Archive for May, 2013

Hybrid cloud computing will change IT skills, expert says

May 31st, 2013

Hybrid cloud computing will lead to a change in IT skill sets, one specialist has suggested.

Morgan Stanley’s global head of data centres Michael O’Toole claimed at the DataCentres Europe 2013 conference that the hybrid model provides the best mix of security, access and staff productivity.outsourcing43

V3 has reported Mr O’Toole as saying: “The face of IT departments is going to change. They will need to become a lot more commercially focused and have people who understand service levels, procurements, outsourcing and relationship building, rather than just using technology in silos and as components for putting systems together.”

He went on to say that hybrid cloud technology will result in roles such as cloud architects.

Mr O’Toole admitted that it could be up to five years before there is strong demand for such abilities, though he believes future generations will be able to deal with such problems.

As cloud technology advances, so will security capabilities, and businesses need to be equipped with top data recovery software to protect them in the event of information going missing.


Morgan Stanley: AWS a threat to all IT

May 31st, 2013

Amazon Web Services (AWS) is a threat to almost all areas of IT and should be able to reach $24 billion (£15.78 billion) in revenue by 2022, according to a new report by seven Morgan Stanley analysts, led by Scott Devitt.outsourcing42

The report points to AWS’ application of “retail economics” to the IT sector as the reason the company is emerging as an “IT mega-vendor”.

The company, which offers scalable Infrastructure-as-a-Service (IaaS) products for businesses on a subscription basis, has repeatedly dropped its prices in a price war with rivals such as Google, Microsoft and Dropbox.

This “continual downward pressure”, as well as an ability to produce greater scale in computing tasks, have been key to the company’s success, Devitt suggests.

The team believes AWS could impact between 3 and 17 per cent of traditional IT spending, by giving companies the ability to move back end tasks to the cloud.

The traditional IT areas most likely to be swallowed up by AWS are compute, storage networking, and outsourcing, according to the researchers.

“To the extent companies move workloads from private cloud type environments to AWS, the $4B virtualisation market could face headwinds. Most at threat [are] VMWare and Red Hat.

“AWS’ Relational Database Service often leverages existing MySQL, Oracle or SQL Server functionality, however a shift towards NoSQL database’s [sic] like AWS’ DynamoDB or SimpleDB presents a longer-term threat [to those companies],” the analysts said.

However, hardware vendors such as Cisco Systems and Juniper Networks appear to be safe at the moment, it was claimed.

“Longer-term, [the] datacentre switching market may be negatively impacted due to ‘carrierfication’ as smaller customers are replaced with AWS, which has greater purchasing power. However, no evidence exists that branded equipment is being replaced by white label, home grown switches,” the team said.


Carlyle, others eyeing HP’s MphasiS stake: sources

May 31st, 2013

Private equity giants Carlyle Group LP (CG.O) and Blackstone Group LP (BX.N) as well as Indian outsourcers L&T Infotech and Tech Mahindra Ltd (TEML.NS), are lining up bids for Hewlett-Packard Co’s (HPQ.N) $1 billion stake in India’s MphasiS Ltd (MBFL.NS), several sources involved in the process said.outsourcing41

Buyout firms Advent International and Bain Capital LLC are also in talks to bid for HP’s 60.5 percent stake in MphasiS, an IT services exporter, said the sources, who declined to be named as details of a potential deal are not yet public.

Tech Mahindra and L&T Infotech, mid-range players in India’s $108 billion IT outsourcing industry, may team up with private equity firms to make bids for the MphasiS stake, two of the sources told Reuters.

MphasiS, which generates roughly half its revenue by providing services to HP’s clients, has a market value of $1.8 billion. Reports of a potential stake sale to private equity firms emerged about a month ago.

Preliminary bids for the MphasiS stake sale are likely to be invited by the end of June, sources said, and a deal could be finalised during the July-September quarter.

MphasiS was formed in 2000 and six years later Electronics Data Systems Corp acquired a majority holding in the company. In 2008, EDS was acquired by HP, which resulted in the transfer of the shareholding to the world’s largest PC maker.

A deal would be one of the largest in India’s showpiece IT outsourcing services sector. U.S.-listed iGate Corp (IGTE.O) bought a controlling stake in India’s Patni Computer Systems for $1.2 billion in 2011.

The iGate deal valued Patni at about eight times EBITDA (earnings before interest, tax, depreciation and amortisation), and sources said MphasiS is likely to command a lower valuation since the bulk of its business depends on subcontracting by HP.

Officials with HP, MphasiS, Carlyle, Blackstone, Advent, Bain, Tech Mahindra and conglomerate Larsen & Toubro (LART.NS), which owns L&T Infotech, all declined to comment.


