Inside Outsourcing

Today I interviewed Jonathan Charley, who is a partner in financial services at IT and business consultancy Bearingpoint. He was a CIO at Lloyds Bank previously.

I asked him what trends he was seeing in the banking sector. I found what he is seeing around the use of open source software very interesting. He said the company's CIO advisory is supporting banks on their use of open source software.

There is a problem. "Increasingly people are using open source software but they don't necessarily know how much they are using, whether they have paid for a license and whether they are using it effectively."

Charley says Bearingpoint is engaging with customers on the subject and identifying risks. "Many customers have duplicate versions and some are not paying enough and others are paying too much." He said there are also security risks because malware can find itself on the corporate network if open source is not properly managed.

Bank IT departments are turning to open source in areas where they are limited by proprietary systems and  bring your own device (BYOD) programmes are bringing open source through the back door as workers chose their own applications for work.

Charley also said banks are opening up their APIs to the developer communities to enable them to build open source software products for them. I spoke to the Society for Worldwide Interbank Financial Telecommunication (Swift) last year about an experiment it was doing around creating an app store for banks.

Other areas the company is seeing a lot of IT activity is associated with meeting the plethora of regulatory requirements facing banks. With over 140,000 pages of regulation published in the last two years this is not a surprise.

Charley says meeting regulations is a good opportunity for banks to really understand their data and how it all joins up. "It is a good opportunity to rationalize data from source to report," he said. "IT has a critical role to play."

He said part of the drive to better understand data will be a move to utilize big data.
"Big data is a buzz word but banks are looking into its application to the business. He says for example big data strategies can help banks better understand customers to meet regulatory requirements and can also support measures to identify fraud.

Banks are also looking much more closely at how they use the cloud. He says this is to drive down costs and improve productivity. He gave an example of the Commonwealth Bank of Australia moving its online banking to the Amazon cloud. See this article on his blog.
 
Charley also talked about the finance sector's continued appetite for outsourcing to cut costs See this blog he wrote a year ago about why outsourcing so often disappoints the financial services Industry.

BPO used to be about cutting costs. But today, through the use of technology, much more can be gained by outsourcing a process. The ability to collect and analyses the massive volumes of data collected in BPO can have huge business advantages.

Technologies such as cloud computing, business analytics software, social media platforms and process automation software are being used within BPO to enable businesses to lower costs and be more effective.

This guest blog explains some of the business benefits of BPO today.


How data analytics can unlock value in BPO

By Michael Corcoran, Growth and Strategy Lead for BPO at Accenture

"Today, business process outsourcing (BPO) is moving up the value chain, becoming more focused on delivering strategic business impact, not just operating cost reductions. One key way BPO is delivering this value, as noted in a recent post by Karl Flinders, is in analytics. It's all about mining and analysing the huge volumes of transactional data that is being processed for insights that can be leveraged to deliver differentiated outcomes.

Leading BPO providers have come to realise that in running large scale transactions, there is a wealth of insight about client businesses that can be uncovered.  And the foremost among them have developed the expertise to improve and add value to their clients' business. As such, expertise in big data and predictive analytics is quickly becoming a significant differentiator in outsourced service offerings and is critical to gaining competitive advantage.

Analysis of transactional data provides clients with actionable insight into their business operations - enabling them to improve working capital management, claim full discounts from their providers for paid-within-terms invoice processing or increase customer acquisition, satisfaction and retention, for example.

Recent Accenture research found that 42 percent of high-performing BPO relationships - those found to get the most business value -- considered analytics provided by the service provider to be one of eight important components of the BPO relationship, compared to just 28 percent of typically performing BPO relationships. In the high-performing relationships we studied, providers applied their domain and industry expertise to deploy rigorous analytics processes to measure the right key process indicators; they created tools and techniques to measure and report on KPIs; and implemented algorithms, models and sophisticated statistics to identify weaknesses and opportunities. As a result, they were able to redesign processes to deliver measurable business outcomes.

