20 years and although homeshoring is considered to be similar, it is a very different and more complex proposition. It requires a skilled workforce with disciplined shift patterns integrated into the operation of a virtual contact centre. Specialists need access to real-time voice and data in a secure environment to answer customer calls via skills based routing.

Despite 7.5 percent of the UK workforce working from home at least once a week (source: Office of National Statistics), very few ‘traditional’ contact centre advisors are afforded this option. Perhaps the practical realities of homeshoring prevent the idea from truly taking off.

Dale Saville, president EMEA for global customer care provider Sitel explains his reservations on the future growth of at-home agents. “Homeshoring is a buzzword at the moment, but recent data being collected in the United States indicates the likely global perspective. Some 250,000 agents are predicted to become homeshore agents in the next five years, a relatively small proportion of the three million labour force already working in contact centres. There is much talk of how homeshoring will double or treble in size over the next five years, but these statistics start from a small base.

“Homeshoring is not really a labour arbitrage opportunity or a cost solution but a service flexibility and specialisation solution. The issue of infrastructure management becomes more problematic in the homeshore environment than the contact centre arena. I believe the cost savings argument for at-home agents is not as powerful as the demand aspect which is specialised skills.”

“Even though systems and processes can be carefully placed to ensure smooth delivery of service from the home, many managers will lack confidence in their ability to ‘manage at a distance’ and some will not have faith in their staff’s commitment to be as productive as they would be in a contact centre.”

With 2008 the year when the homeshoring phenomenon is predicted to take-off, business continuity managers will need to allow for the advantages and disadvantages of the homeshoring phenomenon. There are only a relatively small number of contact centre environments that would be ideally suited. Anything with financial regulation and implication cannot be performed at home due to information security concerns.

“We don’t see it becoming a large fraction of the contact centre space; it’ll be an important part but not a large part. This is primarily due to security and PCI compliance issues. I’m not sure that homeshore environments will be able to fulfil these requirements. But homeshoring has some very big advantages where unique fractural labour forces are needed within peaks and valleys of demand.

“People tout the value of the current at-home agents in terms of their education levels and retention rates and this raises the interesting issue of self-selection. Will those who opt to be a home-based call centre agent be more motivated, professional or disciplined than the average call centre job applicant and hence have lower attrition rates? 

“I think that certain types of “case oriented” work will be nicely addressed by home-based agents. This type of work will typically involve more complex transactions that require research and investigation where the caller expects a longer resolution period. For example, medical claims processing needs a significant amount of data collection and analysis prior to a response versus the instantaneous response of directory assistance.”

Saville concludes, “I think homeshoring will be an important, but small part of the overall customer service delivery model. It will fill specialised requirements for fractural labour to address peaks and valleys of demand and unique skill requirements that are difficult to recruit to a single call centre site. I am less sanguine about homeshoring as a cost reduction strategy.”

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Is IT bleeding the value from your acquisition?

by Charles Andrews, Celona Technology

We may still be some way from the heady days of 2000 which saw merger and acquisition levels in the telecoms sector peak globally at not far short of €500 billion, but the market is again seeing renewed levels of activity. According to figures from Thomson Financial the market emerged from a trough in 2004 of €36 billion to levels of more than €150 billion in 2005 and 2006.

Analysys Research’s Teresa Cottam comments: “M&A levels in the global sector were reported by Reuters at around €53 billion, but this figure hides a high level of transactions. We’re seeing significant consolidation of smaller players – particularly in high-growth markets – as well as telcos buying into new markets. An example of the first trend would be China VoIP buying Hangzhou Zhongfang; on the other hand you have KPN acquiring Getronics, which is part of a trend for telcos to strengthen their IT services portfolio for business customers. On the supply side consolidation continues to be significant and ongoing, with larger players absorbing technology-based start-ups to reinvigorate their product sets, or merging with rivals to create real scale and breadth of operation.” And while combining businesses to increase geographical coverage or to extend into new domains might make commercial sense, consolidating the businesses effectively can be a significant challenge.

“A traditional IT objective in telecom M&A,” notes M&A expert Peter Sokoloff, “has been to migrate acquired companies onto the same standardised platforms. In practice this is usually a devilish task, requiring years and many millions in costs to accomplish. Further, the integration is rarely fully completed and IT execs can expect to contend with disparate systems, and installing the band-aids necessary to get them to cooperate, for decades to come.

“Management focus is usually driven by a desire to standardize front end systems like billing and customer care. But these, in turn, must tie into a multitude of other applications such as workflow, inventory, service activation, provisioning, and so on, each of which also taps into deeper network-level elements.

“The objectives set by larger carriers when contemplating integration are usually to drive greater cost efficiencies. While this plays well on Wall Street, this is where the trouble always begins. When the objectives of the integration are not driven by better customer service and improved network performance, the risk increases of serious execution errors and certainly causes countless headaches for the IT crew.”

Sokoloff cites the example of Sprint/Nextel where at the time of the $70 billion deal, Sprint predicted $12 billion of savings from reduced capex and opex.

Says Sokoloff: “The savings were expected to be achieved as a result of expenditures of $1.2–1.8 billion over 2006 and 2007. This past December Sprint announced a $29.5 billion loss, mostly relating to goodwill write-down of the purchase price paid for Nextel. How much of this loss might be attributed to fall out from integration and conversion issues has not been made public, but several reports have cited integration issues as contributing factors. At the end of the day, IT integration after an M&A rarely creates the cost efficiencies which look so great on paper.”

