HPE, CSC services spin off and merger looks set to create $26bn behemoth

HPE has announced a tax-free spin-off and merger of its Enterprise Services business with CSC.

New business entity will be focussed on helping digital transformations succeed.

HPE will own a 50% stake in the new combined entity and will nominate half of the board members. While HPE’s Meg Whitman will be on the new company’s board, it will be led by CSC’s current CEO, Mike Lawrie.

The spin-off is expected to fetch a cost saving of around $1bn for HPE.

Whitman said: “The ‘spin-merger’ of HPE’s Enterprise Services unit with CSC is the right next step for HPE and our customers.

“Enterprise Services’ customers will benefit from a stronger, more versatile services business, better able to innovate and adapt to an ever-changing technology landscape.”

The transaction is planned to be completed by 31 March 2017. HPE shareholders will own shares of both HPE and nearly 50% of the new company.

CSC chairman, president and chief executive officer Lawrie said: “As a more powerful, versatile and independent global technology services business, this new company will be well positioned to help clients succeed on their digital transformation journeys.

“Together, CSC and HPE’s Enterprise Services will have the scale, foundation and next-generation technologies to innovate, compete and grow in a rapidly changing marketplace.”

The new company is expected to earn annual revenues of around $26bn, with over 5,000 customers in 70 countries.

CSC’s current CFO, Paul Saleh, will continue to remain in the role in the new company after the completion of the transaction.

HPE said that one-time costs associated with the separation of the Enterprise Services segment from HPE will be offset by lower costs involved in the fiscal 2015 restructuring plan.

The transaction is expected to deliver nearly $8.5bn to HPE’s shareholders on an after-tax basis.

Buoyed by income from its server and storage business units, HPE also reported a 1% increase in net revenue for the second quarter ending 30 April – the first rise in five years. Revenues topped $12.7bn in the fiscal second quarter, up from $12.5bn posted in the same quarter last year.

HPE president and chief executive officer Meg Whitman said: “The businesses comprising HPE grew revenue over the prior-year period on an as reported basis for the first time in five years.

“We also had strong quarterly performance in every one of our business segments and generated more than $500 million in free cash flow.”

The Enterprise Business saw a 7% increase in revenues to $7bn, largely driven by a 57% rise in networking revenue. While the revenue from servers was up 7%, storage revenue went up by 2%.

The company’s revenue from enterprise services fell 2% to $4.7bn, with application and business services revenue down 3%. Software revenue also dropped, sharply, by 13% to $774m in the quarter, mainly due to a fall in license and support revenues.

Source: cbronline-HPE, CSC services spin off and merger looks set to create $26bn behemoth

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UK outsourcing sector wants to remain in a reformed EU

Just under three quarters (73%) of UK outsourcing service providers said they want the UK to remain in a reformed EU, according to a survey.

The findings of the National Outsourcing Association (NOA) questionnaire revealed that 35% of those that want to stay in the EU think doing so will protect outsourcing trade relationships.

Meanwhile those that want to leave (27%) said they only wanted those elected by the British people to govern.

The status quo certainly can’t continue according to the survey. Over a third (34%) think a better deal with the EU can be secured, while 31% think the deal David Cameron got is sufficient. But 17% don’t think a deal can be secured that will justify Britain’s EU membership.

“The views of the NOA membership reflect those of Britain’s outsourcing industry as a whole, the same views held by the C-suite at the likes of BT, HSBC, IBM, Serco and Unilever,” said Kerry Hallard, CEO of the NOA. “We’re all for keeping Britain in a reformed EU, where we can continue to have influence and be seen globally as a key player – ‘Brexit’ would certainly diminish Britain’s appeal on the world stage.”

She said leaving the EU would diminish the UK’s role in the global business services industry. “I was in India just a few weeks ago and had many conversations on this subject with key Indian players. They want and expect the UK to stay part of the EU,” she said.

EU migration chokes off skills

Hallard also took the opportunity to criticise government plans to cap the number of Indian workers coming to the UK. She said the fact that migration is open in the EU – with no skill level requirements – is having a negative effect on attitudes to migrants from elsewhere.

The UK government wants to reduce the number of workers coming into the UK from outside Europe, which could result in a major cut in the number of Indian IT workers in the UK working on outsourcing projects.

A proposed increase in the minimum salary paid to staff brought to the UK by overseas suppliers – which could make it a less attractive option – will be fast-tracked by the government.

