Guest Blog

Can bold innovation save banking?
Thursday, February 18, 2010

By Graham Underwood, managing director of GFT UK

Banking has a long history of producing innovative technology; from the Big Bang of the 1980s, through ATMs and debit cards, to this century’s online banking. Technology has repeatedly changed the way banking happens. Today, this combination of a strategic and innovative approach is vital if the financial services sector is going to transform itself. As Gartner suggests “banking and investment service providers need to make a critical shift to a more outward-facing set of objectives for IT that are risk-aware, but still innovative and bold ”.

This isn’t about technology as a cost-cutting tool, or as a quick route to new, but unsustainable, products. Now, rather than focussing on specific products, banks should develop innovative technology to create a better way of banking and respond to the challenge of new entrants into the financial services world; new entrants that have already established customer-focussed and trusted images, such as Virgin Money, Tesco Bank and Orange. The rise in peer-to-peer lending, predicted by Gartner to be $5bn by 2013, the cost of maintaining High Street branches and the necessary decline of the hub system of bank services, are all issues to which banks must find a response. 

We’re also seeing a new generation of mobile natives becoming consumers of banking services as they enter adulthood. Although likely to be a mostly retail phenomenon, the impact of mobile phone technology cannot be ignored by the sector; payments and banking via your mobile phone will be the subject of much discussion throughout 2010.

All of these developments could have a game-changing impact on established financial institutions and business at a wider level. Tactical, cost-cutting use of technology will not be enough. Recent Datamonitor research for BT also cites the importance of technology as a general business driver, concluding that “greater investment in IT by businesses will help aid recovery in the wake of the anticipated economic upturn”. Despite this the Gartner report reveals that half of the banks it questioned will not have a budget or programme dedicated to technology in place by 2013.

Transformational and innovative projects could be the catalyst to refocus and rebuild banking and lead to positive growth prospects. Banks must seize the opportunity to bring technology out of the back room and into the boardroom. Innovative technology should be a key component of the banks’ strategy for the new decade, properly funded and resourced it will enable our financial institutions to adapt to what Gartner describes as the “new normal” and thrive in this changed economy.

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NASSCOM – Day 3
Friday, February 12, 2010

Well, after three days, NASSCOM 2010 has ended. An event that has become truly global in both scope and interest, and included national delegations from the countries and regions we have grown to expect to see, such as Eastern Europe, but encouragingly, also from new and more exotic ones such as Colombia and Brazil.

Looking back over the last few days, it seems prudent to review the predictions for 2010 and 2011. I spoke to a great many CxOs over the three days and no two discussions were the same. Nonetheless, there were a few excerpts of crystal ball gazing of particular note, especially on the final day. One such was from Arvind Thakur, the CEO of NIIT Technologies, one of India’s top 20 IT service providers, who commented that there will be three key verticals of opportunity over the next 12 months or more. Given the ageing population globally, there will be substantial opportunities in the healthcare sector as more and more investment becomes necessary. Also, as has already been seen in certain fields, climate change will only grow in importance. Lastly, following global unrest in recent months, investment in security and its surrounding systems will grow substantially.

To add to this, Baru Rao, CEO of Cap Gemini, a global leader in consulting technology, outsourcing and local professional services, asserted that consortia will grow in number. Cross-industry collaborations of banks and manufacturers, for example, may ‘club together’ and outsource to a certain supplier – according to Rao, this is a tried and tested course of action that is only likely to develop.

But these growing opportunities and changes in approach will not be without challenges. Indeed, Francois Enaud, CEO of Steria, an IT and BPO provider, commented that the greatest test for 2010 will be the need for businesses throughout the sourcing industry to move from a solution-driven approach to a purely service-driven one, perhaps even costed on a “pay per use” structure.

Of course, in early 2009, the Satyam ‘crisis’ was the biggest sourcing story for some time. While its effects do not seem to have been as disastrous as first thought, it seemed pertinent a year on to see how the Indian market reacted, and therefore survived. Abhijit Mazumder, the Head of Strategic Solutions at TCS, an IT services, business solutions and outsourcing organisation, told me that apart from the obvious economic ramifications, one of the greatest effects was psychological – a great deal of effort had to be put into mitigating the fact that suddenly a market that saw perennial growth year on year was suddenly not only going to fail to grow, but potentially plummet. As Mazumder explained, the winning strategy for the Indian companies that confounded expectations was to concentrate on streamlining and securing the core of the company so that when the good times returned, they were ready to respond and capitalise.