In the effective BPO arrangements we've examined, providers have helped clients move from descriptive analytics, like standard and ad hoc reports and alerts that describe what has already happened in their business -- to predictive analytics, providing statistical analysis, predictive modelling, forecasting and optimization to understand what could happen in the future and anticipate likely scenarios so they can plan more effectively.

It's clear that analytics can empower clients, helping them to become more insightful decision-makers by providing key business performance information and identifying opportunities to address business issues and improve outcomes. In fact, Accenture's research found that 48 percent of high performers identify ways to use data and information from the services to capture additional benefits, versus only 25 percent of typical performers. Because insights gleaned from analytics can deliver real outcomes, Accenture has seen leading clients re-align their business models to take advantage of this new source of value creation.

This is driving a whole new generation of the market, where innovative providers are leveraging large volumes of data, combining analytical tools and technologies with industry/functional knowledge to create business insights. The pure labour-arbitrage, 'busy hands' BPO model will steadily lose competitiveness over the long term to those who can deliver significant and sustainable business outcomes."

I have been asking people for their thoughts and predictions for the IT services sector next year.

Sam Kingston, a former CIO and now UK head at service provider T-Systems, made an interesting point about Windows XP. Support for XP will end in April 2014.

This is what Sam said: "With one year to go until Windows XP is officially retired for good, companies who have not moved off this ageing platform will start to feel uneasy as vendors wind down any remaining support for products sitting on this desktop OS. This D-day of the modern IT era has always felt far enough away, to some, to be brushed aside. When supporting vendors start to announce end dates for their XP based products, the realisation that the date is fast approaching will hit these companies, and a wave of migration projects will be kicked off in a bid to at least move the underlying OS forwards onto the next supported platform. Windows 8 is still too fresh, and its benefits beyond the tablet are still being debated. Windows Vista is a non-starter, so this leaves the rational choice for the next step to be Windows 7."

If you are still on XP, tell me what your plans are by leaving a message.

I am currently writing an article about trends in IT outsourcing across Europe next year. I have put out a request to people in the industry for their views. But as always I would like some comments generated in this blog, which I can then use in the article.

The article is about Europe as a whole and although it will include the UK it is not the main focus.

Here are the predictions of Lee Ayling, a partner at KPMG who works in the firm's sourcing consultancy unit.

"1. Southern Europe will be outsourcing more. France, Spain, Italy etc. This will see the growth of local delivery centres to support European languages and locales such as Egypt and Latin America.
2. We will see further supplier consolidation - perhaps even a big boy may sell their services business.
3. Multi sourcing remains the norm with most IT deals having Service Integration layers now
4. Some strategic management functions are being brought back in house in 2nd generation outsource deals - often the driver is to manage costs and governance.
5. Don't expect double digit cost saving on outsource deals any more - focus on access to better capabilities.
6. The Indian service providers are still buying assets (data centres and people) to build out local delivery capacity - less so US players."

Now tell me what you think by leaving a comment. I will try and use the comments in a story later this week on Computerweekly.com.

I met up with Rob Machin, the UK head at nearshore IT services firm Endava. Amongst other things he told me there is a trend that is seeing application development centres being set up in Middle America.

In Middle America, which is underdeveloped in many places, the cost of labour is low and it is a real alternative to Indian offshoring, which is really unpopular in the US, so much so that President Obama is making signs that he will reduce the exporting of US jobs.

Machin also says this will happen in the UK. We already have call centres in lower cost regions of the UK but he thinks app development will also move to similar areas. He gave an example of a company y that has been set up in County Durham. He said a developer that worked in London moved back to his native Durham to work near his family. Although he had to take a huge cut in salary the lower cost of living and lifestyle benefits convinced him.

Endava is a company that supplies software services. About 85% of its delivery comes from Romania and Moldova and it uses agile methods to develop software. I won't go into more detail about Endava as you can read it in this blog post I wrote back in August 2011.

Another interesting trend Machin told me about was that businesses are increasingly demanding that suppliers sign productivity and quality agreements and that procurement departments and are no longer just interested in unit costs like they were in the past. This is all related to the use of agile development techniques. Fewer developers are needed to work in these agile teams and there are tools that enable businesses to measure productivity and quality.