Peter is spot on in his assessment, but my question is whether this situation is acceptable. Wouldn’t it be of great interest to acquirers, business managers and shareholders if they were able to guarantee the efficiencies predicted at the point of acquisition? Shouldn’t they do more than accept these impressive-looking numbers on face value?

For all those that are still digesting their acquisitions or who now have a new target in their sights, my recommendation is to spend time and effort scrutinising how complex IT consolidation is going to be delivered before leaping into the unknown spend.

Also it is critical to assemble a team that spans both the business and the technologists, because your business managers are best placed to identify and prioritise where the greatest needs and benefits lie. This, in turn, frees up your IT staff to concentrate on the important job of delivering the migration.

Next, expect that a business-driven migration will begin to show business benefits early and incrementally. You should not have to wait for a long – often unspecified – period of time wondering and hoping if and when you will see any benefits.

Time-to-benefits should be short and ROI should be quantifiable.

Finally, the migration method and tool you use should be flexible enough to adapt during the migration to accommodate the changing needs of the business. For example, at the beginning of the migration you might decide you would like to move your biggest customers over first, followed by all of those that select a particular new service (which can only be supported on the target application), followed by all of those that live in a particular locality, followed by a bulk load of the remainder. Many of today’s migration tools would not be able to deliver a migration in this fashion, because they don’t allow you to identify and prioritise different business data sets, but instead see a mass of undifferentiated customer records.

If you really want to realize the commercial and operational efficiency that you know is there then the choice is yours. Don’t accept old technology or tools not built to cope with business-critical consolidation. Don’t commission custom-built solutions and then wonder why your project is so expensive or takes so long.

There is an alternative to solutions that are high risk and slow to deliver. Instead demand that you are using proven, state-of-the-art migration technology that can easily support a flexible, fast and business-driven migration.

Business value does not have to haemorrhage out of the organisation. Technology is now available that will stop your IT infrastructure from bleeding the value out of your acquisition and instead delivers the business value you desire. 

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Strategic document management is the key to compliance

by Hywel Benjamin

Document management may not immediately excite everyone’s interest, but there’s nothing more effective at focusing the mind than survival. Make no mistake, today’s compliance landscape is harsh and getting harsher – and the key to business continuity is the ability to manage risk, maintain resilience and ensure recovery. With regulatory regimes and the penalties they can levy expanding to meet the explosive growth in information flow, neglecting document management can be a very expensive and damaging oversight.

There are four factors that combine to threaten business continuity for the unwary in document management. The first is the exponential growth of information in modern enterprise, generated and required by businesses, by customers and by regulators. The second is the regulation of information itself, which in recent years has become ever-more wide ranging and ever-more aggressive. The third is that as information flows between various electronic and physical formats, it is increasingly vulnerable, difficult to manage and protect. Finally, information has to be easily accessible (for business and regulatory needs) while also robustly protected.

It’s an enormously complex and often contradictory equation: better management of more information that has to be totally secure while at the same time being immediately accessible. Regulation is the key component in this equation and the impetus for the need for effective document management. With the raft of legislation currently on the books and just around the corner, this is hardly surprising.

There are key regulatory regimes that impact upon a company’s ability to survive, including Basel II and the Safe Harbor Act. To take some specific examples, the EU’s Markets in Financial Instruments Directive (MiFID) requires the reconstruction of the complex variables of market conditions on any given transaction – to satisfy what is known as ‘best execution’ companies need to gather together the incredibly complex strands of electronic and paper data, including email, as part of the formal business record.

Sarbanes-Oxley in the US is one of the most important pieces of legislation affecting corporate governance, financial disclosure and public accounting – important because it makes corporate executives far more accountable for their companies’ financial affairs. The buck now stops with individuals as well as with companies. Also US based but with global implications is Rule 26 of the Federal Rules of Civil Procedure. This covers ‘Electronic Discovery’, whereby electronically stored information relevant to litigation should be available to US courts at a very early stage, wherever in the world it is held. This means that companies must know where their data is kept, how it is stored and how the retention schedule applies to them – or be in breach of the rule.

Government organisations are sharing in the strain of the regulation revolution too. The UK’s Data Protection and Freedom of Information Acts demand that public bodies square the circle of heightened information security with significantly increased rights of access to that information, within stringent timescales.

The UK’s Financial Services Authority (FSA), the independent regulator of the financial services sector, has an extensive arsenal of powers that can be ranged against any companies that don’t meet its standards. Once again, the time limit given to companies to provide their secure information for scrutiny is exacting, with the FSA classifying ‘readily accessible’ as being a mere 48 hours. The FSA levied over £68 million in fines for compliance breaches between 2002 and 2006. Failures in effective record keeping accounted for over £12 million of this total and 44 per cent of fines over £750,000 related to records management lapses.

It is safe to say that compliance is very much on government, board room and media agendas. The regularity of breaches from organisations large and small shows how easily reputable organisations can inadvertently fall foul of information legislation. So what can they do?

The complexity involved at this level of document management is understandably daunting for companies, simply because it isn’t a core part of the business. Intelligent document management is a highly specialised discipline and not something that can simply be appended to an existing employee’s job description. Businesses need a strategic partnership with a company with extensive expertise. Use of the word ‘partnership’ is deliberate, because a document storage solution simply isn’t enough – enterprises need a partner that truly understands their business and tailors solutions to specific needs.