MphasiS competes with Indian outsourcing services providers, including market leaders Tata Consultancy Services Ltd (TCS.NS), Infosys Ltd (INFY.NS) and Wipro Ltd (WIPR.NS).

India’s top outsourcing companies, including Infosys and TCS, are not seen as possible bidders for the MphasiS stake as their acquisition strategies are driven by the need to add new service lines or enter new countries, some of the sources said.

“This is mainly going to be a competition among the PE firms with some mid-sized companies expected to jump into the fray in the final stages,” said one of the sources.

“The buyer will have to focus a lot on sales and marketing in the first few years to grow the non-HP business,” which is why a private equity firm may team up with an IT services company, he said.

HP is expected to continue to send IT services contracts to MphasiS over the short to medium term after the sale of its stake and its contribution to the Indian unit’s revenue will gradually decline after that, some of the sources said.

Besides MphasiS, HP has its own IT delivery centres in India where it employs thousands of engineers who provide services and develop software applications for its global clients.

Some of the sources said HP’s move to sell its stake in MphasiS is part of CEO Meg Whitman’s turnaround plan, which includes expanding into markets and areas with longer-term potential. HP could also use some of the sale proceeds to reduce its $2.9 billion debt, they said.

Private equity investments are showing signs of a pickup in India. KKR & Co LP (KKR.N) in April agreed to buy a controlling stake in India’s Alliance Tire Group from Warburg Pincus for roughly $500 million, sources have said.


Qualfon Dumaguete Launches Back-Office Operations for the Title Industry

May 31st, 2013

Qualfon, a leading business process outsourcing (BPO) and call center service provider, has launched back-office operations for the title industry in its Dumaguete, Philippines location. The program is a result of Qualfon’s recent acquisition of Data Control Group, now called Qualfon Data Services Group (DSG). Qualfon DSG recently expanded operations to the Qualfon Dumaguete II site.outsourcing40

Pete Lutz, Senior Vice President of Qualfon DSG, remarked, “Qualfon Dumaguete is an ideal location for back-office operations. Dumaguete is called University Town due to its high ratio of universities to population and it provides a large pool of highly qualified people seeking career opacities. This provincial Philippines location also provides a significantly lower cost of living compared to Manila.”

Scott Warner, Qualfon Dumaguete Site Director, explained, “We launched the back-office title program in our new state-of-the-art Dumaguete II center last week. This is great program to bring to the people of Dumaguete and we found an abundance of talent from our large pool of prescreened applications. We are very excited about the addition of back-office opportunities from our Qualfon DSG clients that complement our extensive voice programs.”


Federal CIOs must embrace hybrid IT in shift to cloud

May 31st, 2013

With the agencies of the federal government in various stages of shifting their IT operations to the cloud, CIOs must take a considered approach that places cloud computing in the context of a host of other factors, chiefly the agency mission, but also the prevailing currents that are reshaping the technology landscape, a top analyst with Gartner said on Thursday.outsourcing39

In remarks here at a conference on cloud computing and the federal government, David Cearley a fellow and vice president with the research group, pitched a hybrid vision of IT that would marshal cloud computing in service of an agency’s business objectives while at once tapping into the transformative potential of social, mobile and the information insights to be harvested from big data.

“Make no mistake. It’s not cloud in isolation. It’s cloud in the mix of a series of disruptive trends that you really have to address,” Cearley says.

Seeing Clouds Clearly

First, as a matter of definition, Cearley notes that the term “cloud computing,” through overuse common to IT faddishness, is in danger of drifting from its essential meaning, which Gartner articulates as “a style of computing in which scalable and elastic IT-enabled capabilities are delivered as a service using Internet technologies.”

“Cloud is stamped on everything that doesn’t move fast,” says Cearley. “When cloud means ‘everything’ and it’s stamped on everything, then cloud computing loses its meaning.”

He argues that cloud computing, in the non-diluted sense of the term, must entail a layer of abstraction that casts whatever the function at issue — software, business process applications, infrastructure, etc. — as a service.

To the federal IT workers in the audience, Cearley advises that they keep that focus on services in mind in their pitch meetings with cloud vendors looking to score government contracts.

“Be sure you’re having [a] conversation about you providing service to me. Keep that separate from the conversation about building your own private cloud,” he says. “The whole idea is to create this abstraction layer.”

And indeed, Gartner’s forecast anticipates an across-the-board, if uneven, uptick in spending on an array of technologies delivered as a service, encompassing software, business processes, platforms and infrastructure.

Along the way, interest in the private cloud and hosted private cloud appears to be waning. In its polling of IT executives in various sectors, including government, Gartner found that decision makers are growing more comfortable with public and hybrid cloud models, with a corresponding shift away from purely private clouds.

