Friday, December 08, 2006
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Wednesday, November 22, 2006
Wednesday, November 08, 2006
Beware the hidden costs (FT)
Beware the hidden costs
By Alan Cane
Published: November 8 2006 11:27 Last updated: November 8 2006 11:27
The challenges faced by information technology managers in meeting their business obligations within tight budgets can be encapsulated in a few telling sentences.
First, the cost to the average organisation of a personal computer is about $10,000 a year, of which less than 10 per cent goes on the hardware. A few per cent more account for the operating software, but the bulk of the cost is absorbed by administration and operational support including installation and training. For larger systems, the same iceberg-like ratio of seen to unseen costs obtains.
Second, IT managers are increasingly being asked by their business colleagues to develop innovative systems to provide efficiencies and competitive advantage within budgets that are at best static and often declining in real terms.
In general, between 70 and 90 per cent of their existing budget is already committed to what Lisa Hammond, chief executive of the consultancy Centrix, describes as “keeping the lights on”, in other words, running and maintaining existing systems.
So this is the conundrum: funds are limited and the cost to the business of new investment in technology will be significantly greater than the price list might suggest.
“The chief information officer has a twofold task,” says Ms Hammond. “He or she has to keep the current systems alive and handle the demands from the business. The question is how they can use their budget to create some cash to spend on innovation.”
The situation has opened the floodgates to a range of vendor financing schemes for hardware, software and services (see feature, Page 6) of varying degrees of novelty and imagination.
For example, Banca Intesa, the Italian financial institution, has made use of vouchers offered with Microsoft’s software assurance scheme to put its IT staff through training courses without draining the group’s conventional training budget.
And Smiths News, the UK’s largest magazine and newspaper wholesaler, is taking advantage of EMC’s scheme for balancing its customers’ storage needs: EMC provides more memory than the customer initially requires but only charges for it when it is used.
Large and small companies make use of vendor financing. ING World, the sports and media group, uses Microsoft Financing to pay for its software licences: valuable when it is going through a growth phase and incurring new IT costs to integrate businesses into the group.
But how should a company approach investment in IT? It is close to 20 years since the concept of “total cost of ownership” revolutionised the way vendors and customers thought about the cost of acquiring new computer systems.
Formalised by the consulting firm Gartner Group as a family of software tools, TCO has been widely used to help make purchasing decisions. Essentially, a financial estimate based on the direct and indirect costs of a capital investment, such as a new computer system, it traditionally includes the cost of hardware, software, installation, training, support, downtime, staffing, maintenance and infrastructure.
Nevertheless, even today, surveys have shown that many purchasing decisions are made purely on price, without consideration of the other factors enumerated in the TCO.
Moreover, a more sophisticated approach is already evolving. “You would have to go back five years or more to find people using pure TCO models,” says Peter Critchley, strategy director for the consultancy Morse. “People are beginning to think about the whole computing environment as an asset and considering how to manage that asset throughout its life cycle.”
CIOs today, he argues, are positioning themselves as businesspeople rather than technologists, taking responsibility for translating between the technology and the business: “CIOs almost take it for granted that a good adviser on technology can help them have an effective, efficient and optimised data centre.
“What they really want is for that data centre to be highly flexible and changeable as the business changes. The cost of change, if you don’t have the right architecture in your data centre to be able to do that, could be huge.”
Philip Dawson, a senior consultant with Gartner argues robustly that the term TCO has become devalued by misuse and by misleading comparisons: “When you look at an analysis, it will compare old, unmanaged, distributed stuff versus new, consolidated, managed stuff. So a Unix guy will say ‘Look at these old Windows NT shops. If you put in a Unix box you’ll get X, Y, Z savings. But if you move forward with the NT stuff with Microsoft, you get the majority of the savings anyway.
“Any vendor can show you a TCO comparison which shows their products looking better than their competitor’s products. I don’t mind working with clients on TCO as a methodology for the assessment of their portfolio: what they have now, what they need and where they need to go. The bit I don’t like is where a vendor says ‘I want to carry out a piece of work with you to prove X or Y’.”
Dawson explains: “The value of TCO lies in understanding your portfolio and its cost drivers. In the early days, TCO was about cost of projects. That is the wrong approach. If you have eight projects in a portfolio and you optimise them separately on a TCO model, you get eight separate islands. If you start a new project you have to start a new island.
“Total cost of service is a better approach. If you understand in a horizontal fashion ‘this is the cost of my database services, this is the cost of my security services, this is the cost of the IT equipment’, then that drives down TCO on every project.”
He emphasises the importance of reducing the amount of under-utilised equipment which, in many data centres, grows in an uncontrolled way: “Rationalisation makes things cheaper. If you reduce complexity, then TCO just falls through the floor.”
It is a view which resonates strongly with Lisa Hammond of Centrix.
She points out that what she calls “configuration items” – hardware and software products to you and me – tend to be bought system by system, project by project and just accumulate.
“There will be a load of configuration items that are just not needed. The first job is to map the IT services in the data centre to the business processes that they support. You will find a lot of configuration items that do not map to your key processes. Rationalise out the ones you don’t need. That one exercise can save between 5 per cent and 30 per cent of the budget,” she argues.
She believes there is a growing trend towards “buy rather than make” through the use of subscription services.
“Nowadays, we can subscribe to existing services that are 80 to 90 per cent fit for purpose,” she says, pointing to the options open to the CIO of a large international bank shopping for a claims processing system.
Inhouse, the projects would have taken 80 staff two years to complete. Outsourced abroad, it would have taken the same time, almost the same number of people but one quarter of the cost.
The third option came from an Italian company which proposed to charge £11 a claim for processing through its own system, giving the bank’s CIO the opportunity to get into the market in six weeks.
“You can buy services from smaller, innovative companies who have it set up already. And if you don’t like it, you can exit cleanly,” she argues.
If speed to market is important, so is time to return on investment.
Paul Loftus, who is in charge of IBM’s infrastructure support worldwide, echoes Peter Critchley’s views: “The CIO’s role today is being transformed from the classic IT specialist to business manager.
“They are being challenged to spend far more of their time on business transformation and integration, in particular, decreasing the time it takes to realise maximum value from an investment. That’s the fundamental play.
“What CIOs and business leaders around the world are asking me for, in addition to the basic technology, is to focus those value-added activities in the enterprise so as to augment their role as a change agent.”
Mr Loftus says that IBM has completely refreshed its service offerings in a number of areas to address the new environment and to return value to the customer more rapidly: “Our classic approach was labour-based, where each and every customer would sit down and define their individual plan and we would build it.
“What we have seen is a maturation of that thought process and today our portfolio of offerings not only has a skilled labour base but a set of recurring hardware and software assets that have been built or acquired.”
He shrugs off the idea that TCO analysis can eliminate risk, however: “Are there costs of complexity, of integration that one might not have clear sight of in going into a new installation? Certainly. That could be the case on any major project.
“But there’s both a realisation that this is not a precise business and a renewed determination to get on with it. Investment in technology is, at the end of the day, just as or more important than it was 10 years ago.”