Businesses are always surprised when they learn how many fewer people are used when developers use agile methodologies, says Machin. "When we give them the proposals they often do not believe we will be able to do the project with so few workers."

Machin also told me something interesting about the big Indian IT suppliers. He said that they don't even bod for application development work if it requires fewer than 100 developers. Labour arbitrage is still there main advantage.

So if agile methodologies are taken up by more and more businesses what will the big India offshore do?

As I wrote last night Cornwall Council has decided to go forward with a plan to outsource IT services to BT. This also sees BT take over telehealth.

There has been a lot of controversy over the plan at the council. It led to a confidence vote over the council's leadership after members felt the cabinet was pushing on wit the deal without the consent of the full council. The then leader Alec Robertson lost the vote and was eventually replaced by his former deputy who opposed the plan.

Here is a detailed article about the agreement that was announced today. It is written by Mark Ballard, who has followed it closely for Computer Weekly.

It sees a slimmed down version has been announce with no large scale privatization of services but just the outsourcing of IT and Telehealth as mentioned. But for how long will further deals be resisted.

I had a conversation with one of the councilors at the council today and he told me he thought it was just the start of outsourcing at the council.

It seems that because the leader lost the confidence vote it was tougher to get the full deal through. In contrast a similarly controversial plan in Barnet saw the leader survive a confidence vote and the council push on with the plan.

Cornwall council's controversial plan to outsource services, which was put on hold, will go ahead but with a compromise.

I have written about the plan that has already caused the former council leader Alec Robertson to lose a confidence vote.

According to a Cornwall news website the council will push on the council has decided to go through with a scaled down version of a full joint venture with BT. But this will still include IT services as well as document management, payroll, and tele-health services will now be handed to BT to run. Councillors rejected plans for a bigger joint venture with BT as well as the option to run services in-house.

What do you think about private companies running council services?

Barnet's cabinet has unsurprisingly approved a £320m deal with Capita that will see the service provider take over back office functions. The ten year contract is part of the One Barnet programme to outsource service across the council.

The deal will see council workers transfer to Capita and others made redundant.

But there is still time for challenges and the leader of Barnet Councils Labour contingent, councilor Alison Moore told me this morning that next week there will be a challenge in a scrutiny committee.

But what do you think about councils outsourcing services?

The poll below has had 227 respondents so far. 70.04% said council services should be outsourced and 29.07% said council services should not be outsourced. Two people said they didn't know.



I asked the same question in a Google survey earlier in the year and it received well over 200 responses. The strange thing is the result was the opposite to this poll. Over 80% said they do not think council services should be outsourced.

What I am wondering is how long will it be before the suppliers start moving the roles offshore to cut costs. There must be roles that could be done offshore. But perhaps this is a step too far.

In this guest blog post Andrew Walker, director at sourcing consultancy ISG, looks at the impact of the new EU data regulation on businesses and IT service providers.

New, stricter data regulations could spell IT upheaval

By Andrew Walker

"The use of consumer data is a pertinent issue for both outsourcing providers and clients, gaining attention recently as online giants, such as Google and Facebook, change their privacy policies and various cases of personal data being leaked by  (or stolen from) firms hit the headlines.  Add to this the growing popularity of social networks and Twitter and there is now an increasing pressure to strengthen data regulations - legislation which undoubtedly has a far reaching impact.

The new EU Data Regulation was first published in January this year, and once approved by the EU Parliament, is set to come into force in two years' time. This not only leaves corporations with little time to get their security systems and structures in order, but also, and perhaps most worryingly, very few companies and service providers seem to be aware of the workload and cost involved in readying themselves for these changes.

Whilst the current regulations that deal with EU citizen's personal data are seen as inadequate and in need of standardisation across EU member countries, the new regulations are broad and if breached carry severe penalties. For instance, the new regulations clarify the importance of consent. Explicit consent from EU citizens for organisations to use their data will be mandatory, rather than the implied consent used, for example, in the UK today.

An underlying principal of the new regulations is continual assessment with an ongoing obligation for monitoring and auditing data - for example, in the case of projects, before a project involving data is initiated there must be a privacy assessment identifying for how long personal data will be processed and stored.