“That’s happening because as people get more comfortable with public cloud services, they layer in additional security capabilities and make it safer, and as certification models like FedRAMP and other things come up, then the security issues are getting addressed for more and more applications. Look at this as a steady progression over time,” Cearley says, calling 2013 “the year of hybrid cloud thinking.”

Cearley intends a broader resonance in his message of hybrid computing, urging CIOs to take a wide view of their IT operations to bring a consistency to areas like security and governance across internal, external and mixed environments.

Similarly, he cautions against moving forward with a cloud strategy without an accompanying consideration of how any new deployment will support the organization’s strategy and mesh with its enterprise architecture.

Effectively implementing that hybrid approach will often entail a shakeup of roles and responsibilities within a traditional IT operation, designating one team with building services and creating the interface for users, and another with the more foundational elements such as security and deciding whether the process should be housed in a public, private or hybrid cloud.

“You’ve got parallel efforts that should be going on within your organization,” Cearley says.

“It’s not just a technology issue, it’s an organizational issue,” he adds. “We’ve seen a lot of new org charts come out, particularly in enterprise.”

Cloud Cost and Security

Cearley takes a somewhat contrarian view when it comes to two of the issues most central to the discussion of cloud computing: cost and security.

On the former, he challenges the blanket assertion that cloud computing is a cost saver, describing “plenty of cases” he has seen where a cloud solution delivered by an external service provider proved costlier over a 5- or 7-year life cycle than a comparable solution done in-house.

“Everybody starts looking at cloud saying it’s going to be a way of saving money, and you know what, there will be targeted areas where you’ll save money using cloud services, particularly from external firms, but it’s not always going to save you money,” Cearley says.

“Don’t just assume cloud is cheaper. You’ve got to have mechanisms to evaluate the life cycle cost over time, and sometimes even if it isn’t cheaper, it makes sense to do it anyway, because the number one issue with cloud is agility.”

On security, often held up as a leading inhibitor of cloud adoption in the government, Cearley points out that it’s a function of the provider, and that many cloud players have stronger data-center security than midsize government agencies and enterprises.

But at its core, cloud computing isn’t entirely different from some of the outsourcing functions that businesses have relied on for decades where a level of control over sensitive material is handed over to an outside firm (say, sending a design prototype via FedEx or storing vital paper documents with Iron Mountain).

Then, too, Cearley argues that security is sometimes offered as a red herring from a corner of an IT organization reluctant to give up oversight of certain processes and fearful of the disruption that the cloud could bring.

“Cloud services are not inherently more or less secure than traditional outsourcing,” he says. “Security is important, but I’ve got to tell you, at least 50 percent of the time when people raise security as an issue what it really means is job security.”


Contract labour on rise with IT firms in Bangalore

May 31st, 2013

10-15% of staff in the sector comprises contract employees as it saves money for the company.

To tide over the slowdown, IT firms in the city are getting work done by contract workers.outsourcing38

Earlier, a trend seen mostly with firms in manufacturing, the services sector is also fast opening to the concept of outsourcing functions to contract staff.

At a time when companies are finding it tough to increase their employee costs, taking on contract workers to do the same job seems to be working better.

Experts say a few IT firms—both big and small—have about 10-15% contract staff undertaking projects and work related to testing, technical support, etc.

“We have about 12-15% of our staff on contractual basis,” says Pallab Bandyopadhyay, director of human resources at software firm Citrix Systems, which is based in Richmond Town.

“About 10% of our workforce comprises flexi-staff,” says Anil D’Souza, senior manager, global HR at IT infra firm Microland, based in Electronic City.

Firms say having contract staff can help bring down expenditure by almost 15% since people costs associated with pay, insurance, provident fund etc are all taken care of by the vendors who provide the flexi-workers.

Average starting pay for contract workers range from Rs 8,000 to Rs 10,000 per month. This is slightly lower than the monthly Rs 15,000 to Rs 20,000, which an average IT professional who is on the payrolls of a tech-firm would draw.

“This is a time when the per-person revenue is crucial and headcount is actively monitored,” says Bandyopadhyay.

So, hiring and adding to employee costs becomes restricted. But since targets and goals are to be met, the requirement for talent continues to persist.

“Thus, on one hand we have pressure not to significantly increase headcount, but we have to simultaneously keep innovating and bringing out new technologies to the table as quickly as possible. This then calls for contract staff,” says Bandyopadhyay.

As the sector moves more towards cloud and virtualisation, the need for unique skill-sets has increased like never before.

Thus, the demand for contract labour is being felt more now than say a few years ago, say experts.

“This demand will only increase going ahead,” predicts Bandyopadhyay.

Rise of contract workforce
India has 1.3 million contract or flexi workforce.

The number will rise to 90 lakh by 2025.

Over 80% of flexi workforce is below 30 years.

Graduates comprise 54% of the contract staff, with 17% being class 12 pass-outs.