Copyright The Financial Times Limited 2006
By Alan Cane
Published: November 8 2006 11:27 Last updated: November 8 2006 11:27
The challenges faced by information technology managers in meeting their business obligations within tight budgets can be encapsulated in a few telling sentences.
First, the cost to the average organisation of a personal computer is about $10,000 a year, of which less than 10 per cent goes on the hardware. A few per cent more account for the operating software, but the bulk of the cost is absorbed by administration and operational support including installation and training. For larger systems, the same iceberg-like ratio of seen to unseen costs obtains.
Second, IT managers are increasingly being asked by their business colleagues to develop innovative systems to provide efficiencies and competitive advantage within budgets that are at best static and often declining in real terms.
In general, between 70 and 90 per cent of their existing budget is already committed to what Lisa Hammond, chief executive of the consultancy Centrix, describes as “keeping the lights on”, in other words, running and maintaining existing systems.
So this is the conundrum: funds are limited and the cost to the business of new investment in technology will be significantly greater than the price list might suggest.
“The chief information officer has a twofold task,” says Ms Hammond. “He or she has to keep the current systems alive and handle the demands from the business. The question is how they can use their budget to create some cash to spend on innovation.”
The situation has opened the floodgates to a range of vendor financing schemes for hardware, software and services (see feature, Page 6) of varying degrees of novelty and imagination.
For example, Banca Intesa, the Italian financial institution, has made use of vouchers offered with Microsoft’s software assurance scheme to put its IT staff through training courses without draining the group’s conventional training budget.
And Smiths News, the UK’s largest magazine and newspaper wholesaler, is taking advantage of EMC’s scheme for balancing its customers’ storage needs: EMC provides more memory than the customer initially requires but only charges for it when it is used.
Large and small companies make use of vendor financing. ING World, the sports and media group, uses Microsoft Financing to pay for its software licences: valuable when it is going through a growth phase and incurring new IT costs to integrate businesses into the group.
But how should a company approach investment in IT? It is close to 20 years since the concept of “total cost of ownership” revolutionised the way vendors and customers thought about the cost of acquiring new computer systems.
Formalised by the consulting firm Gartner Group as a family of software tools, TCO has been widely used to help make purchasing decisions. Essentially, a financial estimate based on the direct and indirect costs of a capital investment, such as a new computer system, it traditionally includes the cost of hardware, software, installation, training, support, downtime, staffing, maintenance and infrastructure.
Nevertheless, even today, surveys have shown that many purchasing decisions are made purely on price, without consideration of the other factors enumerated in the TCO.
Moreover, a more sophisticated approach is already evolving. “You would have to go back five years or more to find people using pure TCO models,” says Peter Critchley, strategy director for the consultancy Morse. “People are beginning to think about the whole computing environment as an asset and considering how to manage that asset throughout its life cycle.”
CIOs today, he argues, are positioning themselves as businesspeople rather than technologists, taking responsibility for translating between the technology and the business: “CIOs almost take it for granted that a good adviser on technology can help them have an effective, efficient and optimised data centre.
“What they really want is for that data centre to be highly flexible and changeable as the business changes. The cost of change, if you don’t have the right architecture in your data centre to be able to do that, could be huge.”
Philip Dawson, a senior consultant with Gartner argues robustly that the term TCO has become devalued by misuse and by misleading comparisons: “When you look at an analysis, it will compare old, unmanaged, distributed stuff versus new, consolidated, managed stuff. So a Unix guy will say ‘Look at these old Windows NT shops. If you put in a Unix box you’ll get X, Y, Z savings. But if you move forward with the NT stuff with Microsoft, you get the majority of the savings anyway.
“Any vendor can show you a TCO comparison which shows their products looking better than their competitor’s products. I don’t mind working with clients on TCO as a methodology for the assessment of their portfolio: what they have now, what they need and where they need to go. The bit I don’t like is where a vendor says ‘I want to carry out a piece of work with you to prove X or Y’.”
Dawson explains: “The value of TCO lies in understanding your portfolio and its cost drivers. In the early days, TCO was about cost of projects. That is the wrong approach. If you have eight projects in a portfolio and you optimise them separately on a TCO model, you get eight separate islands. If you start a new project you have to start a new island.
“Total cost of service is a better approach. If you understand in a horizontal fashion ‘this is the cost of my database services, this is the cost of my security services, this is the cost of the IT equipment’, then that drives down TCO on every project.”
He emphasises the importance of reducing the amount of under-utilised equipment which, in many data centres, grows in an uncontrolled way: “Rationalisation makes things cheaper. If you reduce complexity, then TCO just falls through the floor.”
It is a view which resonates strongly with Lisa Hammond of Centrix.
She points out that what she calls “configuration items” – hardware and software products to you and me – tend to be bought system by system, project by project and just accumulate.
“There will be a load of configuration items that are just not needed. The first job is to map the IT services in the data centre to the business processes that they support. You will find a lot of configuration items that do not map to your key processes. Rationalise out the ones you don’t need. That one exercise can save between 5 per cent and 30 per cent of the budget,” she argues.
She believes there is a growing trend towards “buy rather than make” through the use of subscription services.
“Nowadays, we can subscribe to existing services that are 80 to 90 per cent fit for purpose,” she says, pointing to the options open to the CIO of a large international bank shopping for a claims processing system.
Inhouse, the projects would have taken 80 staff two years to complete. Outsourced abroad, it would have taken the same time, almost the same number of people but one quarter of the cost.
The third option came from an Italian company which proposed to charge £11 a claim for processing through its own system, giving the bank’s CIO the opportunity to get into the market in six weeks.
“You can buy services from smaller, innovative companies who have it set up already. And if you don’t like it, you can exit cleanly,” she argues.
If speed to market is important, so is time to return on investment.
Paul Loftus, who is in charge of IBM’s infrastructure support worldwide, echoes Peter Critchley’s views: “The CIO’s role today is being transformed from the classic IT specialist to business manager.
“They are being challenged to spend far more of their time on business transformation and integration, in particular, decreasing the time it takes to realise maximum value from an investment. That’s the fundamental play.
“What CIOs and business leaders around the world are asking me for, in addition to the basic technology, is to focus those value-added activities in the enterprise so as to augment their role as a change agent.”
Mr Loftus says that IBM has completely refreshed its service offerings in a number of areas to address the new environment and to return value to the customer more rapidly: “Our classic approach was labour-based, where each and every customer would sit down and define their individual plan and we would build it.
“What we have seen is a maturation of that thought process and today our portfolio of offerings not only has a skilled labour base but a set of recurring hardware and software assets that have been built or acquired.”
He shrugs off the idea that TCO analysis can eliminate risk, however: “Are there costs of complexity, of integration that one might not have clear sight of in going into a new installation? Certainly. That could be the case on any major project.
“But there’s both a realisation that this is not a precise business and a renewed determination to get on with it. Investment in technology is, at the end of the day, just as or more important than it was 10 years ago.”