In terms of enforcement, one of the most important features of these regulations is that they will apply to personal data for all EU citizens no matter where it resides. This means this is now a global issue and affects IT service providers that store or process this data all over the world.

As for punishment, if these regulations are breached businesses can face fines on a scale of up to 2% of annual global turnover. What's more, it is likely that enforcement will be strict, as the architects of the rules intend to make the regulators self-funding.

As a consequence of these regulations coming into force, organisations will need to implement new and additional processes and changes to systems, such as audits, privacy assessments, new policies, updates to client consents, new procedures and additional monitoring. Of course, these all carry a substantial initial cost, as well as strengthened and consolidated data protection organisations staffed with skilled, experienced people.  

Furthermore, organisations of over 250 employees will also need to establish mandatory Data Protection Officers, which carry additional overheads for these larger firms.

So, in the face of the approaching, new and stringent data regulations, what needs to be done next?

First and foremost, firms must review their current products and services to determine the impact of the new draft regulation. For businesses that rely on IT outsourcing, or where significant elements of the IT services are outsourced, this is especially important.

Firms will then need to assess the overall impact of the regulations on their operations and the degree to which they need to be adjusted.  Pre-emptively, those in charge of personal data should determine whether there are measures that can be taken before the regulations come into play to reduce the financial and operational impact of the regulations.

Finally, and perhaps most crucially, businesses must assign responsibility, either to someone in the organisation or to an external adviser, to monitor progress of the regulations and establish a decision process regarding plans and changes to products, services and outsourcing arrangements. This will help to avoid costly rework and minimise the cost and impact of implementation.

Realising the sweeping effects of this new legislation, and taking steps to get systems in order, is now imperative for businesses. For those who fail to grasp the seriousness of this new regulation, imagining a fine equal to 2% of their annual global turnover landing on their desk should be enough to make them reconsider."

The controversial outsourcing contract at Barnet Council, known as Barnet One, rumbles on with news that 70% of back office jobs will be cut.

The council said a major part of the expected £70m savings are coming from job cuts.
Barnet One will see the council spend £1bn on a plethora of outsourcing services.

The back office outsourcing part of the deal, which Capita looks set to take on, is worth a whopping £320m over 10 year and includes HR and payroll as well as IT.

The council's cabinet is tonight expected to endorse the deal. Read more on Computer Weekly here.

There have been a few controversial outsourcing plans in local government, such as one at Cornwall council, which lead to the downfall of the council's leader.

I recently ran a poll on this website asking readers whether they think local government services should be outsourced. At the time of writing this 205 people have given their answer. 71.71% said local government services should be outsourced, 27.32 said they shouldn't and 0.98% said they don't know.

Here is the poll if you want to give your views.

Banks in Asia find it cheaper to use people rather then ERP software.

I was at Ovum's banking conference yesterday and I was chatting to analyst Rik Turner.
He has just got back from a business trip in Hong Kong where he met up with lots of banks in the region.

My other hat at Computer weekly, other than covering IT outsourcing, is financial services IT. But I always ask about outsourcing because it is so big in the banking sector.

Rik said many of the banks in Asia don't have ERP systems because it is easier for people to do the work that the software would do around things like accounts, payroll and HR because labour is so cheap.

People cheaper than software. Software robots could be the next big thing in the Western world as they undercut cheap offshore workers to carry out business processes.

See this article I did about it: Machines are rising and they are offshore IT killers.

The average UK app developer takes home £70,000 per year, according to recruitment company ReThink. This following a 27% increase in pay over the last year driven by demand for smartphone and tablet apps.

ReThink talks about the arrival of the app economy, which came about as a result of businesses interacting with customers via apps on devices such as smartphones and tablets, as being the engine behind the app industry's explosion.

At growth rates like this wages will be unsustainable for many companies who will turn to contractors or suppliers for resources in the short term. App developers will be a luxury to tap into for projects.

According to ReThink the app economy is serious business. "Whilst there are plenty of stories of independent developers becoming millionaires in a very short space of time, there are also a growing number of app development consultancies who are becoming big and significant employers. These consultancies are increasingly prepared to pay very high salaries for app developers with the right kind of skills."