IT workers brought to the UK to work on contracts from overseas – from India in particular – use intra-company transfer (ICT) visas, part of the Tier 2 skilled worker category, to work in the UK. This route means that, if the offshore parent company has a UK presence, it can bring workers to the UK for limited periods of time.

IT staff from India comprise a substantial proportion of such migrants.

She described the government’s current plan as “knee jerk”.

“It is wrong that the UK is restricting access to the skilled labour we so desperately need access to in order to grow, because we have no control over the mass unskilled migration [from within EU] we are suffering,” Hallard said.

 

Source: Computerweekly-UK outsourcing sector wants to remain in a reformed EU

Why it’s time to set standards for outsourcing providers

Sure, you and all your IT service providers follow ITIL guidelines, but you interpret those standards differently. And those little inconsistencies can lead to big problems.

One of the biggest challenges IT leaders face in a multi-vendor outsourcing environment is getting all the suppliers to speak the same language. Service providers today will typically follow Information Technology Infrastructure Library (ITIL) guidelines around basic IT activities such as incident and change management—and most customers require that their vendors do so — every party has its own interpretations of those guidelines.

Wipro may manage and incident slight differently than HP, which in theory doesn’t sound like a major issue. But for a large global organization managing thousands of incidents a day, even a slight variance in reporting becomes a big deal creating significant complexity for the client and compromising standardization. “The issue is that the standards describe what has to be done… but not how those things are done. The result is that the standards mean slightly different things to different people,” says David England, director with outsourcing consultancy Alsbridge. “So when different providers execute and report those tasks and functions, inconsistencies result. And those inconsistencies create problems.”

What happens —very quickly — is that instead of collecting consistent and useful operational data that could drive continuous improvement, outsourcing customers are dealing with sloppy data that limits their ability to effectively govern their outsourcing portfolio. “It’s that there’s one big issue,” England says, “but rather it’s a case of death by a thousand cuts.”

An effective solution is for outsourcing customers to come up with a clear definition of the processes they want their vendors to follow and make sure that all providers understand the terminology and requirements precisely in the same way.

Creating a Statement of Work for service providers

That effort should be a priority when creating the Statement of Work (SOW) documentation that defines the tasks for the service providers. More often than not, that SOW will stipulate that “all providers adhere to ITIL definitions.” Instead, says England, outsourcing customers should get much more specific about ITIL definitions in the SOW “and specify, ‘this is what we mean by incident resolution and this is how incidents will be reported.’”

Providers are amenable to adhering to client definitions if the requirements are clearly spelled out, says England. “It’s not that one approach is necessarily better than the other, it’s just that they’re different in an apples and oranges way. And effective governance absolutely requires apples to apples and oranges to oranges.”

Without any client direction, for example, Provider A might consider an incident closed when the technician reports the incident resolved. Provider B, meanwhile, may call the incident closed when the user who reported the incident indicates that it’s resolved. That seemingly slight difference had a significant impact on the performance metric of incident resolution time.

Provider A’s definition of resolution time results in a much shorter resolution time than Provider B’s approach, because it doesn’t account for the time it takes the end user to send an email to close the incident. At the same time, Provider A’s approach doesn’t account for situations where the technician closes the incident, but the user is still having a problem. To prevent that issue, the client could specify in the SOW that an incident is reported closed only once the user signs off on it. That results in consistent and clean data that will give the client and provider metrics upon which to base performance improvement efforts.

This will require some extra work form the outsourcing customer at the beginning of the agreement; how much extra work depends on the IT organization’s own ITIL maturity. “Mature organizations will have detailed, well-defined, and proven standards that can be directly incorporated into the requirements,” says England. “For organizations that lack this level of maturity, it can take anywhere from a few weeks to a few months to develop appropriate standards.”

Defining standards is boring but necessary

England recently worked with a global manufacturing firm contracting with a trio of IT and business process outsourcing providers on an end-to-end outcome-based IT transformation. In preparation for the start of the collaborative relationship, the company clearly defined the operational service management standards, processes and tools that would be used by all three suppliers. In addition to the service management details, they also defined the governance standards, processes, tools and joint vendor governance meeting structures that would be used. “For organizations seeking the benefits of true outcome-based solutions, getting these fundamentals right is an essential requirement,” says England.