Copyright The Financial Times Limited 2006
Wednesday, November 01, 2006
Capgemini Acquires Kanbay (Line56)
$1.3 billion deal addresses Indian strategy; Capgemini CEO discusses possibility of offshoring majority of Capgemini workforce and being "completely committed" to India read more
Friday, October 27, 2006
Capgemini übernimmt IT-Dienstleister Kanbay International (contentmanager.de)
Capgemini, ein Dienstleister für Beratung, Technologie und Outsourcing, und Kanbay International (NASDAQ: KBAY), ein globales IT-Serviceunternehmen mit Schwerpunkt auf Finanzdienstleistungen, haben he...
Tuesday, September 19, 2006
Business must ‘reduce, re-use, recycle’(FT)
Many of us have a nasty problem lurking in our attics, spare rooms or garden sheds. CPUs, monitors and dial-up modems that once promised an amazing new multimedia experience moulder in boxes, gradually becoming too old to be sold or even given away.
Monday, September 18, 2006
'Reckless' managers jeopardise public sector IT projects (FT)
Too many government information technology projects fail because public sector managers have "a reckless streak" becoming "dazzled by the potential of the technology", according to a report from the WorkFoundation. read
Monday, September 04, 2006
Professional Services Organizations Automate their Processes (TEC)
Major vendors are entering the professional services software market and small niche vendors are repositioning themselves to compete. This changing market is conveying mixed messages; however, users can navigate this…Read Article…
read
read
Thursday, August 31, 2006
LogicaCMG justifies growth strategy (FT)
Martin Read, chief executive of LogicaCMG, yesterday mounted a robust defence of his latest acquisition as the IT services group reported half-year results heavily affected by a previous deal.
Profit fell sharply from the cost of integrating Unilog, the French company acquired in January, while revenues rose, helped by the integration.
Pre-tax profit fell 21 per cent to £29.5m in the six months to the end of June; revenues rose 39 per cent to £1.24bn.
Mr Read admitted that the market reaction to last week's announced SKr11.9bn (£870m) acquisition of WM-data, its Swedish rival, was "disappointing". Shares in LogicaCMG have fallen 10 per cent since the deal was announced. Yesterday, they fell 6½p to 153½p.
But he said the integration of Unilog in France, with pro forma revenue growth of 7.6 per cent in the country, showed LogicaCMG could digest its large acquisitions and use them to win new contracts.
After the announcement of the Unilog deal, LogicaCMG's shares fell but then recovered. "I think we'll see a Unilog here," said Mr Read of the market reaction to his latest acquisition.
One concern for analysts is there will be a "flowback" from WM-data investors selling shares in the new combined group to reinvest them in Nordic markets.
Seamus Keating, LogicaCMG's finance director, said he had spent a day last week talking to shareholders and had "got the sense that they were willing and able to be holders of the stock of the larger group going forward".
Earnings per share were 0.7p (2.7p). The dividend rose from 2.11p to 2.2p.
FT Comment
*Is there any point in building an empire? Mr Read believes IT services companies need to be big or risk being outgunned for international contracts. But there are plenty of sceptics who believe WM-data adds little beyond scale. Yesterday's results show Unilog was integrated successfully. A sign of whether investors believe Mr Read can do the same with WM-data will come as shareholders in the Nordic company decide whether to stick with shares in the new enlarged group in the coming months. On a multiple of about 15 times 2006 forecast earnings, those shares look inexpensive. And Mr Read has indicated a pause in the grand expansion plan, which should reassure some.
Copyright The Financial Times Limited 2006
Profit fell sharply from the cost of integrating Unilog, the French company acquired in January, while revenues rose, helped by the integration.
Pre-tax profit fell 21 per cent to £29.5m in the six months to the end of June; revenues rose 39 per cent to £1.24bn.
Mr Read admitted that the market reaction to last week's announced SKr11.9bn (£870m) acquisition of WM-data, its Swedish rival, was "disappointing". Shares in LogicaCMG have fallen 10 per cent since the deal was announced. Yesterday, they fell 6½p to 153½p.
But he said the integration of Unilog in France, with pro forma revenue growth of 7.6 per cent in the country, showed LogicaCMG could digest its large acquisitions and use them to win new contracts.
After the announcement of the Unilog deal, LogicaCMG's shares fell but then recovered. "I think we'll see a Unilog here," said Mr Read of the market reaction to his latest acquisition.
One concern for analysts is there will be a "flowback" from WM-data investors selling shares in the new combined group to reinvest them in Nordic markets.
Seamus Keating, LogicaCMG's finance director, said he had spent a day last week talking to shareholders and had "got the sense that they were willing and able to be holders of the stock of the larger group going forward".
Earnings per share were 0.7p (2.7p). The dividend rose from 2.11p to 2.2p.
FT Comment
*Is there any point in building an empire? Mr Read believes IT services companies need to be big or risk being outgunned for international contracts. But there are plenty of sceptics who believe WM-data adds little beyond scale. Yesterday's results show Unilog was integrated successfully. A sign of whether investors believe Mr Read can do the same with WM-data will come as shareholders in the Nordic company decide whether to stick with shares in the new enlarged group in the coming months. On a multiple of about 15 times 2006 forecast earnings, those shares look inexpensive. And Mr Read has indicated a pause in the grand expansion plan, which should reassure some.
Copyright The Financial Times Limited 2006
Friday, August 25, 2006
LogicaCMG Will Boost Nordic Market Position With WM-data Buy (Gartner)
LogicaCMG's planned purchase of WM-data shows the continued desire of European service providers to offer more focused services in wider geographies. Integration will be key as LogicaCMG completes the acquisition.
Thursday, August 24, 2006
IBM Acquires ISS (Line56)
$1.3 billion deal caps off busily acquisitive month for tech giant; addressing the important services level of security, particularly in regulated environments read
Wednesday, August 23, 2006
IBM to buy IT security business (FT)
IBM on Wednesday took one of the most dramatic steps yet in its bid to overhaul its slow-growing services business with a $1.3bn software acquisition.
The all-cash purchase of Internet Security Systems will further erode the barriers between IBM’s services and software divisions.
It reflects an acceleration in Big Blue’s use of acquisitions to raise its profile in some of the fastest-growing segments of the IT market as it battles to revive its flagging growth rate.
ISS, whose software is used to fend off intrusions against corporate and government IT networks, will be run as part of IBM Global Services, even though IBM already sells security software under the Tivoli brand via its separate software division.
Combining ISS with services rather than the software division reflects IBM’s broader plan to use software to revitalise services.
Backed by ISS products, IBM will be better placed to sell “standardised, repeatable, software-based services”, said Val Rahmani, general manager of IBM’s infrastructure management services business, who will oversee the ISS business.
The technology giant set out on its services strategy last year, moving executives to bring a more product-based approach to the services division.
The ISS deal marks the services division’s biggest acquisition since the purchase of the PwC consulting division in 2002.
IBM agreed to pay $28 a share for ISS, an 8 per cent premium to its closing price the day before.