Records management should be seen as a component of a comprehensive corporate compliance strategy, which will help to reduce legal and financial risk and, importantly, safeguard a business’s reputation. A record management programme must include effective policies and procedures, retention schedules, disposal routines, communications, proof of training and enforcement. Attack is the best form of defence.

With over 50 years of document management leadership experience, Iron Mountain knows that companies need a 360⁰ perspective to deploy a comprehensive and integrated roadmap for compliance. To put it simply, aggressive regulation calls for aggressive compliance:

• Organise a solid infrastructure that will encompass determining the scale of the programme, the creation of effective programme governance, business area specific task groups and sufficient administrative resources.

• Assess and plan with a thorough records inventory, evaluation of existing document management systems, risk assessments, analysis of legal access and retention requirements and the development of a strategic plan.

• Develop key components and metrics which will include a realistic retention schedule and company-wide policies to provide the foundation for a credible, consistent and compliant programme.

• Implementation is critical – the success of the programme will be based on delivery, not its design. As with any project, implementation needs to be applied as a formal exercise containing tailored communication and training components.

• Manage the programme because, no matter how successful the implementation, if it isn’t enforced it will fail.

• Audit and accountability are essential to ensure that everything is working well and the business is consistently compliant.

Let’s go back to the complex equation mentioned earlier to see how a strategic partner can resolve the contradictions that regulation imposes. Electronic information can be stored in a safe online digital records centre – quickly retrievable only by authorised staff from any internet enabled computer – so that it is both secure and rapidly accessible. Physical documents can be held offsite in secure data storage facilities, freeing up expensive office space, data security resources and archive staff – increasing the capacity to manage, store and exploit growing information resources. These documents can then be scanned cost effectively, as they are needed, and accessed with the speed and accuracy of electronic documents – delivering true integration of varying storage formats.

Today, more than ever before, records management compliance is a strategic priority. Document management is often seen as a necessary evil but the expertise of a strategic partner can take away the pain by reducing costs, simplifying business practice and ensuring continued compliance. Enter this environment unprepared and companies will pay the price, but if they enter with a strategic partner with the right expertise they will not only survive, they will thrive.

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The whys and wherefores of telecoms outsourcing

by Keith Gurden

Keep it in, or outsource it?  That’s the question many telcos and operators are asking themselves. Outsourcing is still sometimes seen as a controversial option in any business sector, and doubly so in telecoms, especially when it comes to outsourcing core capabilities such as network building and maintenance. After all, isn’t building and managing networks what telecoms companies are supposed to do? 

However, a number of factors have combined to put telecoms outsourcing firmly in the spotlight. First, there’s increased scrutiny and pressure from shareholders, investors and customers to perform. It’s all about targets – target dates for network deployment, target dates for go-live, targets for uptime and service levels.  And that’s across all types of network and service, from fibre to cellular, to WiMax and radio.

Second, there’s the increasing business focus on sales, marketing and customer service, with the drive to boost efficiency by stripping out extraneous parts of the business and focusing on revenue-generating activities. This move towards leaner operations, combined with job cuts, has changed the telecoms supply chain, with far fewer resources available in-house for services and support.

Third, there’s the telecoms skills gap to overcome. In the early part of this decade, the comms engineers that were building ISP infrastructure simply moved on to other sectors because suddenly, their services were no longer in demand. As a result, a chunk of the telecoms engineering skills base has migrated to other business sectors – just as the telecoms market is entering a major growth phase with next-generation networks.

These three factors have made outsourcing a high priority for key telecoms players, if they are to deliver on their commitments to building, deploying and maintaining next-generation networks. 

There are added attractions too:  as well as plugging the skills gaps and supplying vital engineering staff on the ground, outsourcing can also deliver cost savings in areas such as procurement, logistics and maintenance, by taking these costs outside of the telecoms company. 

However, when outsourcing you still need to choose the right partners – one that delivers value at all points in the relationship, not just manpower to help in a tight squeeze. 

So how do telecoms companies go about choosing the right outsourcing partner? Here’s a checklist of the right questions to ask the prospective partner, to help you make the right decision. 

Outsourcing success relies on people as much as technology, but where technology is relatively reliable and predictable, people are not. An important factor to bear in mind is that the individuals who set up the telecoms deals are different from those who then run the actual services.

Entrepreneurial minds are responsible for the first six to 18 months, designing and building the network infrastructure, identifying benefits and fine tuning operations.  But following roll-out, a new team will be brought in to manage the outsourced service, and there is a risk that they may lack the experience and skills that lay behind the original success of the project.

So ask the prospective partner for their customer credentials, which is the best evidence of their engineering services and understanding of technologies.  Look for long experience and blue-chip customer references:  if they’ve succeeded on other high-profile networks, there’s a good chance they will succeed for you.

While opting for in-house telecoms maintenance may, on the surface, save you the cost of outsourcing to a third party, make sure you do the maths and work out the true cost of both approaches.

If you go down the in-house route, you’ll have to factor in staffing and equipment costs, as well and the ongoing time and cost overheads associated with continuous training for your engineers. Add in the necessary accreditations to guarantee your staff are up to speed on the latest skills, and you may well find that the economics add up in favour of outsourcing.

Can the partner manage every phase and aspect of the infrastructure project, from consultation and planning right through to building and maintenance of the network?  It’s worth checking that they can substantiate their claims when it comes to the scope and scale of their engineering expertise and industry experience.