But who will win?

Will it be the contractors or the service providers?

Either way a whole new IT industry has arrived and it is almost uniquely outsourced.

I was at a meeting yesterday with executives from a few really big finance firms in Europe

They were talking about a service they use that provides board members with the documents they need to prepare for board meetings. Here is the story.

The supplier Diligent, is a US firm, but because of the Patriots Act its customers don't want data stored in the US. As a result it keeps the information on servers in Canada.

The Patriot Act basically means that information stored on servers in the US can be accessed by the government if it requires. Obviously confidential data is confidential and businesses will not want their data to come under the prying eyes of the US government.
A couple of years ago one of my contacts believed the Patriot Act would have a huge impact on the outsourcing sector in the US. I haven't seen much but a couple of meeting I have had recently have mentioned it.

But is it really that much of a worry? I mean any sovereign state could introduce a similar law if it wanted, so nowhere would be safe. And US datacentres are pretty secure and less risky than those in unstable countries. So the risks of the US government spying on you have to be balanced with other factors such as political stability and the threat of theft or attack.

In today's IT world a huge amount of information is either stored or backed up offshore. "In fact, the actual impact of the Patriot Act in [the] cloud context is negligible," according to this article.

I was hoping to get feedback on this blog so please comment.

I met up with Alastair Mitchell, the CEO and a co-founder of cloud based collaboration software provider Huddle.

I recently interviewed him and ran a article about the company and its strategy and he told me that the company is now pushing the US public sector. Huddle has had a lot of success in the UK public sector. Since the launch of the government's G-cloud it has been one of the most sold products.

Whenever I write about a cloud service I always think how this impacts the IT services sector.
Being a cloud based alternative for software such as SharePoint I asked him about the attitudes of the big integrators towards products like Huddle.

It is big business for system integrators putting in Enterprise-wide systems such as Sharepoint. Not only is there a share of license revenues, but there is also integration work and ongoing maintenance. And don't forget many suppliers will host it for their clients.
But then along comes and alternative that is in the cloud and large companies and public sector organisations are using it. What do the system integrators do?

Mitchell says there is a bit of a block in the sales pipeline which he believes has something to do with a conflict of interest among suppliers.

He says they should step in and become real integrators and use their skills to introduce cloud services into their customer bases rather than resisting it. One service provider Mitchell says is working well with Huddle is Atos. He said Huddle and Atos work closely at the BBC.

What do you think?

I recently met up with an analyst relations executive form a consultancy. Being a journalist who regularly talks to analysts it was interesting to get some views on industry analysts from the other side of the fence.

The views of IT analysts are taken very seriously by businesses when they draw up It strategies and buy services.

There are many different types of analysts and most are nowhere near the size of the sector's Gorilla, otherwise known as Gartner. But there are a few big analyst firms that have a major influence on the market.

Magic quadrants and similar research, rank suppliers on different variables. Businesses are heavily influenced by these when buying.

But the problem with Magic Quadrants and the like are that analysts only really measure a few companies with global footprints. As a result research showing IT services buying habits are skewed because this type of service is often bought from a regional specialists. Particularly in continental Europe.

For example I recently interviewed an Indian supplier, Hexaware. The companies head of Europe told me the company has a really strong business in Germany. In fact he said it was the first offshore supplier to win a €25m services contract.

So if a German business was using a Magi Quadrant to decide which company to select would miss out on lots of smaller specialist options.

See this blog post about how industry analysts affect the market from the Institute of Industry Analyst Relations IIAR website.

This finding is interesting: Changing the Market to Fit Their Tools. It relates to the construction of the major ranking - the Magic Quadrant. "We found that in producing the ranking its authors will attempt to change aspects of the market to fit the tool (rather than the other way around). It appears that only a limited number of vendors can be ranked on a single Magic Quadrant (for reasons to do with clarity and parsimony), which presents problems for those areas where there are many vendors. Rather than come up with alternative means to capture vendors, however, its authors will divide up a market through introducing new nomenclatures, so as to handle the limitations of their ranking."