Tom Noonan, chief executive of ISS, said putting his company into the services division echoed a broader trend in the software world. More than half of ISS’s revenues come from subscriptions rather than traditional up-front software licences, he said.
IBM said it would run ISS as a separate unit within its services business and leave its existing management in place. It also said ISS’s product strategy would move “in lock-step” with Tivoli.
It is IBM’s third big software deal in the past three weeks. It agreed to pay $1.6bn for FileNet, which makes content management software, and $740m for MRO Software, whose technology is used to track and manage corporate assets.
The deals partly mark IBM’s attempt to counter a slowdown in technology spending by corporate and government buyers.
Copyright The Financial Times Limited 2006
The all-cash purchase of Internet Security Systems will further erode the barriers between IBM’s services and software divisions.
It reflects an acceleration in Big Blue’s use of acquisitions to raise its profile in some of the fastest-growing segments of the IT market as it battles to revive its flagging growth rate.
ISS, whose software is used to fend off intrusions against corporate and government IT networks, will be run as part of IBM Global Services, even though IBM already sells security software under the Tivoli brand via its separate software division.
Combining ISS with services rather than the software division reflects IBM’s broader plan to use software to revitalise services.
Backed by ISS products, IBM will be better placed to sell “standardised, repeatable, software-based services”, said Val Rahmani, general manager of IBM’s infrastructure management services business, who will oversee the ISS business.
The technology giant set out on its services strategy last year, moving executives to bring a more product-based approach to the services division.
The ISS deal marks the services division’s biggest acquisition since the purchase of the PwC consulting division in 2002.
IBM agreed to pay $28 a share for ISS, an 8 per cent premium to its closing price the day before.
Tom Noonan, chief executive of ISS, said putting his company into the services division echoed a broader trend in the software world. More than half of ISS’s revenues come from subscriptions rather than traditional up-front software licences, he said.
IBM said it would run ISS as a separate unit within its services business and leave its existing management in place. It also said ISS’s product strategy would move “in lock-step” with Tivoli.
It is IBM’s third big software deal in the past three weeks. It agreed to pay $1.6bn for FileNet, which makes content management software, and $740m for MRO Software, whose technology is used to track and manage corporate assets.
The deals partly mark IBM’s attempt to counter a slowdown in technology spending by corporate and government buyers.
Copyright The Financial Times Limited 2006
Monday, August 21, 2006
Accenture Aims for U.S. Life Policy Administration, BPO Gains (Gartner)
In agreeing to buy NaviSys, Accenture seeks a bigger role among U.S. life insurers for policy administration systems and business process outsourcing. Customers should monitor how Accenture will integrate NaviSys products. read
Another step on the path to IT’s top 10 (FT)
Almost a year ago LogicaCMG was approaching another big acquisition with some trepidation.
That summer had seen a wave of protectionist rhetoric from French politicians worried that Pepsi was going to launch a bid for Danone, the flagship food group – not the ideal climate for Logica to go after Unilog, one of France’s leading technology companies.
In the event, the fears of Martin Read and his team were unfounded. The logic of consolidation in the IT services sector was such that his €931m ($1.2bn) bid for Unilog was accepted by the target’s management and met with no stirrings of “economic patriotism” from the country’s government or media.
The logic continues today. Multinational companies are keen to have fewer IT suppliers and want those that remain to be able to serve them cheaply and globally. Established western IT providers such as IBM, Accenture and Logica are also having to cope with the rise of low-cost Indian rivals.
Wanting to play a key role in the consolidation, Logica has set a long-term target to become a top-10 IT services company. Monday’s announced acquisition consolidates it as Europe’s second-largest company in the sector by market value after CapGemini of France.
Investors have not always supported the acquisition policy with unfettered enthusiasm. The company’s shares are below the level they were trading at this time last year and, although prone to intra-day volatility, they have remained stagnant over the past few years, underperforming CapGemini and Atos Origin, the other large European competitors.
Mr Read was phlegmatic on Monday in the face of a 7.5 per cent fall in Logica’s share price. “It was inevitable with a deal like this that you would get a lot of hedge fund activity,” he said. He pointed out that the shares had fallen on news of the Unilog deal before recovering as integration proceeded.
The more sceptical shareholders will now hope that the boundaries of the empire stay fixed for some time. “Investors tend not to forgive companies that overpay,” said Hans Slob, an analyst at Rabo Securities.
But Mr Read is unflinching in his determination to enter the global top 10 of IT services companies, dominated by US heavyweights such as IBM. “We’ve been on a journey,” he said.
“When I started with Logica 13 years ago there were 3,000 people. This will take it to 40,000.”
The company’s issues are not all related to scale. In Germany, Logica has only recently started to turn a profit, helped by the integration of Unilog’s profitable business in the country. There is no obvious quick-fix takeover target that would speed up an improvement.
Apart from high-end IT services in areas such as electricity trading and anti-money laundering for central banks, Logica also has a wireless division serving mobile phone operators, which many analysts fear does not make a good fit with the rest of the company and does not generate sufficient profits. Mr Read, though, is in no rush to sell.
Mr Read sees the threat to Logica and the wider industry coming from India, where companies such as Tata Consulting and Infosys are already larger than their Anglo-Dutch rival.
“It’s particularly refreshing to see a company like Logica expand beyond our shores,” said one person close to the deal yesterday. Observers are divided on whether this patriotic view makes sound business sense.
That summer had seen a wave of protectionist rhetoric from French politicians worried that Pepsi was going to launch a bid for Danone, the flagship food group – not the ideal climate for Logica to go after Unilog, one of France’s leading technology companies.
In the event, the fears of Martin Read and his team were unfounded. The logic of consolidation in the IT services sector was such that his €931m ($1.2bn) bid for Unilog was accepted by the target’s management and met with no stirrings of “economic patriotism” from the country’s government or media.
The logic continues today. Multinational companies are keen to have fewer IT suppliers and want those that remain to be able to serve them cheaply and globally. Established western IT providers such as IBM, Accenture and Logica are also having to cope with the rise of low-cost Indian rivals.
Wanting to play a key role in the consolidation, Logica has set a long-term target to become a top-10 IT services company. Monday’s announced acquisition consolidates it as Europe’s second-largest company in the sector by market value after CapGemini of France.
Investors have not always supported the acquisition policy with unfettered enthusiasm. The company’s shares are below the level they were trading at this time last year and, although prone to intra-day volatility, they have remained stagnant over the past few years, underperforming CapGemini and Atos Origin, the other large European competitors.
Mr Read was phlegmatic on Monday in the face of a 7.5 per cent fall in Logica’s share price. “It was inevitable with a deal like this that you would get a lot of hedge fund activity,” he said. He pointed out that the shares had fallen on news of the Unilog deal before recovering as integration proceeded.
The more sceptical shareholders will now hope that the boundaries of the empire stay fixed for some time. “Investors tend not to forgive companies that overpay,” said Hans Slob, an analyst at Rabo Securities.
But Mr Read is unflinching in his determination to enter the global top 10 of IT services companies, dominated by US heavyweights such as IBM. “We’ve been on a journey,” he said.