Defining standards can be an arduous task for the less experienced IT organization. “It’spretty boring stuff,” says England. “[However], boring as it may be, that attention to detail is critical and directly affects the ultimate success of the outsourcing relationship.” Any IT organization can ultimately clarify standards. What’s prevented them from doing so in the past is not necessarily a lack of capabilities, but a lack of awareness. Many customers failed to recognize the importance of a “deep-dive effort to drive standardization” says England. “In other cases they lack the expertise or the internal resources, so it’s something that slips through the cracks.

We do see clients starting to recognize the importance of getting that operational foundation right in order to achieve the value from the relationship that they seek.” The good news, adds England, is that once these processes are defined, they’re relatively easy replicate and apply to new service providers that enter the IT outsourcing mix in the future.

Source: cio.com-Why it’s time to set standards for outsourcing providers

Outsourcing can be beneficial, but it isn’t magic

Outsourcing business activities has many advantages. It is often cheaper and more efficient than keeping those same activities in house, and can be an easier way to keep up to speed with industry best practice. More importantly, it frees up valuable internal resources that can instead be focused on the things that really matter.

Financial services firms are no strangers to the benefits of outsourcing; by some accounts, they have made use of it for clerical tasks since the 1970s. But since then, it has become ever more prevalent – particularly with the increased importance of IT – and has grown to cover a more diverse range of activities.

Given the size and complexity of the largest financial firms, some of them now have large armies of contractors and subcontractors scattered across the globe. These vendors – who deal with areas from financial crime software through to credit card processing, call centres and risk analytics – can sometimes be a source of mishaps. Both New York-based data vendor Bloomberg and US custodian BNY Mellon suffered high-profile outages due to third parties in 2015, leading to frustration among clients and negative media coverage.

Plenty of other worrying incidents go unreported, however. In a recent conversation with Risk.net, one operational risk manager at a US bank said some of its outside suppliers had been involved in security breaches, while another was found to be in violation of the law. “What we do in those instances is we exit those relationships,” he added.

To some in the consulting world, outsourcing possesses almost magical qualities. But when it comes to risk, outsourcing is no disappearing act. Outsourcing a business activity changes the risk associated with that activity; it won’t cause it simply to vanish. However, this seems to have been the working assumption of some financial firms, which gleefully outsource activities without thinking about the different sets of controls they need to put into place.

Regulators have noticed this. In 2013, the US Federal Reserve Board and Office of the Comptroller of the Currency both issued separate guidance notes for banks on third-party risk. Reflecting the importance of subcontractors, these pieces of guidance even included references to “fourth-party risk”. That means you don’t just have to care about your vendors, but also your vendor’s vendor too.

Some risk managers argue the guidance goes too far. But it seems to have worked. In some cases, US banks have responded by bolstering the teams that manage and monitor their vendor relationships, while others say they have significantly cut the number of third-party providers they use.

Of course, regulators must be careful not to overdo it. Outsourcing is a fact of modern business life: a tool that, if used appropriately, can deliver positive results. There’s no reason to exclude banks or other financial firms from accessing those. But given the vast scale of outsourcing in financial services – combined with some firms’ apparently wilful ignorance – they are right to focus on it.

 

Source: Risk.net-Outsourcing can be beneficial, but it isn’t magic

Should you outsource vendor management?

Outsourcing the management of outsourcers has been a controversial approach in the past, but the increased demands of IT service management may be too much for some IT groups to handle themselves.

Vendor management is nothing new for most IT organizations. Progressive IT functions have built up their vendor governance capabilities for years. But the vendor management function today is being asked to oversee a host of new IT services, wrangle niche and nascent suppliers, and meet increasing performance expectations, with little increase — or worse, a decline — in funding. As a result, many are struggling to keep up.

One solution is outsourcing vendor management. CIO.com talked to Dan McMahon, director at outsourcing consultancy Pace Harmon about the situations in which bringing in a third-party may have value, the typical benefits targeted, the pros and cons of outsourcing IT vendor governance, and how to make the transition.

CIO.com: Why is vendor governance more difficult for some IT organizations to oversee on their own?

Dan McMahon, director, Pace Harmon:IT vendor governance is increasingly becoming more complex as more services and vendors are added to a firm’s vendor portfolio. Ensuring these vendors’ efforts and performance are aligned collectively with overall business expectations can be extremely challenging. As businesses rely on the collective performance of the portfolio of vendors providing outsourced services, the importance of delivering on expectations becomes essential. Many of today’s internal vendor management functions have not been designed or equipped to handle this sort of change or complexity.