If the partner has the project management experience you require, then outsourcing becomes even more cost-effective, as you’ll be able to work together to get the best use of existing resources. 

Not all outsourcing partners are equal. While some may provide a perfectly acceptable reactive service and be able to demonstrate and back up their credentials, isn’t your business worth a bit more than ‘reactive’? 

Choose a partner who will look to actively improve your business, and you’ll add real value to the partnership and ultimately get better service.

Can the prospective partner also work with equipment vendors in logistics, inventory supply, integration and commissioning equipment? If so, this can help solve a procurement headache – especially for companies that operate internationally, which may need the same outsourced services for large-scale, multi-country networks. 

Dealing with multiple vendors can be a hugely demanding task, but by ensuring your outsourcing partner has the right strategic vendor relationships, you’ll be able to take advantage of a single point of ownership, and reduce the burden on your organisation’s time and resources.

The contract between the telecoms company and the partner will contain multiple SLAs. To help both parties get satisfaction from this, proper lines of communication should be established to ensure that both parties are working towards the same targets and goals. 

A precise brief that defines the aims and technical aspects of the installation is key to matching and fulfilling expectations. Irrespective of what services you outsource to a partner, the relationship is based on trust – and trust starts with defined targets and goals. You also need to know that your outsourcing partner, and the agreement you have in place, will give you the equipment, the engineering skills and the right response, so that you can deliver on your business commitments.

In conclusion, outsourcing shouldn’t just be seen as a way to reduce costs, or to plug personnel gaps – it can replace expertise that has drained away from the telecoms sector, and put dynamism back into the business. It’s a partnership that should help telecoms companies achieve their strategic and operational targets.  Now that’s worth going out for.

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To affinity and beyond: creating the right outsourcing relationship

by Martin Waters, head of commercial operations, Steria

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.

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Outsourcing Data Banks

by Michael Porter, Director, Blake Newport

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? 

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The challenges facing BT’s new head: Ovum comment

by

Last week BT announced that Ian Livingston will take-over as CEO of BT Group from 1st June. What do we think should be on Ian’s ‘to-do’ list?.

In our view Ian has five challenges to address:

- Top-line growth: BTs recovery from the abyss peaked in Q3 two years ago with growth (year-on-year) of 8%. The corresponding figure was 5% twelve months ago, and 1% in the results announced in February this year. Any growth for what is a fixed-only business is highly credit worthy, and yet the feeling is BT should have done better. Ian’s challenge is to repeat the success he has had in turning around BT Retail across the Group.

- Customers and services: BT needs to evolve its portfolio to suit its customers, not technology. For example, approximately 19,000 graduates will join the UK job market in 2008 (Source: Association of Graduate Recruiters). This generation of students are compulsive communicators (good for the industry), and use a mix of direct (voice, email, but also Instant Messaging and texts) and indirect (social networking sites, on-line message boards, second-life etc) means to communicate. BT needs to provide these new workers with the direct and indirect communications services they need in the workplace.

Central to achieving a greater understanding of customer needs is marketing. BT needs to ensure that its brand is spontaneously linked to the communications services it provides to the market segments (both decision makers and users) that matter most to it. Ian needs to bring customers and marketing more to the fore in BT.

- Networks and technology: Last week in EuroView I referred to BTs need to refresh its 21CN story and address the issue of fibre in the access network. In The Sunday Times two days ago Ian was reported as laying down a challenge to regulator Ofcom on FTTP (fibre to the premises) and the USO (Universal Service Obligation). I doubt he issued a challenge as such, but the point is BT feels it should not have to pay the billions it would cost to provide FTTP across the UK, as it is no longer dominant, and the concept of USO is outdated.

FTTP is the issue in the UK telecoms market in 2008. Resolution of this is important for the UK economy (or it will get left behind), and BT has to be part of the solution if it is to happen. But it has to be sorted quickly, oddly enough because of the 2012 Olympics. Can you imagine the furore if UK citizens were unable to watch the Olympics in HD over broadband (but overseas customers could) because Ofcom and BT were unable to sort this out? BT is, of course, also the official communications partner to the 2012 London Olympics to add another twist to this.

- Strategy and structure: Some weeks ago we said that BT’s strategy needed updating. The strategy (to defend traditional services, grow the new wave and transform the business through 21CN and IT) remains valid, but is now well-worn. We would like to see its strategy expressed more in terms of customers, services (not products) and customer service.

Last year BT re-organised to create Design and Operate functions within Andy Green’s Group Operations and Strategy division. This includes both the BT network and IT systems. Since Andy left, it has been unclear to us who (other than the CEO) leads this division. Aligning structure to strategy is a popular business school idiom, but it also happens to work. This needs to be sorted out.

- People and processes: Communications is a services business, so the service that customers receive is largely dictated by those that deliver it. Ian needs to continue to invest in the integrated, automated and rationalised IT systems, but also in the people that are central to making customers happy. Investing in the former should lead to great improvements in efficiency, but one (process) without the other (people) is flawed. As Openreach has shown, investment in people can make a big difference. People not systems deliver service excellence, and become the embodiment of the brand.

Ian inherits a stable ship, but the company needs to kick-on from here. Addressing these challenges will go a long way (in our view) towards achieving this.