“When I started with Logica 13 years ago there were 3,000 people. This will take it to 40,000.”
The company’s issues are not all related to scale. In Germany, Logica has only recently started to turn a profit, helped by the integration of Unilog’s profitable business in the country. There is no obvious quick-fix takeover target that would speed up an improvement.
Apart from high-end IT services in areas such as electricity trading and anti-money laundering for central banks, Logica also has a wireless division serving mobile phone operators, which many analysts fear does not make a good fit with the rest of the company and does not generate sufficient profits. Mr Read, though, is in no rush to sell.
Mr Read sees the threat to Logica and the wider industry coming from India, where companies such as Tata Consulting and Infosys are already larger than their Anglo-Dutch rival.
“It’s particularly refreshing to see a company like Logica expand beyond our shores,” said one person close to the deal yesterday. Observers are divided on whether this patriotic view makes sound business sense.
Logica in $1.7bn Swedish expansion (FT)
Friday, August 04, 2006
IBM Acquires MRO Software for $740M, but at What Cost? (AMR)
IBM is acquiring MRO Software in an all-cash transaction priced at $740M, or $25.80 per share. This is a 19.4% premium over MRO Software’s closing price of $21.60 on August 2; MRO’s stock price closed at $25.46 on the day the deal was announced.
Thursday, July 20, 2006
LogicaCMG eyes European expansion (FT)
LogicaCMG, the Anglo-Dutch IT services company, said it was continuing to plan expansion into a fourth European market, as it reported trading was "well ahead" of last year following a series of contract wins.
Martin Read, chief executive, said he was hoping to establish another European stronghold through acquisitions. "If I had a magic wand . . . today we've got three major profit generators - the UK, Netherlands and France - I'd like to have four."
Spain and Germany are among Mr Read's targets but the fragmented state of the latter country's market meant "moving forward in Germany is going to be two or maybe three steps".
Organic growth for the first half of the year should be above last year's 3.4 per cent, Logica said. Recent large contract wins with InBev, the Belgian brewer of Stella Artois lager; ING, the Dutch bank; and two unannounced deals in France are also expected to benefit the second half.
Logica said its UK public sector business was stable "despite the more challenging market" and cost savings in Germany meant it was "increasingly confident" of hitting a profitable run rate in the country by the end of the year.
Mr Read, one of the industry's most prominent voices in warning of a skills shortage in the UK, yesterday said the improvement in market conditions was leading to a war for scarce talent and an increased use of contracting out.
Shares in Logica, which had declined by more than 20 per cent in the past five months, rose 5¼p to 165½p.
Martin Read, chief executive, said he was hoping to establish another European stronghold through acquisitions. "If I had a magic wand . . . today we've got three major profit generators - the UK, Netherlands and France - I'd like to have four."
Spain and Germany are among Mr Read's targets but the fragmented state of the latter country's market meant "moving forward in Germany is going to be two or maybe three steps".
Organic growth for the first half of the year should be above last year's 3.4 per cent, Logica said. Recent large contract wins with InBev, the Belgian brewer of Stella Artois lager; ING, the Dutch bank; and two unannounced deals in France are also expected to benefit the second half.
Logica said its UK public sector business was stable "despite the more challenging market" and cost savings in Germany meant it was "increasingly confident" of hitting a profitable run rate in the country by the end of the year.
Mr Read, one of the industry's most prominent voices in warning of a skills shortage in the UK, yesterday said the improvement in market conditions was leading to a war for scarce talent and an increased use of contracting out.
Shares in Logica, which had declined by more than 20 per cent in the past five months, rose 5¼p to 165½p.
Near-Shore Shared Services and BPO Opportunities Grow in Eastern Europe (AMR)
For companies looking for pan-European business process support today, Eastern Europe is the place to be, particularly the more established economies and EU-member states: the Czech Republic, Hungary, Poland, and the Slovak Republic. read the article
Thursday, July 06, 2006
Getronics Deal With Kapsch Follows Streamlining Trend (Gartner)
Getronics has sold its operations in Central and Eastern Europe and established a strategic partnership with local provider Kapsch. Such tactics are becoming more common as IT services vendors streamline to remain competitive and focused. read
Friday, June 09, 2006
Storage Virtualization - Week of 06/08/2006 (Analyst Views/Publisher)
Storage Virtualization - Week of 06/08/2006
The amount of data which organizations are now required to save is growing exponentially. According to a recent IDC report, "Enterprises need to store more information, and more types of information, for longer periods of time than ever before. They need to ensure that this information is safely retained in the near term for rapid recovery and over the long term for enhanced corporate governance." Though this need for data has increased recently, fuelled largely by compliance mandates, companies have other reasons for storing more and for longer periods of time. Nowadays there is frequently just more to store; companies introducing RFID into their game plan realize this. In addition, the introduction of advanced data-mining and business intelligence tools are proving to companies that their data is worth holding on to, as it can be leveraged for advanced business decision making. Of course it all comes at a cost, and the cost of holding data is realized in the price of more storage capacity. The fact that storage in general is dropping in price may leave the impression that merely adding more storage is an acceptable policy. However, many are now seeing limitations to this practice.
It seems simple enough on the surface to add capacity in the form of hardware as the needs of the enterprise call for it; but while solving the problem in the short-term this adds challenges in the long run. Storage systems which add capacity in this manner risk running into several issues; at the top of the list is hardware compatibility. When it comes time to add, or replace, storage hardware, the best option may be one that is offered by a vendor other than that which supplied previous hardware; the best option may be incompatible with the network or at least make its inclusion a challenge to the system. Though it is possible, and some enterprises will continue to require, that all storage hardware be from the same vendor, it is difficult for it all to be the same version; by the time more capacity is needed older models may be discontinued. Here again, though to a lesser degree compatibility rears it head. Further, merely adding hardware, compatible or not, as the network grows avoids the reality that in many enterprises it is not the capacity that is an issue, but the management of it. IT departments are seeing a heightened need for an enterprise-wide solution to the challenges of both capacity and its management; one solution gaining serious momentum is storage virtualization. As IDC puts it, "With the growing use of large pools of diverse servers and storage systems within a storage area network (SAN), IT managers are starting to ask for volume virtualization solutions that provide a single set of virtual volumes that extend across multiple storage systems."
Storage virtualization allows for capacity to be drawn from a storage pool on an as-needed basis; capacity is not allotted to a group or process in a static fashion. The storage is managed by an interface tool for which IDC has adopted the term networked controller (NC). Such a system has many benefits; a recent article in Manufacturing Computer Solutions sums several of them up well. "Think of it this way: there are five important cost-reduction and productivity benefits. First, disk utilisation is maximised since all free space remains in the storage pool. Second, applications only occupy space they are really using. Third, critical applications run undisturbed as their capacity requirements climb. Fourth, data protection can be applied as needed, And fifth, IT personnel need no longer spend time responding to disk re-allocation and resizing requests. Remember, time is money." There are other benefits as well. Since storage virtualization allows for great distances between the storage facility and the application or process using it, ranging from another state to another country, it poses benefits for areas which may foresee the need for disaster recovery; version and vendor compatibility are much more easily circumvented in a network with virtual storage; and in such networks nondisruptive migration of data to different storage systems is said to be far less painful. Clearly such benefits are being noticed.