Rs 8,000-Rs 10,000 per month is the average starting salary of contract workers.

Sales, delivery, support are functions that see lot of contract workers.


Businesses must prepare for IT services firms bearing renegotiation gifts

May 31st, 2013

Renegotiations and renewals inevitably bring better terms, but could businesses be missing out on much more by focusing on cost.

Contract renewals and renegotiations are currently propping up the IT services sector as battle-hardened businesses strive to get more for less out of their existing suppliers. The equally battered and bruised suppliers are usually willing to offer renegotiation if the contract is a few years old, because the investments have already been made on their side and margins are increasing.outsourcing37

According to research from ISG, renegotiations accounted for $0.97bn and new deals $0.94bn in Europe in the first three months of this year.

But technology and delivery models emerge and evolve at a pace and businesses could risk missing out on significant benefits by committing to contracts for what appear large benefits in the current context.

Recently, treasury-backed National Savings and Investments (NS&I) awarded Atos a seven-year IT outsourcing contract, with plans to increase digital services and achieve savings of £400m during the contract period.

The contract was originally awarded in 1999 to Siemens IT Solutions and Services (SISS), which Atos acquired in 2010. It is up for renewal in 2014 and two years ago NS&I began the procurement process to find a supplier to take it forward – Atos beat off competition from capita and HP.

This is typical. A renewal approaches and the customer puts the tender out and after fierce competition sticks with what it has.

But this is not always the case. Another deal that was recently up for renewal, but changed hands, was the contract from the Home Office to run the Disclosure and Barring Service (DBS), which was created when the Criminal Records Bureau and the Independent Safeguarding Authority came together.

TCS took the deal from Capita. Its strategy to increase the amount of automation and digitisation was a factor in the win and not lower price. The Indian offshore suppliers in particular have watched for contracts coming up for renewal and then targeted them aggressively.

The fact that the public sector by law has to put contracts out to tender makes supplier change more likely than in the private sector.

Renegotiations need not be just about driving a lower cost but could involve reshaping a contract to give IT departments a better view across its IT operation.

Steve Tuppen, director at service integrator Mozaic, said businesses are revisiting outsourcing contracts, and it is not always about getting a lower price.

“When many of the IT outsourcing contracts were signed six years ago, they were large end-to-end agreements,” said Tuppen. “Today CIOs want more transparency so they can assess which parts they can do more effectively.”

He said many renegotiations today involve disaggregating services: “It is easier to do this with the existing supplier. It could be an extra year if CIOs change suppliers to do this.”

Incumbents are also willing to negotiate early. Tuppen said if an organisation has a clear idea of where its business is going, it can renegotiate, even mid-term, with an existing supplier.

And the current lack of business has put the onus on the suppliers to push for renewal.

Robert Morgan, director at outsourcing consultancy Burnt-Oak Partners, said that suppliers are currently driving the renewals increase.

“Because there is no new business, suppliers are going to customers and saying ‘we want to look to renegotiate’.”

He said when suppliers have relationships with senior executives such as the CIO, they are more likely to get a renewal early.

“But if the relationship is with a procurement department or if the organisation is in a regulated sector the contract is likely to go out to tender.”

Morgan said that complexity involved with changing supplier largely depends on who the supplier is.

“If it is a global supplier it is difficult because staff are incentive to retain contracts. Smaller local suppliers are easier to change.”

What the experts say about renegotiating IT outsourcing contracts:
“Be prepared to concede certain aspects (increasing the term, adding to the scope, simplifying measurement criteria, etc) in order to secure a more flexible, agile, accountable contract.”
“Be very clear on what the reasons for the renegotiation are and what the objectives from it will be; try to do a once and for all re-baselining taking into account all issues, rather than death by a thousand cuts. Think laterally about what changes could be made.”

“The most important thing for a company considering renegotiations is to have a clear understanding of their objectives, and what they want to get out of the restructured IT outsourcing contract. A successful renegotiation also relies on creating financial leverage, a willingness to execute viable alternatives and a strong commercial relationship with the supplier.  Another significant factor is time. Whether mid-term or end-term, companies must ensure that they allow enough time to analyse and understand all factors, which might impact the new contract and to fully engage their internal stakeholders to ensure the best possible outcome.”

“It is easy to get caught up in the renegotiations process, but it should be remembered that not everything is negotiable – a company must decide on its priorities and negotiate to build a workable solution and sourcing relationship, not to win a battle.”

“Build a deeper, more forward-looking, and business-relevant understanding of the points of difference and parity between IT services firms; demand more flexibility and pro-activeness from IT services vendors; direct more attention toward productivity improvements,  not just cost reduction; seek and leverage more aggressively operating and business model innovations; collaborate with IT services vendors to co-create new capabilities in areas that matter; and demand constant improvement and global best practices.”


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