Perhaps small specialist analysts are where buyers should look for IT services advice before spending their cash. Or does the "nobody gets sacked for buying IBM" mantra ring true with the likes of Gartner?

Give me your views.

I recently wrote an article about some research looking into what banks were intending to spend money on.

The research jointly done by Infosys and banking association Efma found that 70% of 330 banks questioned respondents are planning to increase their spending on innovation, with the mobile and online channels seen as the most important delivery channels for innovation.

Yesterday I attended an event at Visa Europe. It was all about the companies digital wallet. I am going to do an article about it but it made me question the logic of banks investing cash in mobile and online platforms when suppliers such as Visa as well as IT suppliers could do white label versions that banks could use.

Obviously the banks would have to give the services their own look and feel as well as their own security provision, but why not use a white label service and save the money spent on development?

When internet banking became a strategy at banks they all decide to build their own. But basically all the online banking experiences are basically the same why bother?

Yesterday Visa was talking about its digital wallet. It described how users could pay people money just by knowing their mobile phone number. So just like Barclays' Pingit app that was recently launched.

I asked the Visa executive making the presentation whether Barclays had wasted its money developing Pingit. The answer was long and magnanimous.

Last year I interviewed Swift's head of innovation, Kosta Peric told me that banks invested lots in internet banks in the belief that they could differentiate. But they couldn't.

"They spent an enormous amount of money but it does not add a lot of value," he said. "They could have established a shared service." He says banks in Belgium share an internet banking platform.

It is very important for businesses to be able to identify where they can actually differentiate through technology. Even new services which are business critical, might not offer the opportunity to differentiate. Peric at Swift says an example of this is mobile banking. All banks want to offer mobile banking to consumers so they can reach every corner of the world.

I wrote in October about Tata Consultancy Services (TCS) winning a contract with the Home Office to run the Criminal Records disclosure service for over 10 years.

The contract is worth hundreds of millions.  It had been shortlisted for a contract on the government's new Disclosure and Barring Service (DBS). The union representing the workers there revealed the news. DBS is the merger between the Criminal Records Bureau, that helps employers make recruitment decisions, and the Independent Safeguarding Authority, which prevents unsuitable people from working in certain places.

TCS has now made it official saying: "TCS will implement a programme to transform DBS, including the introduction of  electronic applications and improved online services to enhance user experience. The company will provide end-to-end process, technology and operations support for an initial period of five years, as per the agreement. The two organisations, DBS and TCS, will also collaborate to update the organisation's business processes to help improve decision making and reduce processing times. TCS will also build new integrated case management system to support seamless integration and information gathering between disclosure and barring services."

TCS is really breaking the public sector market. It has clients such as the National Employment Savings Trust (NEST), Cardiff City Council, and the DWP's Child Maintenance Group.

Because the DBS data is very sensitive it seems there are no limits to what can be run by an offshore company. Are there still fears about this? The impression I get is that once outsourced it makes little difference where the supplier is from as most are all over the world anyway. Most Western suppliers have lots of offshore staff anyway, which do much of the work.

Currently Less than a third of public sector organisations receive IT services from offshore or nearshore location despite 90% outsourcing IT. This is one of the findings of KPMG's in depth research of UK outsourcing contracts. So there is room for growth and with cost cutting pressures public sector organisations might be tempted.

Offshoring any public service remains controversial.

This came in from reader Mat X a couple of months ago.

"Public sector outsourcing barely works (if at all) even when all parties are in the same country, speak the same language and understand at least roughly what the government department is all about. So shipping the work offshore is likely to make this situation much worse. Moving government IT work offshore will also have a lot of hidden costs to the UK taxpayer: loss of jobs in the UK, with knock-on effects across communities where public sector employers dominate, loss of opportunities for future IT graduates in the UK, damage to the UK IT skills base etc. None of these will be accounted for when governments claim they are "saving money" through offshoring, but the negative impact on the UK IT industry and tax revenues will be substantial. The bottom line is that UK taxes should be spent to benefit the UK, not India. Moving work offshore also removes skills and understanding of the relevant systems from the UK. Look at RBS for a shining example of what happens when you fire all your experienced staff and move work halfway around the world. Do we really want our critical public sector systems to be dependent on companies on the other side of the world?"