2005 marked the first year, "in which most major storage systems suppliers had one or more network-based volume virtualization solutions in their product portfolio;" the nascence of the technology was reflected in the market's revenue which was just $138.2 million. Though these two points may seem to indicate that the technology has yet to make its mark, the next year is expected to show otherwise. The market revenue in 2005 represents over a 300 percent increase from 2004; and though only eight percent of companies surveyed by IDC were currently deploying storage virtualization solutions, 30 percent of companies with over 1,000 employees plan to begin using these in the next 12 months. In fact, IDC believes that, NCs have the potential to challenge the current storage ecosystem, "Over the next five years, networked controllers and the software that runs on them will emerge as a critical competitive battleground in the storage industry. They will drive changes in storage systems architectures, will spur significant investments in storage software, and have the potential to disrupt the current competitive environment."
As more IT departments look to storage virtualization, suppliers such as IBM and Hitachi who have an existing customer base will be well positioned. More recent entrants into the arena, IDC suggests, will be better off capitalizing on existing interests and selling the general idea of virtual storage than over-emphasizing technological differences between solutions, as, "The scale and scope of storage that most companies plan to 'virtualize' are well within the capabilities of current systems, and starting a 'technological war' will only limit ones' own customer uptake." IDC says further that, "Effective capacity planning, performance management, and root-cause analysis are some of the areas where virtualization can make the management task more difficult for IT administrators using current tools," this will need to be overcome by all players in the market. All involved will also need to deal with the opposition from within IT departments, as adopting a new system may have the old guard up in arms, or as Manufacturing Computer Solutions puts it, "Data centre managers likewise will find it difficult to persuade their organisations to give up traditions in return for flexibility."
The amount of data which organizations are now required to save is growing exponentially. According to a recent IDC report, "Enterprises need to store more information, and more types of information, for longer periods of time than ever before. They need to ensure that this information is safely retained in the near term for rapid recovery and over the long term for enhanced corporate governance." Though this need for data has increased recently, fuelled largely by compliance mandates, companies have other reasons for storing more and for longer periods of time. Nowadays there is frequently just more to store; companies introducing RFID into their game plan realize this. In addition, the introduction of advanced data-mining and business intelligence tools are proving to companies that their data is worth holding on to, as it can be leveraged for advanced business decision making. Of course it all comes at a cost, and the cost of holding data is realized in the price of more storage capacity. The fact that storage in general is dropping in price may leave the impression that merely adding more storage is an acceptable policy. However, many are now seeing limitations to this practice.
It seems simple enough on the surface to add capacity in the form of hardware as the needs of the enterprise call for it; but while solving the problem in the short-term this adds challenges in the long run. Storage systems which add capacity in this manner risk running into several issues; at the top of the list is hardware compatibility. When it comes time to add, or replace, storage hardware, the best option may be one that is offered by a vendor other than that which supplied previous hardware; the best option may be incompatible with the network or at least make its inclusion a challenge to the system. Though it is possible, and some enterprises will continue to require, that all storage hardware be from the same vendor, it is difficult for it all to be the same version; by the time more capacity is needed older models may be discontinued. Here again, though to a lesser degree compatibility rears it head. Further, merely adding hardware, compatible or not, as the network grows avoids the reality that in many enterprises it is not the capacity that is an issue, but the management of it. IT departments are seeing a heightened need for an enterprise-wide solution to the challenges of both capacity and its management; one solution gaining serious momentum is storage virtualization. As IDC puts it, "With the growing use of large pools of diverse servers and storage systems within a storage area network (SAN), IT managers are starting to ask for volume virtualization solutions that provide a single set of virtual volumes that extend across multiple storage systems."
Storage virtualization allows for capacity to be drawn from a storage pool on an as-needed basis; capacity is not allotted to a group or process in a static fashion. The storage is managed by an interface tool for which IDC has adopted the term networked controller (NC). Such a system has many benefits; a recent article in Manufacturing Computer Solutions sums several of them up well. "Think of it this way: there are five important cost-reduction and productivity benefits. First, disk utilisation is maximised since all free space remains in the storage pool. Second, applications only occupy space they are really using. Third, critical applications run undisturbed as their capacity requirements climb. Fourth, data protection can be applied as needed, And fifth, IT personnel need no longer spend time responding to disk re-allocation and resizing requests. Remember, time is money." There are other benefits as well. Since storage virtualization allows for great distances between the storage facility and the application or process using it, ranging from another state to another country, it poses benefits for areas which may foresee the need for disaster recovery; version and vendor compatibility are much more easily circumvented in a network with virtual storage; and in such networks nondisruptive migration of data to different storage systems is said to be far less painful. Clearly such benefits are being noticed.
2005 marked the first year, "in which most major storage systems suppliers had one or more network-based volume virtualization solutions in their product portfolio;" the nascence of the technology was reflected in the market's revenue which was just $138.2 million. Though these two points may seem to indicate that the technology has yet to make its mark, the next year is expected to show otherwise. The market revenue in 2005 represents over a 300 percent increase from 2004; and though only eight percent of companies surveyed by IDC were currently deploying storage virtualization solutions, 30 percent of companies with over 1,000 employees plan to begin using these in the next 12 months. In fact, IDC believes that, NCs have the potential to challenge the current storage ecosystem, "Over the next five years, networked controllers and the software that runs on them will emerge as a critical competitive battleground in the storage industry. They will drive changes in storage systems architectures, will spur significant investments in storage software, and have the potential to disrupt the current competitive environment."
As more IT departments look to storage virtualization, suppliers such as IBM and Hitachi who have an existing customer base will be well positioned. More recent entrants into the arena, IDC suggests, will be better off capitalizing on existing interests and selling the general idea of virtual storage than over-emphasizing technological differences between solutions, as, "The scale and scope of storage that most companies plan to 'virtualize' are well within the capabilities of current systems, and starting a 'technological war' will only limit ones' own customer uptake." IDC says further that, "Effective capacity planning, performance management, and root-cause analysis are some of the areas where virtualization can make the management task more difficult for IT administrators using current tools," this will need to be overcome by all players in the market. All involved will also need to deal with the opposition from within IT departments, as adopting a new system may have the old guard up in arms, or as Manufacturing Computer Solutions puts it, "Data centre managers likewise will find it difficult to persuade their organisations to give up traditions in return for flexibility."
Friday, May 26, 2006
ING's Outsourcing Blitz (Line56)
Dutch banking and insurance company commits well over a billion dollars to outsourcing in the past month; Astron most recent winner; more BPO opportunities to come read the article
Thursday, May 11, 2006
More service and support please, Mr Dell (FT)
Poor Michael Dell. Well, not really. The 42-year-old Texas entrepreneur remains a multibillionaire whose eponymous company still dominates the personal computing marketplace. Persistently mismanaged expectations and surprisingly skinnier margins, however, have provoked an investor backlash.