So with these comments, and those from the first two days, it appears that there is a consensus on three trends that we will see develop throughout the remainder of this year, and most likely beyond. Firstly, sourcing strategies are no longer about costs, but are now increasingly centred on customer value – a move that is being driven by supplier and customer alike. Linked to this, pricing models will change to being based upon outcomes not inputs, and lastly, platform-based solutions will gradually replace bespoke solutions in popularity.

Doubtless, 2010 will be an exciting year for sourcing and, the threat of another unexpected Satyam-esque incident aside, has the potential to be one of the key industries to be a part of.

So, until next time…

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NASSCOM – Day 2

Once again, I have been circulating around the NASSCOM show, and have met a wide variety of spokespeople from the public and private sector, and from suppliers and client-side companies alike.

As I mentioned in my blog from yesterday, the overall mood seems optimistic, albeit a cautious optimism. Having met Sudip Banjeree, the CEO of L&T Infotech, a global IT services and solutions provider, I now understand more. He told me that prior to the recession, the industry was somewhat relaxed as profits were readily available and the services front was building revenue. However, as a result of the recession, the industry is far tighter. There is, and will continue to be, a greater emphasis on long term benefits (both internally and in terms of their delivery to clients), reduced discretionary expenses and a focus on adapting capabilities. The second shift that Banjeree has seen is in the distribution of business – there used to be, before the recession, a strong emphasis on the US, UK and Western and Eastern Europe. The future growth that Banjeree predicts will have to be directed at other markets as companies search for lucrative and cost-effective opportunities.

Sachin Tikekar, Chief of People Operations at KPIT Cummins, a global IT consulting organisation, added that the recession will cause business models to change substantially. This will not necessarily include product-built solutions from service companies per se, but templatised solutions that allow service providers to cut time to market while at the same time providing value to customers.

I was also lucky enough to grab a few moments with John Suffolk, the CIO of the UK Government. He told me that India was still a “hotbed of innovation” and that the conference was especially important to the UK given the sheer number of Indian suppliers involved directly with UK companies and the need to encourage this to continue.

Commenting on the imminent election, Suffolk added that IT is absolutely a core method to drive efficiencies in any organisation and the UK public sector is no different. It was also reassuring to hear that while the UK is in the top two or three European countries for IT availability and sophistication, there are still ambitious plans afoot to improve despite the economic situation, primarily via innovation and driving efficiency.

Talking of innovation, Tikekar mentioned that there is almost an expectation of this in the sourcing community, both from the maintenance perspective, and proactive expectations. However, innovation, according to Tikekar, should not be pursued if it involves too much risk. For instance, cloud computing may be a prime way to show innovative approaches, but a premature jump into it without the necessary infrastructure changes could be disastrous.

All in all, a very interesting day, and with presentations that proclaimed predictions of double digit growth in 2011, an increase in the number of mergers and acquisitions and an emphasis this decade on infrastructure and systems integration as opposed to BPO and software maintenance, it doesn’t look like the sourcing industry will be getting any less interesting any time soon.

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NASSCOM – Day 1
Wednesday, February 10, 2010

For those who have not visited India recently the pace of change is amazing. Europe has a lot to learn from India’s aviation industry. The planes are clean and cheap, a bus (not a five mile walk) takes you to the plane, and new terminals are replacing the crumbling buildings of only five years ago. But I am not trying to romanticise India because squalor and opulence lives side by side with this rapidly growing economy.

My reason for being in India on this occasion is to attend NASSCOM 2010 (National Association of Software and Services Companies) – an event that I have seen grow from an offshoring trade show to one of the largest global conferences, sponsored by the likes of CSC and Accenture, now with as many as 1600 delegates, 120 speakers, 130 suppliers and 22 trade delegations promoting their country as an offshore destination.

Over the course of the three days of the conference, starting today, I will be interviewing various notable personalities in the outsourcing space, including some of the event speakers, and each day presenting a summary of their thoughts and the apparent industry trends.

To start with, compared to last year the atmosphere is upbeat. Last year the recession was politely ignored but still the elephant in the corner, Mumbai was still reeling from the terrorist bomb attack and the Satyam debacle was in danger of wrecking the Indian Outsourcing industry. This year these issues have been forgotten but there is still a sense of realism that the days of 30-40 per cent growth are ancient history.