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DPO hits the outsourcing mainstream

by Richard Thompson, Managing Director, Pitney Bowes Management Services

Statistics suggest that a typical enterprise will spend between 6 and 15 per cent of its operating revenues on document production (Source: PIRA). When viewed at this level, it can appear that a simple document production service would be sufficient to improve performance compared to internal print and mail operations. However, there is a significant “iceberg” effect in understanding the end-to-end communication process, as opposed to looking simply at production. Estimates such as that from PIRA only consider the visible elements, from material costs and origination services through to production and postage.

The true cost of business communications which are printed and distributed is often hidden because there is no unified reporting of the cost to the organisation of all the process elements involved. In a landmark study carried out by InfoTrends and CAP Ventures, called “Cost of Business Communications: A Look at the Business Document Lifecycle”, it emerged that for every 1 Euro spent on print, 6 euros are spent on other functions.

It is easy to miss the deep truth of this finding:
• What appears to be a 1 Euro activity is in fact a 7 Euro cost.

Focusing solely on trying to squeeze additional cost savings from the visible part of document production - by looking to print management contracts, global print sourcing and the like - ignores the potential for dramatic performance improvements by focusing on the end-to-end process as a whole. With print margins falling by 4 per cent year-on-year (source: PIRA), there is little further room for savings. However, document processes have yet to undergo automation, lean management and efficiency improvements which will undoubtedly drive out costs.

Document Process Outsourcing (DPO) adopts a broader view of the cost to the enterprise of existing document management. In particular, the opportunity costs of failures in the existing process should be taken into consideration.

Consider the impact if an invoice print run cannot be scheduled due to systems down-time. Even a delay of a few days can have a major impact on cash flow, interest payments, even shareholder dividends if the error occurs at year end.
• Working with an external supplier which is able to guarantee a totally resilient service eliminates these risk factors and potential costs from the document process.

Return on investment for marketing communications is usually calculated as a simple ratio of value of sales achieved compared to cost of activity. Yet this ignores the impact on customer satisfaction which poorly targeted mailings, incorrectly addressed items or inaccurate statement/product holding data can have. Customer satisfaction directly correlates with higher profitability as a result of longer relationships, deeper product portfolio holding, and higher price premium tolerance.
• An outsourced process with full measurement and reporting from end-to-end can enhance the value created by customer communications.

It is estimated by Gartner that some 50-60 per cent of customer service queries in financial services require supporting documents to be sent to the caller, whether for marketing or for regulatory reasons. Delays or errors in sending these documents can lead to lost sales, lower revenues or potential fines for breaches of regulations.
• Outsourcing document processes with guaranteed service level agreements optimises the value of customer contacts.

Document re-engineering can yield added revenues from sunk costs in legacy documents and content. The time and cost associated with enhancing existing platforms and technologies to allow this are usually too extensive for in-house investment. Performance-enhancing capabilities from new generation document process environments include automated document tracking and reprinting, address pre-sorting and cleansing, repurposing from print to Internet, printing on demand documents that were previously pre-produced and stocked, introduction of colour and personalised messaging into transactional documents, leading to uplift in returns.
• DPO allows a “generation jump” from legacy systems to leading-edge process management technology.

DPO is in its infancy, but is set to grow exponentially over the next five years. That growth will arise out of a fundamental shift in business thinking about document production and its management. Critically, there will be a shift from viewing the business need as simply for a print and mail service for specific document types (transactional and marketing) towards a recognition that the entire end-to-end process can be outsourced.

Current levels of spending on document production are estimated at around 38 per cent of the amount spent on IT in any given year. That is a sufficiently large sum to demand top level attention on how to extract the maximum efficiency, achieve cost reductions and added value, while also improving overall management. This is what outsourcing of the document process can provide.

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Legal process outsourcing (LPO): when to, where to, how to

by Rob Stichbury, CPA

Although outsourcing is not a new concept, the industry has experienced a period of phenomenal growth in recent years, as busy companies increasingly turn to external providers to fulfil highly administrative or poorly served functions of their business. And, as the industry has evolved in size and expertise, so too has the nature of the tasks that are being outsourced. Today’s companies are not just looking to outsource business processes, such as back-office functions, call centres, human resources, IT, and business process outsourcing (BPO).

Based on its success, they’re also turning to off-shore providers for knowledge process outsourcing (KPO) and legal process outsourcing (LPO), as the race for cost savings has given way to the race for skills.

A helping hand

So, does LPO work and is it suitable for intellectual property (IP) industries? The simple answer is yes. In our fast-paced industries, businesses need to strive for continual innovation in order to ensure competitive advantage. Without back-end support, such progress would not be possible. The hunt for competitive advantage translates into greater legal, particularly IP, activity. That’s not just in the number of patents that companies seek to register and protect, but also in the trend to actively ‘farm’ patent estates. Without external help managing the administrative side of the IP work, few corporations would be able to keep up with or afford to properly develop their IP portfolios.

IP currently accounts for over 45% of the LPO market and is expected to lead the growth in this sector in the next three to five years. The service mix already includes basic IP services, such as proofreading and paralegal support, but as low-end IP administrative tasks are outsourced with success, companies are electing to off-shore more complex tasks to trusted suppliers. They are leveraging the experience and talent off-shore to improve processes, and apply the benefits of scale and technology.