As resurgent competitors such as Apple, Hewlett-Packard and Lenovo recapture consumer and corporate attention worldwide, Dell’s once-innovative build-to-order business model seem a little tired. Where Apple’s Steve Jobs constantly produces “cool” digital innovations, Dell’s Mr Dell relentlessly cranks out more of the same for less. Has Dell’s business model passed the point of diminishing returns as a reliable growth engine?
Probably not. While Dell undeniably lacks the product innovation prowess of an Apple, the company’s brilliance as a process innovator remains unparalleled. Even Toyota pays attention to how Dell manages global supply chain relationships and logistics. Dell’s disciplined moves into computer servers, storage and printers successfully defied the sceptics. Precisely because the company’s business model is engineered around minimising costs per unit time and accelerating process velocity, Dell embraces fast-followership, not pioneering.
“We’re not going to be missionaries for innovation,” Kevin Rollins, Dell’s chief executive, told me in an interview a few years ago. “We only want to go into a market where the product or service is definable, standardisable, simplifiable and repeatable . . . We don’t count on our margins existing because the technology is proprietary or because the customer is stupid.”
Indeed, the Dell production model remains as flexible, adaptable and opportunistic as when Mr Dell launched it in 1983 from his college dormitory. But market competition has relentlessly eroded vital elements of that model’s value proposition. For one thing, many customers are prepared to pay a premium for the genuinely innovative products that Dell eschews; there are no “DellPods”. For another, Dell’s cost and price advantages have become less significant as Hewlett-Packard and Lenovo have retooled their own supply chains and production processes while becoming more innovative.
More serious for Dell, however, is that the perceived locus of value is evolving away from what the company does best. As prices have relentlessly dropped, customers increasingly appear less interested in the most cost-effective buy than in “convenience”, “ease of use” and “support”. Service matters more than ever.
As more people become more reliant and dependent on their personal computers, printers, servers and networks, they demand ever-higher quality of service and support. Managing expectations and execution around service-related “process innovation” has proven far more difficult and expensive than Dell expected – particularly for its cheapest and least profitable machines. The economics of support are hard.
So just as customers of all kinds were thrilled to have more computer for less money, they also expected more service and support for less, as well. For years, Dell enjoyed a top reputation for customer service and support. But as product portfolios and their inherent software complexity increase, Dell’s production challenge of “build to order” is giving way to the challenge of “service to order”. That is apparently not a natural extension.
Mr Dell noted a few years ago that in 1990, the company was number 25 of the top 25 PC manufacturers in the world. “But our model was just as valid then as it is now. The model didn’t depend on economies of scale to work; it doesn’t depend on economies of scale.” But here he was wrong. The reality is that while Dell has successfully grown as the world’s low-cost provider of computer hardware, its ability successfully to meet the service and support expectations of its global customers has measurably declined. These expectations may be unrealistic but they exist. Services and support have not scaled as well or as reliably as design, production and distribution. Simply adding more call centres in India does not address the core problem.
Just as they did to US car manufacturers, customers will abandon companies that are not seen to stand behind their products. This is Dell’s risk. Perhaps it will pioneer new forms of “remote diagnostics” for its machines in partnership with Microsoft or Intel; maybe it will create new genres of web-based customer support.
Given that India and China lack the robust digital infrastructures that Dell relies on for serving the support needs of its US and European customers, the company has every economic incentive to rethink and re-engineer how it wants to serve its global customers. Whether Dell can cost-effectively manage process innovation for computing services as superbly as it has for computer production remains an open question. However, that is precisely the sort of question sceptics raised when Dell brought its business model to other digital products. Mr Dell needs to come up with a persuasive answer.
The writer researches the economics of innovation and technology transfer at MIT and is a visiting professor at Sweden’s Royal Institute of Technology
As resurgent competitors such as Apple, Hewlett-Packard and Lenovo recapture consumer and corporate attention worldwide, Dell’s once-innovative build-to-order business model seem a little tired. Where Apple’s Steve Jobs constantly produces “cool” digital innovations, Dell’s Mr Dell relentlessly cranks out more of the same for less. Has Dell’s business model passed the point of diminishing returns as a reliable growth engine?
Probably not. While Dell undeniably lacks the product innovation prowess of an Apple, the company’s brilliance as a process innovator remains unparalleled. Even Toyota pays attention to how Dell manages global supply chain relationships and logistics. Dell’s disciplined moves into computer servers, storage and printers successfully defied the sceptics. Precisely because the company’s business model is engineered around minimising costs per unit time and accelerating process velocity, Dell embraces fast-followership, not pioneering.
“We’re not going to be missionaries for innovation,” Kevin Rollins, Dell’s chief executive, told me in an interview a few years ago. “We only want to go into a market where the product or service is definable, standardisable, simplifiable and repeatable . . . We don’t count on our margins existing because the technology is proprietary or because the customer is stupid.”
Indeed, the Dell production model remains as flexible, adaptable and opportunistic as when Mr Dell launched it in 1983 from his college dormitory. But market competition has relentlessly eroded vital elements of that model’s value proposition. For one thing, many customers are prepared to pay a premium for the genuinely innovative products that Dell eschews; there are no “DellPods”. For another, Dell’s cost and price advantages have become less significant as Hewlett-Packard and Lenovo have retooled their own supply chains and production processes while becoming more innovative.
More serious for Dell, however, is that the perceived locus of value is evolving away from what the company does best. As prices have relentlessly dropped, customers increasingly appear less interested in the most cost-effective buy than in “convenience”, “ease of use” and “support”. Service matters more than ever.
As more people become more reliant and dependent on their personal computers, printers, servers and networks, they demand ever-higher quality of service and support. Managing expectations and execution around service-related “process innovation” has proven far more difficult and expensive than Dell expected – particularly for its cheapest and least profitable machines. The economics of support are hard.
So just as customers of all kinds were thrilled to have more computer for less money, they also expected more service and support for less, as well. For years, Dell enjoyed a top reputation for customer service and support. But as product portfolios and their inherent software complexity increase, Dell’s production challenge of “build to order” is giving way to the challenge of “service to order”. That is apparently not a natural extension.
Mr Dell noted a few years ago that in 1990, the company was number 25 of the top 25 PC manufacturers in the world. “But our model was just as valid then as it is now. The model didn’t depend on economies of scale to work; it doesn’t depend on economies of scale.” But here he was wrong. The reality is that while Dell has successfully grown as the world’s low-cost provider of computer hardware, its ability successfully to meet the service and support expectations of its global customers has measurably declined. These expectations may be unrealistic but they exist. Services and support have not scaled as well or as reliably as design, production and distribution. Simply adding more call centres in India does not address the core problem.
Just as they did to US car manufacturers, customers will abandon companies that are not seen to stand behind their products. This is Dell’s risk. Perhaps it will pioneer new forms of “remote diagnostics” for its machines in partnership with Microsoft or Intel; maybe it will create new genres of web-based customer support.