Norman Pitman and Michale Bieler, respectively the VP EMEA Business Development and the Director of Sourcing Advisor Relations of CSC (a global IT and Business Process Outsourcing consultancy, and event sponsor), agreed today that there is an air of optimism. Indeed, Pitman intimated that the pipeline for the forthcoming financial year will be one of their strongest yet, particularly on account of UK public sector opportunities.

Meanwhile, KK Natarajan, CEO of Mindtree (a global IT solutions company) explains that this increased optimism and market change has largely been driven by customer needs as much as market forces. Customers are, he claims, becoming far more selective in terms of their outsourcing partners, and far more demanding in how fast the return on investment arrives, which has in return prompted a market for specialist service providers. Indeed, this message was echoed in the day’s presentations as sourcing is appearing to be more about providing business value than cutting wage bills.

Also throughout today’s discussions, both with individuals and in the speaker slots, it has become apparent that cloud computing is going to dramatically change the industry. But Pitman was keen to emphasise that cloud computing should not be seen as a fresh new technology, but instead as a concept that has been available for some time and is now enjoying a refreshed market.

Nonetheless, Pitman and Bieler added that on-demand computer power has been a major part of many sourcing contracts recently, even a requirement by many customers, and the supposed advent of cloud computing has been a perfect way to fulfil this.

Tomorrow, I will be interviewing more delegates and trying to answer the question of how 2010 will compare to 2009, what will the major trend changes be, and how sourcing contracts have been, are and will be changing.

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2010: The year for Cloud Seeding & Cloud Governance
Thursday, February 04, 2010

By Brian Klingbeil, MD EMEA, Savvis

Last year’s economic downturn has seen traditional ‘DIY’ organisations radically reassess their approach to IT management. Many enterprises have starting to shift budgets to flexible, service led purchasing of IT infrastructure as they identify that moving to managed infrastructure can reduce capital expenditure and costs whilst increasing business flexibility.

Enterprises are also evaluating if this is the time to shift to cloud based infrastructure so as to capitalise quickly on the recovery opportunity. IT professionals are also learning how to assess which elements of their architecture are ripe for taking into the cloud. 

2010 is the year for Cloud Seeding. Those ‘in the know’ understand that you can now trust the cloud with mission critical applications, meaning enterprise cloud adoption will start in earnest this year.  Making the right decision on when to shift to cloud based infrastructure is very important as it will then help businesses to capitalise from the beginnings of the upturn and insulate themselves somewhat from the risk of a W shaped recovery.  With enterprises commencing their engagement their first cloud projects, they begin to understand better the benefits of cloud computing. 

The benefits for Cloud Computing as we all know are enormous, including cost-effective approaches to some of the common key challenges that confront IT organizations on a daily basis such as
• How can we provide a better end-user experience at the lowest cost?
• How can we meet availability and other SLA-based requirements?
• How can we deal more effectively with the outages that will inevitably occur?

That said, IT professionals evaluating cloud services must understand the policy implementation mode they are buying into.  They need to think about how much control they need at the resource, application and operational levels – and then make sure that it’s available. Organisations and IT leaders that take an over-simplified view of cloud computing and commit to it without fully understanding the implications of such a move risk making things worse instead of better.

Moving forward, the year 2010 will be the centred around cloud governance. IT organisations need to fully understand the implications of a move towards Cloud Computing rather than dive in without a plan. Only when IT professionals stay on top of the cloud by fully understanding the implications of a move towards Cloud Computing, possess a detailed understanding of decision-making policies across resources, applications and operations, then will they be able to look forward to reaping the much anticipated rewards of Cloud Computing.

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The BSkyB and EDS litigation: The Lies, The Costs and the Dog with the MBA
Friday, January 29, 2010

Let’s start with some stats.  The judgment came in at just under 10 years after the original contract.  The trial lasted for 110 days, involved 500,000 documents and 70 witnesses.  The judgment is almost 500 pages and 2,500 paragraphs long.  Legal fees are estimated at over £70 million to date, and set to rise further. 

The dispute arose out of a £48m IT services contract between satellite broadcaster BSkyB and global IT contractor EDS (which is now part of HP).  BSkyB had a catalogue of complaints – they ended up delivering the project themselves after all, but as well as the “run of the mill” contract claims BSkyB also alleged EDS lied in the pre-contract tendering process.  They said 9 EDS employees lied about 5 different things.