An increased emphasis on merger and acquisition (M&A) activity since 2004, has provided part of the reason for this growth. IP due diligence is fundamentally important in all M&A activity, and increasingly in private equity and venture capital deals. This has big implications for IP departments as it also generates large volumes of work in tight timeframes, distracting staff from otherwise core activities. If forced to manage the work internally, companies are faced with increasing costs, backlogs and delays in work, and compromises in the quality of the work being produced.

The rising cost of office space, the scarcity of skilled staffing in the developed world and the challenge to manage the peaks in workload all put pressure on a company’s bottom line. LPO has enabled companies to increase productivity and capacity, to achieve scale and bandwidth to operations. It also satisfies board pressure to leverage IP and keep costs down, while still maintaining (or even improving) quality of work.

The growth in worldwide patenting activity over the past decade has also meant that national patent and trademark offices are struggling to keep up with the speed of innovation. In 2005 (the most recent data available), the European Patent Office (EPO) had 119,800 patent searches pending, and this figure is due to grow by 24% each year. Similarly, in 2006, the US Patent Office (USPTO) revealed details of a backlog exceeding 700,000 patent applications – and the situation looked all too familiar at the Japanese Patent Office (JPO) in 2005, when its backlog hit 790,000. At that point the JPO took action and outsourced 25% of its prior art searches to help get back on top of the escalating workload. The move to outsource and increase capacity at the JPO was welcomed by industry, too, since application delays can mean that precious patent licensing opportunities are lost.

In such an aggressive environment, outsourcing is no longer a choice – the question is not whether a business should outsource, but instead, how best to do it. “We all know that outsourcing is not just about cost take-out any more. Done right, outsourcing will make your organisation more nimble, more agile, and more competitive, “ said Kevin Campbell, 2007 group chief executive Outsourcing, Accenture.

Choosing the right partner

Ultimately, it is the importance of quality, not cost, that is driving growth in the LPO marketplace. That’s why companies looking to offshore or outsource key tasks should be looking for an experienced partner that is able to assure quality of work, as well as manage risk, guarantee data security, export control, interoperability of data and smooth transfer of work.

In IP industries in particular, there is now also a growing trend towards multisourcing and multishoring, where corporations and law firms select not to outsource a variety of in-house tasks to one expert supplier or global jurisdiction, but instead select the best (or most innovative) supplier or the best jurisdiction for each task. Better still they find a supplier that has the breadth and scope to provide the appropriate specialist multi-discipline expertise and a multi-shore option.

At the very basic level, businesses should be outsourcing non-core and lower-value activities, leaving in-house staff to focus on their core value and added-value activities to drive earnings growth. Working on the concept that highly trained, outsourced IP specialists can lift the burden of managing the IP prosecution process, many law firms are also now choosing to off-shore more key IP tasks. Clifford Chance is just one example of a global law firm that has chosen to partner with an India-based outsourcing company to manage its key financial services. US-based Schwegman, Lundberg, Woessner & Kluth (SLWK) is another, but it chose to establish its own captive IP-outsourcing company in 1999 to achieve this.

There were practical reasons for setting it up in India, explains Steve W Lundberg, founding partner: “In the late 1990s, there was a labour shortage in Minneapolis (home to SLWK’s first office) of qualified personnel to do certain functions like proofing and lower level case management.”

Tapping into the bank of talent in India allowed the firm to increase capacity, improve cycle time and retain complete control, all without sacrificing quality or security. And, as corporations become more wary of the hourly charge of legal counsel, IP outsourcing also provided SLWK with the opportunity to pass on cost savings to its clients – a benefit that few competitors could provide at the time.

Sidestepping the pitfalls

Be sure to use an already existing and experienced supplier, the same rules apply to outsourcing as they do to any key business task: focus on quality, implement robust processes, certification, security and risk management practices, and apply good governance practices. Outsourcing is no stroll in the park and there have been several high-profile failures where the wrong processes have been outsourced to the wrong areas. A good supplier will eliminate these difficulties and the chances are if they are a global service provider, they will be able to select the best talent at the best locations for the required tasks.

Companies shouldn’t be afraid to scrutinise the security and confidentiality provisions when choosing a supplier. They should also be looking for a proven track record of quality service delivery, guaranteed service level agreements, highly-trained staff and state-of-the-art facilities.

The key is to outsource, but to be able to manage and track the progress of your outsourced work. Many service providers have procedures in place that guarantee the highest levels of client confidentiality and professional delivery. These will also enable real-time workflow delivery, enabling executives to monitor the quality of their services for a fraction of the usual time.

What does this mean for your business?

Setting up an outsourcing programme takes time, but compared to hiring a new department or multiple numbers of specialist legal staff, the process is quicker and easier to manage. It’s also more economical and makes you more agile in the market, enabling you to upscale or downscale as required.

For the IP world, it holds real advantages as volumes increase and skilled professionals become harder to source. Businesses should look at their current set-up, check their financial position and choose a provider with strong sector experience and a reliable reputation.

• With nearly a 40-year history of solving complex challenges for the legal community, CPA is a provider of outsourced IP, litigation support and contract management solutions. CPA’s clients include leading law firms and corporations worldwide, and CPA has a record of providing tools and solutions to help them realise value by managing risk, cost and capacity. http://www.cpaglobal.com

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Best practice in offshore data security

by Jed Mooney, MD of Datahold

Put the term “data security” into Google’s search bar and for the UK alone you will receive over five and quarter million hits (and rising), spanning tens of thousands of pages.