Given that India and China lack the robust digital infrastructures that Dell relies on for serving the support needs of its US and European customers, the company has every economic incentive to rethink and re-engineer how it wants to serve its global customers. Whether Dell can cost-effectively manage process innovation for computing services as superbly as it has for computer production remains an open question. However, that is precisely the sort of question sceptics raised when Dell brought its business model to other digital products. Mr Dell needs to come up with a persuasive answer.
The writer researches the economics of innovation and technology transfer at MIT and is a visiting professor at Sweden’s Royal Institute of Technology
Wednesday, April 12, 2006
Metavante puts BPO on services roster (InfoWorld)
Metavante Corp., a technology and services provider to the U.S. banking and payments industries, will offer BPO (business process outsourcing) services from Indian outsourcer ICICI OneSource Ltd., the companies announced Wednesday. read
Wednesday, April 05, 2006
IBM-Colgate Deal Boosts Procurement Outsourcing Momentum (Gartner)
IBM's procurement BPO contract with Colgate is one of three recent deals that add momentum to procurement outsourcing. Prospective procurement clients should accelerate their evaluation of these types of solutions.
Tuesday, April 04, 2006
Russia: A Mature IT Workforce (Line56)
If you're considering Russia and/or Eastern Europe for outsourcing purposes, keep the maturity of the workforce in mind read
Monday, March 27, 2006
Engineering Increasingly Outsourced (Line56)
AMR Research offers look at state of play and future plans for outsourcing product development functions read
Monday, March 20, 2006
BPO Booming (Line56)
Massive 33 percent growth in 2005, says IDC; business process outsourcing gets mainstream, even with smaller companies read
Wednesday, March 15, 2006
Chaotic Outsourcing (Line56)
Gartner research uncovers lack of discipline and coordination in outsourcing initiatives read
Thursday, March 02, 2006
German setbacks reduce revenues at Morse (FT)
The poor performance of Morse's German andAustrian business dragged down revenues in the first half of the IT company's financial year. read
Tuesday, February 28, 2006
Cap Gemini moves back into the black (FT)
Cap Gemini, Europe’s largest computer consultancy, has moved back into the black for the first time since 2001, reporting a net income of €141m in 2005 and announcing the first dividend for three years. read the article
Saturday, February 25, 2006
Cognizant positioned in `Leaders` quadrant (Business Standard)
IT services major Cognizant has announced that it has been positioned in the �Leaders� quadrant for Offshore Applications Services by Gartner in its recently published �Magic Quadrant for Offshore Applications Services�. read
Friday, February 24, 2006
TCS vision, ability to execute get Gartner's pat
Tata Consultancy Services positioned in the leaders quadrant for offshore applications services
read more
read more
Tuesday, February 21, 2006
Wednesday, February 15, 2006
Wednesday, February 01, 2006
The next generation of in-house software development (mckinseyquarterly)
Most companies recognize the many advantages of buying software applications off the shelf rather than developing them in-house. By purchasing packaged applications (such as those from Microsoft, Oracle, SAP, and other vendors) or by using applications that vendors create, host, and make available over the Web (for example, those from SalesForce.com), companies can acquire effective business solutions with the benefits of standardization. In this way, they can keep up with of the innovations created by focused specialists. read the article
Getronics' Plan to Sell Italian Business Shows Consolidation (Gartner)
As the European IT service provider market evolves, consolidation is inevitable. Getronics customers in Italy should work with Getronics and any new owner to ensure continuity of service delivery and account management. read more
Tuesday, January 31, 2006
Outsourcing 2006: At the Tipping Point (AMR)
The outsourcing market is in for a major shakeup over the next two years. The sun is already setting on the market share dominance of the six major outsourcing providers-Accenture, ACS, CSC, EDS, HP, and IBM-and the major Indian services firms have the potential to leap to the forefront.
The shakeup is because of three chief causes:
- A significant number of traditional, monolithic outsourcing deals are set to expire. According to outsourcing consulting company TPI, $100B worth of outsourcing contracts are due for renewal in the next two years. Of those, 72% are held by the Big Six, with IBM and EDS holding $50B of the contracts.
- Companies are taking a best-of-breed approach to outsourcing. Rather than outsourcing everything to one provider, companies are selecting partners based on accessing specific skills. General Motors is becoming the poster child for this approach, moving from one 10-year outsourcing deal with EDS to issuing 43 Requests for Proposal (RFPs) to cover $2.5B to $3.0B in IT spending per year. And ABN Amro has spread its $2B outsourcing work across five companies. An informal survey at a recent forum shows that the majority of CIOs are comfortable managing three to five large outsourcing relationships.
- Indian providers are growing their services portfolios and capturing increasingly larger deals. In its most recent quarterly financial report, Infosys reported 17 clients spending more than $50M, double the amount of a year ago. TCS reports five clients spending more than $50M per year, and Wipro reports three. Besides capturing larger deals, the major Indian players continue to grow much faster than the outsourcing market in general. All of the major Indian players reported revenue growth during the last quarter of 30% or more year over year.
Companies ending their traditional monolithic outsourcing contracts will be looking to reduce their spending for replacement services by capitalizing on competition across multiple suppliers and moving more work to offshore providers to take advantage of labor arbitrage.
The lower spending will increase pressure on the traditional Big Six players to shift their services to a more balanced global delivery model. We expect to see the following as the major services companies scramble to meet the new market realities:
- Consolidation among the Big Six. Already we're seeing merger and acquisition activity: HP joined private equity investors, led by the Blackstone Group, to express an interest in acquiring CSC. The Blackstone Group was in separate discussions with ACS (which have now since ended).
- Acquisition of a major Indian provider by one of the Big Six. This would help solidify global delivery capabilities. IBM is rumored to be interested in Satyam.
- Consolidation and acquisitions among the Indian providers. Although growing at phenomenal rates, the
Companies investing in outsourcing should expect churn across practice leads and senior staff as outsourcing company employees shift companies in anticipation of the industry shakeout. At the same time, global delivery models will become stronger, and pricing pressures will create outsourcing bargains. However, strong outsourcing governance will be the key to managing through the transition.
Wednesday, January 18, 2006
Get Noticed: Service Provider Partnering Strategies for ISVs (AMR)
Knowing that large IT Service Providers (SPs) have pared down partner portfolios significantly in recent years, we wanted to find out what type of software partner tends to make it through the gauntlet today, and why. We talked to global alliance leads for three Tier 1 integrators about what to do, what not to do, and what compels them to return phone calls. read
Sunday, January 01, 2006
The changing role of IT in pharma (McKinseyQuarterly)
CIOs in the pharmaceutical industry have an opportunity to become true pioneers. That's the good news—and the bad news. With the business model straining to operate at scale, pharma companies are asking their IT leaders to do two things at once: dramatically improve the efficiency of IT and use it to drive business innovation. Never before have CIOs in any industry had to face these challenges at the same time and to meet them so quickly. read the article
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