EDS made a good fist of it. 8 of those employees were found to be honest (if not always possessing accurate memories) and the court found that no one at EDS lied about 4 of those issues.

But one was enough.  One lying witness about one issue may have cost EDS upwards of £200m.

The lie was a simple, maybe even a common one - about being able to complete on time.  But without it the court were convinced that BSkyB would have gone to PwC instead of EDS, and saved itself a lot of grief, and money, if it had.  Every bid team in the land should be thinking hard about that.

And the worst part for EDS (well, HP now of course) is that the lie (as opposed to the contract claims) blew away the agreed liability cap of £30m.  BSkyB were claiming £700m, but after the judgment seem to be reigning that in to closer to £200m.  The final figure will be determined in February, when everybody has to return to court.

The judgment is a classic – not because it makes any new law – but because it reveals how dishonest people can dig bigger and bigger holes for themselves. EDS’s main witness lost all his credibility, his job, and the case when he claimed to have a real MBA from a real University. He went to the course for months, describing in detail about his regular plane rides and the college buildings, only to be shown not only that the college never existed, but that BSkyB’s lead barrister’s dog, Lulu managed to get the same “qualification” by applying online.  Shame on EDS’s Mr Galloway when all was revealed, the final blow being that Lulu was awarded better marks than him.

HP is going to spend even more time and money on an appeal.  And maybe a few pounds more on some employee background checks, just in case Lulu is looking for a job…

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Who’d have thought it?
Wednesday, January 13, 2010

Let us pretend it’s not January 2010 – let us instead pretend it’s January 2009, and we are predicting what will happen in the year to follow.

I cannot conceive that many would have even considered the possibility that within six weeks of the new year, the Indian outsourcing industry would be in complete turmoil over the largest ever fraud – i.e. the Satyam situation.

How many could have realistically predicted that by May 2009, EDS, the bastion of the sourcing world, would be bought by HP for £13.9 billion, doubling its services business in one fell swoop? Who would have also thought that ACS would have been bought by Xerox, transforming their global proposition?

And how much of the trend reversal in the financial sector could have been predicted? Citibank and Aviva have proclaimed for years how important their captive offshoring operations were; how they formed a distinct competitive advantage and how they fundamentally disagreed with the prospect of outsourcing as a viable alternative – within six months of 2009, Citibank had sold its captive to Genpact, and Aviva had in turn sold its to WNS.

I don’t think many people really would have predicted that!

So, today, the dawning of 2010, what do we think we will be talking about this time next year? Will the ongoing expectation that one of the principal Indian outsourcing companies will buy a major European player eventually become reality? Will innovation come back into the forefront of the market’s thoughts as a renewed priority and not continue to be shunned in favour of basic cost reductions? Will cloud computing really start to mature, or will there be a horrific security disaster from using cloud-based technology in sourcing that delays its wider uptake, or worse, leads to ongoing distrust of the concept?

Will there be an unexpected, or even aggressive, merger of two or more of the major sourcing players?

Will multi-sourcing no longer be the flavour of the month as companies struggle to believe that multiple supplier relationships could be efficiently managed, when managing just one causes so many problems?

I certainly don’t know the answers to these speculations just yet, but hopefully during 2010 I will be able to keep you abreast of the latest rumours and happenings in the sourcing world.

So I trust you all had a Merry Christmas, and here’s wishing you a happy (but most likely unpredictable!) 2010!

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Private firms pay the price for workforce lacking basic business skills
Friday, January 08, 2010

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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Don’t forget the back office!
Monday, December 14, 2009

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

Many companies have outsourced and off shored their IT service requirements and from all the research I have read, most of them are successful. More importantly people are becoming more successful over time as they learn lessons, either from their own experiences or through industry best practice. As companies become more mature at handling outsource suppliers the suppliers have had to respond and deliver ever increasing benefits; one of the positive effects of a very competitive market.

Having successfully outsourced IT Services, companies are now turning their attention to other Back Office processes. Many processes in functions like HR and Finance cannot be considered ‘core’ or strategic enough to justify keeping them in-house. At Mahindra Satyam we are finding that customers are turning to us for a wide range of non-core back office services such as; Line balancing of assembly lines, development of art work for packaging, claims processing and so on. As with IT services the benefits of outsourcing this kind of work are considerable and include;

a) Cost reduction
b) Improved quality & standardisation
c) Continuous improvement & innovation
d) Freeing up management time.