I have been blogging about the findings of research from Computer weekly parent company TechTarget.

Part one looked at how IT services budgets will change next year. See it here.

Part two revealed what the drivers for the IT services budget increases and decreases are. See it here. 

Part three revealed the main influences on supplier selection in Europe. See it here.

Part four revealed which technologies European businesses are planning to outsource. See it here.

Part 5 explained why businesses chose particular suppliers.See it here.

Today in part 6, I am looking at the results of the IT networking services market in Europe. It seems either Cisco or a Cisco partner accounted for 75% of the networking, wide area network (WAN) and unified communications  services consumed by respondents.

When asked if they used outside services to aid in networking, wide area networking or unified communications project, 53.9% of respondents said they did.

Out of those that did 50% said they used Cisco and 25% said a Cisco partner.

This is unlikely to change anytime soon with 46.6% 0f respondents saying they choose supplier based on an existing relationship.

But demand could fall this year. The survey showed 55.5% of organisations had used outside services for their networking, wide area network (WAN) and unified communications deployments. However, just 33% said they planned on outsourcing these tasks in the next two years.

Here are the supplier by supplier results.

From which vendor did you most recently purchase services to help in networking? (select all that apply)
Cisco		50.00%
A Cisco reseller/integrator		25.00%
HP or EDS		23.90%
Dell or Perot Systems		10.90%
IBM or IBM Global Services		18.50%
CSC		1.10%
Price Waterhouse Coopers		2.20%
Lockheed Martin		1.10%
BAE Systems		2.20%
Deloitte / Braxton		3.30%
A Network / Telecommunications service provider (ex. ATT, Verizon)		15.20%
Other Large national / international firm with many offices worldwide (specify)		4.40%
Other Large regional firm with offices mainly in my country or region of the country (specify)		5.40%
Other local firm or independent consultant (specify)		5.40%
None - we have never used services for our networking, wide area networking, or unified communications.		5.40%

When things go wrong in outsourcing contracts the service provider might pay a penalty but no matter how much that is it will not cover things like reputational damage. In this guest blog Hornbill's chief evangelist talks about how the cloud makes it more important than ever to take care with what you decide to outsource.

Does IT belong here? What and when to outsource

By Pat Bolger, chief evangelist at Hornbill

"The cloud has so far caused huge upheaval in the IT world and it's easy to see why. After all, who doesn't like the idea of a more flexible IT infrastructure, services on demand and a corresponding reduction in IT costs? Perhaps most compellingly the cloud makes it even easier to outsource IT services, gaining flexible access to capabilities that would be difficult to implement in-house, secure in the knowledge that a trusted party will have a lot of the complex management under control.

Of course, this isn't always the case: any failure of a cloud-based service can have huge repercussions for the IT department. One only needs to look at the chaos caused by incidents such as the June 2012 Amazon Cloud outage, where a large number of organisations were suddenly and massively left to fend for themselves to see these effects in action. Instances such as this, whilst rare, can have a profound effect on the IT department. While the fault may lie with a service provider, users will only see one place to lay the blame and take out their frustrations on the IT department itself.

The Golden Rule:

This is due to one simple rule: you can outsource almost anything except for responsibility. As a result, IT departments need to be sure that they still have control over and visibility of any services they outsource to the cloud. They must see exactly what is being delivered, where and to whom, and what weaknesses might exist in the supply chain. At the same time they must be able to cope in the event of a loss of service. This means the IT department is not technically removing its management burden by outsourcing. Instead it's shifting the burden, from managing in-house IT assets to managing its suppliers.

Making a Virtuous Circle:

This continuing burden of management means IT departments need to be careful about what they move to a cloud-based service. If a department has difficulty managing a service that it currently offers in-house, how can it guarantee a decent level of service from an outsourcer when it doesn't know what to look for to ensure that a good service is being provided? Instead IT departments should only outsource services that they are already fully in control of. While this might seem counter-intuitive, it means that the department will very easily be able to ensure it receives the service it needs while also making it much more prepared to deal with any outages or other incidents. In the meantime managing the outsourced service will still require less time than managing it in-house, meaning that the department can concentrate on improving its ability to manage those services it is less sure of or even develop new ones. This can then result in a virtuous circle: as more services can be outsourced so the IT department frees up more time to improve others, bringing them to a level where they can be outsourced if desired.