CIO.com: When is outsourcing vendor management a good option? What are the drawbacks?

McMahon: In many cases, outsourcing vendor governance is proving to be a viable and practical option for businesses. Successful outsourcing of the vendor governance function has generally followed one of two patterns.

[Some enterprises employ] a staff augmentation model to secure key resources in the short term. In many cases, these resources have been close to the transaction and possess a deep understanding of the commercial agreement, performance expectations, and retained and outsourced responsibilities. These resources frequently provide support for 90 to 120 days and bring operational expertise, vendor interaction guidance, and transitional support to the permanent internal staff.

The second approach is typically longer in duration, frequently 180 days plus, and fulfills a larger role in elevating vendor governance performance. This is often a transformational role and the resources are expected to provide vendor governance experience, lead practices that can be deployed, vendor management techniques, and—in some cases—offer specific knowledge on how best to work with a specific vendor.

CIO.com: So vendor management outsourcing is usually part of a larger transformation effort?

McMahon: In many situations, outsourcing vendor governance is part of a larger transformation effort. However, in the last few years we are also seeing organizations complement their legacy vendor governance function on a short-term basis. Often a key resource leaves or is [moved] to a new internal role, and the business cannot wait to find a suitable replacement. In cases where internal resources may not be prepared to step into a key and visible role, outsourcing specific vendor governance roles has become an increasingly attractive short-term option. Often this approach has the added benefit of introducing vendor governance process refinements that eventually become part of steady state operations.

CIO.com: What are the typical benefits targeted and how are these outsourcing relationships measured?

McMahon: In situations where the outsourcing of vendor governance takes the form of a longer relationship, companies should expect both objective as well as subjective benefits.

From an objective perspective, this may include an increased number of vendors or spend managed per governance full-time employee—or perhaps comparatively fewer dollars [spent no] change orders per vendor. Additionally, there may be an increase in the number of vendor performance metrics that align with desired business outcomes, which is made possible through an increased level of managed services (as opposed to staff augmentation services) from outsourced partners.

From a qualitative perspective, benefits may include increased stakeholder satisfaction or increased proactive innovation and transformation opportunities identified by the outsourcer.

CIO.com: What questions will help an IT group determine if outsourcing vendor governance is a good idea?

McMahon: Outsourcing vendor governance may be a wise option if the outsourcing environment is evolving faster than the vendor governance can manage, the business does not have adequate time for vendor governance to catch up, and the organization recognizes the need to relinquish short-term control of vendor governance. Organizations can ask several important questions to independently gauge the potential fit of an outsourced vendor governance option. The more ‘yes’ answers to the following questions, the more likely a business would benefit from considering outsourcing vendor governance:

  • Does the current outsourcing environment complexity or pace of change exceed the existing vendor governance’s resource levels?
  • Is the organization ready to share or relinquish short-term control to achieve a higher level of performance?
  • Would the organization be better off if some or all of the existing vendor governance resources were deployed elsewhere?
  • Have the business needs outgrown the capabilities of legacy vendor governance functions?
  • Does the business require selective support or is a wholesale change required to support the growing demands of the business?
  • Is an evolutionary development timeline for vendor governance function constraining service vendor performance?

CIO.com: If IT leaders answers yes to most of those questions, what steps should they take next?

McMahon:If outsourcing vendor governance appears to be a good fit, three steps can help a business begin to define the type of support they may need:

  • Develop an initial understanding of the type of support the business needs. Is a short-term staff augmentation support model needed as a bridge or would the business benefit from transformational support?
  • Develop an initial understanding of the outcomes needed. Does the business need day-to-day support, or do its needs require a shift in overall performance?
  • Contact industry leaders, and qualify their capabilities. Business leaders will want to thoroughly vet providers and secure the actual capabilities that will help deliver the intended results.

Source: CIO.com-Should you outsource vendor management?

China’s service outsourcing continues to grow

China’s service outsourcing industry continued to grow in the first twomonths of this year despite economic headwinds, the Ministry of Commerce(MOC) said Thursday.

Chinese companies inked service outsourcing contracts worth $16.92 billion, up7.5 percent year on year, Shen Danyang, spokesperson for the MOC, told a pressconference.