Data security has become front-page news and is set to stay there for the foreseeable future. This has been driven by wave after wave of data security scandals, arising mainly from the public service sector where laptops or discs containing millions of names have either gone missing or been stolen.

The biggest scandal to date occurred in late 2007 when the Inland Revenue lost a CD-Rom containing the details of 25 million individuals including their dates of birth, addresses, bank accounts and national insurance numbers, opening up the threat of mass identity fraud and theft from personal bank accounts.

In an offshore environment the implications have been huge: companies have become far more nervous about outsourcing data management offshore, simply because of the ramifications and the associated PR nightmare if they get it wrong.

This is understandable but ill-founded. Offshore data security is the best in the world. It has to be. Even before the recent data security scandals hit the headlines, companies willing to risk sending their data offshore expected the very highest standards. As a result, offshore data security has become the benchmark for all companies managing data security, be it in-house, outsourced in the UK or offshore.

So what is best practice for data security in an offshore environment?:

• Personal data should not be transferred to a country or territory offshore, unless that country or territory ensures an adequate level of protection for the rights and freedoms of data subjects in relation to the processing of personal data. This is common sense and is closely associated with a basic level of political and social stability. The Philippines, for example, boasts companies like Accenture, AOL and HSBC and generated offshore revenues of $2.1 billion in 2006, placing it third behind India and China. It is estimated that 200,000 people were working in 120 BPO (mostly contact) centres in the Philippines in 2006, and this is forecast to grow to 900,000 people by 2010. Put simply, the Phillipines is geared up for outsourcing and embodies best-in-class data security as standard.

• Physical stability is not often considered when choosing an offshore provider. Physical stability refers to factors such as acts of nature (earthquakes, landslides, floods, fires, tsunamis, hurricanes, and so on) and also acts of terrorism. It is crucial therefore, that in an offshore environment, the outsourced provider has a rigorous strategy for coping with such disasters. At the very least, this will involve a disaster recovery centre situated away from the central HQ. Back-up electricity generators should be standard in case of power failure.

• Check the physical security measures in place at your chosen offshore provider. External security should comprise of 24 hour security guard(s) at the entrance and both a coded number-pad and card entrance requirement. Internal security should be similarly rigorous with the internal server room ring-fenced with a similar level of security. All windows must be shut at all times and a comprehensive fire sprinkler system should be standard.

• Contracts and agreements between data controllers are important. European data protection law prohibits the transfer of personal data outside the EU to countries that do not enjoy an adequate level of data protection.

One of the ways to provide for such an adequate level of protection for transfers to countries that have not been formally deemed to be ‘adequate’ by the EU is for the data exporter in the EU and the data importer outside the EU to conclude a data transfer agreement. The European Commission’s new clauses provide adequate protection for data transfers.

For a full downloadable Pdf, go to:
http://www.iccwbo.org/uploadedFiles/ICC/policy/e-business/pages/Model%20clauses%20Toolkit.pdf
• No hard media. Data professionals know that the source of nearly all data security lapses is the transfer of information to hard media such as CD-Roms. State-of-the-art offshore data management providers have no terminals with CD writers – thereby preventing any information being downloaded onto hard media either on purpose or inadvertently. Indeed, laptops are also forbidden ensuring that data stays securely within the confines of the data management centre.

• All data is transmitted online using encryption technologies. The only personnel with the encryption codes are the sender and receiver, i.e. offshore provider and client. This is a very powerful method of ensuring data security, which, when properly firewalled is almost impossible to penetrate. Data transfers of three gigabytes (30 million address records) typically take just a few hours to transmit.

• All transferred data is logged ensuring a permanent record of who has transferred ‘what data’ to ‘whom’ and ‘when’. This ensures complete transparency and accountability.

• All data transfers are acknowledged at the receiving end, i.e. by the client.

• Finally, for ultra-cautious companies, data management can be outsourced offshore yet all data remains in-house and doesn’t even leave the company’s own building. Some larger organisations employ this method, which allows access to a company’s data from a remote terminal using virtual private networks (VPNs). Work is undertaken offshore using computer programs uploaded onto the client’s network.

The technology for this works similar to how an IT professional might have access to his company’s network from his own home. It ensures that no data can be downloaded, only uploaded, with no data leaving the company’s own building.

In conclusion, it must be stressed that offshore data security is typically better than within the UK. When data is transmitted within the UK, there is a perception that it is safer – it’s not. Indeed, data security standards are often relaxed within the UK because there doesn’t appear to be any immediate ‘threat’.  Yet whether data is sent five miles from Clerkenwell to Wimbledon or 6,600 miles to Manila is actually irrelevant – if it’s being transferred it needs the highest standards of security.

• Jed Mooney is the managing director of database management specialist Datahold. Based in London and offshore in the Philippines, Datahold’s clients range from small start-up businesses to FTSE 100 corporations.

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Outsourcing in the pharmaceuticals sector: the pros and cons

by Marty Boom, WCI Consulting Ltd

Outsourcing non-critical processes constitutes normal day-to-day business and best practice in industries such as aerospace, the automotive sector and telecommunications. Losing the non-value add stuff so that more time and budget is available to spend on the critical? A no-brainer, surely? But this is not yet the case in pharmaceuticals, an industry that transforms our lives with modern science, but whose approach to business processes can sometimes seem lacklustre by comparison.