Supporting Evolution:

Essentially, outsourcing to the cloud is a defined step on the evolutionary process of providing IT services, rather than a missing link that allows other steps to be skipped entirely. As a result, there are a number of relatively simple checks the IT department can perform to ensure it has control over its IT. First, are the services well defined and managed effectively by internal IT? If the department is following a best practice framework such as ITIL, or a standard such as ISO 20000, and services are under the control of demand, availability and capacity management, this is a good sign that the service is healthy. Second, can it predict or explain all events and outages in the service? A service outage should hardly ever be an unexpected event and, on those rare occasions, the department should be able to show the root cause and measures that have been taken to prevent recurrence. Third, how well are changes to the service supported? If the IT department can't guarantee fast, effective upgrades and support for users then the service needs more attention. And perhaps most importantly, are user expectations managed? End users need to know exactly what to expect from their services, how they will be accessed and who to contact when things go wrong. They should be given warning of and information on both planned and unplanned disruptions to the service so that their work isn't disrupted. And the IT department should remember that, regardless of how it provides its services, it will remain the primary point of contact and focus of attention in the minds of users. As a result, it needs to be 100% confident that it can address any issues as the buck very definitely stops there.

Regardless of how much they outsource and with whom, IT departments need to remember the golden rule: technology and services may reside pretty much anywhere but ownership, responsibility and management can only ever be in one place."

Here is the latest Inside Outsourcing interview where I let suppliers tell me what they are doing. I have started of with a run of Indian suppliers. My first in the series was with Infosys, then came HCL (see links at bottom) and now Hexaware.

Hexaware is an Indian IT services provider with about 9000 staff, about 2,500 of which are outside India. With over 40% growth in revenues last year and over 20% growth expected in the next two years it has an interesting story to tell.

The company's European head Ramanan Seshadri recently told me about the company.

Although it is 21 years old 2008 was a bit of a watershed for Hexaware. While most companies were reeling from the slowdown the company reinvented itself. While it lost three important customers in a flash it was not all bad news.

Seshadri told me as all the big suppliers were laying off staff in India it gave Hexaware access to them. He said before the slowdown the company could not pay the same level of wages as the big players and as a result could not attract the best talent. With its new found skills resource the company decided to refocus.

"This was an opportunity," Seshadri told me. "Before the slowdown companies like IBM, TCS, Wipro and Accenture got the best staff because they were too expensive for companies like us."

The company decided to focus on two verticals: Banking and finance as well as travel and transportation. These two sectors account for 60% of Hexaware's revenue. The other 40% comes from three horizontal technology segments it also has a focus on. These are BI, HR and testing. Although the company also has other verticals in incubation it will only push its specialities to its customers.

It's customers include Dixons, Deutsche Leasing and Air Canada. So it has large clients.
An example of recent work was the creation of a business intelligence system for a European bank which asked suppliers if they could give it better sight of its liquidity. Hexaware built a system that shows the bank its liquidity by the minute.

Hexaware's biggest European market is Germany. Seshadri says it's a hard market to get into but he believes German values are more similar to Indian values than the UK's. "We understand their hearts not their minds." In 2002 he said Hexaware became the first offshore supplier to win a €25m deal in Germany and at the time the company only had total revenues of €34m.

In Europe the company grew its revenues 44% last year and expects 22% next year.
Seshadri says the company has a mantra that it cannot lose a customer and as a result of some success 94% of new business is from existing customers.

Hexaware has 250 staff in the UK with about 180 of them IT workers.

See other Inside Outsourcing interviews:

Inside outsourcing interview: IT services rock star on the market and Infosys

Inside outsourcing interview: HCL discusses targeting potential customers unhappy with current suppliers and having a DNA like IBM.