Among the deals were offshore service outsourcing contracts valued at 75.54billion yuan ($11.64 billion) in the first two months, rising 28.5 percent year onyear.

Cooperation in service outsourcing with countries along the Belt and Road sawquicker growth, with contracts valued at 11.8 billion yuan for the January-February period, surging 13 percent from a year ago.

Outsourcing of information technology-related contracts accounted for 51percent of all projects, according to Shen Danyang.

Regions along the Yangtze River economic belt saw robust development inservice outsourcing during the period with total contract value reaching 41.87billion yuan in offshore service outsourcing, up 12.2 percent year on year andaccounting for 55.4 percent of the total nationwide, said Shen.

China is the world’s second largest service outsourcing provider after India. TheState Council described the sector as a “green industry” that will be a new enginefor tertiary industry and a boon to increasing employment.

Source: chinadaily-China’s service outsourcing continues to grow

New design to outsourcing

The emergence of the digital world, which seems to be a unstoppable force, is pushing every enterprise to think differently so as to remain engaged with this new model. The global IT outsourcing industry has also become an active participant in this digital scenario and in some cases being in the vanguard of developing innovative solutions.

The global IT outsourcing industry with its key strength being technology and people are engaged in a new way thinking to deal with this rapidly changing world in what is called as—Design thinking. Leading IT companies such as Infosys, Wipro, Cognizant are driving numerous initiatives through design thinking which makes the customer the centre point of all their activities in truly trying to understand what are the requirements of the individual.

As Infosys CEO Vishal Sikka during a recent analyst said, “Design thinking teaches us that every product or service, every innovation, has three dimensions to it—the desirability, or the end-user dimension; the feasibility, or the engineering technology dimension; and the viability, which is the economic or the value dimension.” He felt that these three elements are breaking new barriers and brings about fundamental change in the way the IT outsourcing industry will deliver its services.

Today, the global IT outsourcing industry has taken cognisance of the fact that the current process driven model is unlikely to deliver any fundamental innovation which will drive business growth. The industry operates on a highly process oriented methodology which provides the efficiencies in terms of cost and quality, but lacks the quotient of innovation.

Here, design thinking coupled with technologies like robotics, artificial intelligence and automation will lift an IT company to an altogether different level. Forrester Research, in a recent paper titled “Leverage Design Thinking To Spark A Customer-Obsessed Innovation Culture”, said, “The discipline of design thinking can help members of your team understand why they need to change and how they can become customer-obsessed. A number of companies have immersed their senior leaders in design thinking  principles to spark customer-obsessed behaviours.”

Cognizant, in its paper on the title “How Design Thinking Can Power Creative Problem-Solving, Drive Change and Deliver Value” said it is based on developing a thorough understanding of what the user goals are from multiple viewpoints—emotional, psychological and behavioural.

Design thinking is becoming more mainstream for many of the companies who believe that this whole culture has to be imbibed within the organisation. For example, in the case of Infosys, it has already trained over 80,000 employees through various workshops besides engaging with its clients on this new way of thinking.

Phil Fersht, chief executive officer, HfS Research, said, “Ambitious organisations are increasingly using Design Thinking methods to improve and re-imagine their business and IT operations, and Infosys is being recognised for driving impactful results through this approach. We are impressed by the firm’s focus on training each employee with Design Thinking methods to help them challenge themselves and their clients to explore new ways of defining and realising their desired business outcomes.”

However, to engage the employees and customers in this entire cultural change is easier said than done. As many of
behavioural thinking process will have begin internally from the organisation. According to Forrester, Design Thinking is a set of good principles and not a silver bullet. “Design thinking principles help crystallise the mindset that technology and business leaders need to develop to become customer-obsessed and augment their chances of successfully leading digital innovation. For most companies, creating a customer-obsessed culture will take years.”

It has been generally observed that the behaviour of the markets change much faster than any enterprise can come up with new solution. Added to this the digital world throws up more challenges which even the established technology companies struggle to deliver the solution. According to Cognizant, “Rethinking a product or service through design thinking is all about interacting with the customer in a new way, based on learning and anticipating never  before unearthed insights into what the customer actually needs.”

Sikka on the progress made by Infosys in the area of design thinking said, “We have more than 150 clients that have done design workshops with us already, and I believe that this is a great way for us to innovate in consulting by making design thinking the centerpiece of the way that we bring consulting to our client.”

Source: financialexpress-New design to outsourcing