Outsourcing is not a new concept to pharma per se. Manufacturing capacity and clinical trials are frequently outsourced; and truck loads of documents and paperwork are shipped to clinical research organisations (CROs) on a regular basis. But outsourcing an actual compliance-critical process? No way. 

Take for example pharmacovigilance; the terror of being sued over incorrect reporting of an adverse event, or putting the business reputation at risk has led the pharma industry to clutch these processes fearfully to their chest. The processes themselves are needed for compliance reasons and add little in terms of value, but plenty in terms of cost and added stress to the business.

So is it plain foolishness, stubbornness, the fear factor or all three that make pharma companies ignore the benefits that outsourcing can bring? Well, intense scrutiny and regulatory pressures mean that a culture of extreme caution has developed when it comes to new ways of working.

Many processes in pharmacovigilance are a burden to Pharma and ripe for outsourcing. In a business making drugs based on, for example, acetylsalicylic acid, a product that has been on the market for well over 100 years, the chances are there is often no new knowledge to be gained from PSURs and single case handling, yet the dogged reporting and analysis still has to take place in order to maintain compliance.

The drugs do not contain intellectual property, do not tell the company anything useful and could easily be managed outside of the business.  Forward thinking Pharma companies are beginning to wake up to this fact.

Of course if a drug company fully owns a proprietary product that accounts for a significant proportion of its annual revenue, then chances are that they will want to keep every process concerning its safety in-house, because any margin for error puts the business at huge risk.

However, for the larger pharma and generics companies with huge portfolios of non-proprietary products, there are several non-critical processes that it makes sense to outsource, even if they are needed from a compliance perspective, so that they can focus on the critical ones free from any distraction.

So, how is Pharma going to cleanse the bad taste in its mouth about outsourcing process? They view it as high risk and highly complex: how do they ensure that they outsource only the right processes and cases? How do they ensure a compliance risk never slips in between them and the provider?

It can be done. First, pharma companies should work with an outsourcing expert who knows their business intimately, and undertake a full risk assessment of their processes to decide which they can outsource and which they cannot risk. They then need to work with the provider to ensure that their understanding of risk priority and process is shared. They need to be crystal clear on who is responsible and who is accountable for what. They should create a triage process to be followed so that, should a risk be spotted, it can be mitigated in good time.

Then there are the practicalities; do their technologies enable them to share both information and data on cases in real time? Technology around transferring data and sharing case information is now advanced and safe, with applications like Microsoft SharePoint making it secure and easy to share information with a provider straight away.

Basically, Pharma companies should be setting up a partnership where the potential for the unexpected to happen is reduced to almost nil. Pharma companies do not like surprises!

Finally, European pharmacovigilance legislation is also changing to open the door for both outsourcing and collaboration. Volume 9a states that drug companies may now collectively submit their PSURs, for example for generic products, rather than individually.

The authorities like it because they read one report instead of many. As for the pharmacos, the change in law means they can collaborate which other generics manufacturers and outsource their long-winded PSUR process and, at the same time, share the cost with other companies yet still remain fully compliant. That is one surprise that pharma companies might find that they like.

It is expected that, within the next three years, life science companies will have completed a full assessment on which compliance driven, non-value adding processes they can outsource, and will be using drug safety experts and CROs to help them focus on the value add, patient critical areas.

• Marty Boom is a principal with WCI and has been with the organisation for the past 10 years. In his role, Marty has managed and led global business improvement assignments in the life science industry. Marty is an expert manager of change in strictly regulated environments. He holds a degree in Mechanical Engineering and Manufacturing Automation from the Technical Institute of Arnhem and a degree in Business Administration.

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When two tribes go to war: Successful mediation in outsourcing

by Paul Cornelisse

Sourcing, outsourcing, global sourcing and offshoring: it’s a dynamic time in the sourcing sector. Business process outsourcing (BPO) has grown beyond the expectations of many; the contract re-letting market remains vigorous and Indian players are raising their game in a real challenge to US and European service providers.

However, amidst all the growth and change, the developing sophistication of sourcing relationships and the contracts that bind them, means that there is an increased probability of problems and discussions arising. When issues do occur, the first reaction is that many business disputes are characterised as being ‘commercial’, ‘technical’, ‘legal’ or similar. Invariably, however, there is almost always a more significant, but less obvious, malaise in the overall relationship. In these situations, the standard behaviour by managers when faced with a difference of opinion is to retreat to a position of strength and ‘prepare for war’.

This reaction, while being nature, is opposite to what is required to prevent the further damage being caused to the sourcing relationship, and the projects involved. First and foremost, healthy discussion, ‘active’ listening and the guts to go right back to basics of strategy, and criteria and goals are needed to avoid the risk of a small problem escalating into a catastrophic failure. This is where the art of mediation can be adopted and skilfully employed to help deal with any issues that could result in a complete and irretrievable relationship breakdown.

This article will explain what constitutes effective mediation, when best to employ this process and exactly how some leading Dutch businesses and organisations successfully have done so.

We were so happy….how did it come to this?

With the increasing implementation of multisource agreements (unlike the ‘mega integrated deals’ that were all the rage a few years ago) companies are becoming more careful with their contracts and are increasingly prepared to dispute the services, pricing and terms provided under their existing sourcing contracts. Obviously, the ideal scenario is to ensure that any service level agreements (SLAs), key performance indicators (KPIs) and required innovations, and are clear and obtainable at the time of the contract being signed.

But it is not always possible to accommodate for all eventualities in a writ