The disciplines required to outsource Back Office processes are similar to those required for outsourcing IT services. Of course the vendor landscape is different and the internal stakeholders may be different but the best practices are the same.

Although the Back Office processes may not be core or strategic they are still vital to the well being of the company and their effective execution underpin the company’s reputation and productivity. If they are not executed effectively everybody in the organisation gets to know about it very quickly. These processes directly affect the customer, the staff and the management stakeholders. Your CFO may welcome the cost reductions that outsourcing will bring but if in outsourcing his function, there is any degradation of service you may have to start looking for another job.

In summary back office processes can be successfully outsourced, the benefits are strong but we must learn from industry best practice and not get lured into thinking that this is anymore straightforward or easy that outsourcing IT services. As we move into 2010 I am sure that we will see a strengthening of the trend to outsource ‘the whole stack’ of a Back Office process.

For example a company may ask a vendor to manage the IT Infrastructure, the IT applications and actually process the business process transactions e.g. a firm may monitor the hardware that the Oracle Financials application runs on, it will maintain the application and have staff entering the invoices into the system.  This gives the outsourcer the opportunity to look at the complete picture and offer deeper benefits. Often this is governed by a contract that is based on outcome pricing e.g. a price per invoice processed. This does not mean that companies have to sacrifice the benefits of multi sourcing (see my views on the key to a successful multisourcing strategy at http://www.sourcingfocus.com/index.php/site/featureitem/1984). This is a trend towards deeper, vertical outsourcing e.g. everything in a particular process rather than outsourcing all processes to one supplier. 

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Green Supplying
Friday, December 04, 2009

Globalisation has meant sourcing from further afield (often the other side of the world). Yet there is growing consumer conscience, and more awareness of green issues thanks to the immediacy of the Internet. All this combines into increased supply chain risk. “Greening” the supply chain is a control mechanism which can help protect all parties in the chain from adverse brand and reputational attack, whilst contributing to the bottom line of supplier and buyer alike.

Up to 90% of a business’ carbon footprint derives from its supply chain. Therefore, applying quantitative performance targets - such as a 10% reduction of the carbon footprint of bought-in product/semi-finished goods/raw material over the next 12 months - can have a dramatic effect on the bottom line. However, if a supplier is already at or near best practice in terms of carbon footprint management, it would be unfair and unrealistic to impose a 10% improvement objective, so there needs to be a mechanism to fairly distribute the targets. Meanwhile this all has to be policed and reported on. Technology tools as well as management commitment are required here - after all, if you can’t measure it, you can’t manage it - where have we been, where are we now, where do we want to be, how do we get there?

Carbon reduction/greening the supply chain is good for the companies in the supply chain, good for the purchasing company, good for UK plc, and good for the planet!

Some points for consideration:-

 ISO 14001 is an environmental management standard imposed more and more on suppliers by such as local authorities, government departments and many large commercial organisations. In turn, suppliers are tending to pass on 14k certification as a requirement to their suppliers.

 Supply chain greening is often integrated with compliance with other risk areas in self-assessment forms, and/or assessed by internal or external audit teams e.g. health & safety, social/ethical, business continuity.

 The larger the supply chain, the more complexity. Responsibility in the public’s perception goes beyond first-tier suppliers all the way down to raw materials suppliers. Images on the 6 o’clock news of filthy chemical effluent pouring into a stream can be potentially disastrous to the brand, reputation and share value of a manufacturer – whatever protective contracts they have with their tier 1 suppliers.

 Legal compliance – increasing costs of non-conformances/corrective actions, fines/penalties, danger to brand and reputation, lack of confidence by investors, employees, suppliers.

 Performance benchmarking – internal and external.

 Reduction in energy use in the supply chain, GHG emissions improvements in the supply chain, trading carbon equivalents etc. all require data collation, analysis and reporting - data submission requirements to UK government as part of the Climate Change Agreement scheme, participation in the EU Emissions Trading Scheme, plus the UK government’s new CRC initiative.

All businesses simply have to do something about greening their supply chain – just how far will you go? How quickly? What software tools are available to help? What is the ROI argument and project payback period – a powerful business case must be presented to and accepted by the board, and then consistently driven through the supply chain.

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