Why Lloyds Bank is ‘outsourcing’ IT services to IBM

Dive Brief:

  • U.K.-based Lloyds Banking Group plans to move almost 2,000 staff members to IBM as part of a £1.3 ($1.59) billion, seven year IT outsourcing deal, the Lloyds Trade Union announced this week.
  • Staff will be outsourced to IBM, and then over a four-year period the work will be “offshored,” The Stack reports. Though 1,961 staff members — including permanent staff, third parties and contractors — will transfer to IBM, after four years, just 193 staff members will remain working on the Lloyds contract.
  • Through the deal, Lloyds is looking to save £760 ($938) million in costs, make IT more agile and streamline the business, according to The Stack.

Dive Insight:

Earlier this year Lloyds suffered a distributed denial of service (DDoS) attack that caused the bank to shut down for two days. Though the bank said no accounts were compromised, it was certainly a wake-up call. Cyberattacks are a huge risk to the finance industry, and concerns have been growing significantly in the wake of attacks and near-misses.

The deal will start by outsourcing staff to IBM, in what is basically an “as a Service” model. Outsourcing IT labor no longer means companies are simply going to bring in foreign labor to do technology work at a cheaper rater.

Rather the outsourcing model is being turned on its head as companies rely on as a Service models, creating an entire spectrum of outsourcing. On one end, it’s labor arbitrage. On the other end, it’s a software or infrastructure-driven model that is far more sustainable and profitable. In this case, relying on IBM’s networks with its vast pool of resources can also increase security and systems reliability.

The Deal

Lloyds Banking Group is to offshore nearly 2,000 IT jobs as part of its shift to IBM, according to the Lloyds Trade Union.

In a recent presentation, Morteza Mahjour, the group’s Chief Information Officer, confirmed that Lloyds will outsource large parts of its IT estate to IBM in a deal worth £1.3bn over seven years, the union said in a newsletter.

Staff will be outsourced to IBM, and then over a four-year period the work will be offshored, the union told members in an update yesterday.

As exclusively revealed by The Register earlier this year, under the deal IBM would pay for the data centre assets, transfer them to its balance sheet, and then charge Lloyds for the ongoing management.

Project Aurora was due to be announced in January but negotiations with IBM are taking longer than originally thought, said the union.

The Windows, Unix, Linux and IBM I-Series platforms will form the bulk of the estate being outsourced to IBM. That will include 2,000 of the 3,200 applications currently used by Lloyds Banking Group.

The union said it expects the deal to be announced in the next few days.

Earlier this year Lloyds was hit by a cyber attack which led to a two-day outage. The mega-bank said that no accounts had been hacked or compromised.

According to the union, Juan Colombas, LBG’s chief risk officer, confirmed that cyber-attacks were the biggest risk to the finance industry.

The union said: “The question is whether security is better managed by systems that are run by [Lloyds Banking Group] or by a third party whose staff are based offshore?”

A spokeswoman from Lloyds said: “As we have said to our colleagues, we are considering options to extend use of cloud technology in pursuit of the Group’s aim to be the best bank for customers.

Source: ciodive.com- Why Lloyds Bank is ‘outsourcing’ IT services to IBM

Image credit: Thinkstock

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EMEA As-a-Service Boom Contrasts Sluggish Traditional Outsourcing Activity

Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company, today released the findings of its 2Q 2016 EMEA ISG Index™, which include, for the first time, a view on the growing As-a-Service market.

The EMEA ISG Index™, which measures commercial outsourcing contracts with an ACV of €4 million or more, shows that combined second-quarter ACV in the Europe, Middle East and Africa (EMEA) market fell by 18 percent year-on-year, to €2.2 billion. Traditional sourcing fell 28 percent to €1.6 billion, its lowest ACV in seven years, owing to a lack of large awards and a noticeable pullback in contract restructurings. The As-a-Service market, at €600 million, was up 38 percent for the same period.

Over the first six months of the year, the EMEA market generated €4.9 billion in combined ACV, flat with the prior year. Although traditional outsourcing values declined during this period, As-a-Service ACV grew 38 percent, reaching its highest point ever and passing the €1 billion mark for the first time. This growth was fuelled by an impressive lift in Infrastructure-as-a-Service (IaaS) activity, which rose 63 percent. Software as a Service (SaaS) logged a respectable 9 percent growth in the same period.
Globally, these As-a-Service activities now represent 36 percent of the combined market, having nearly doubled their share since early 2014. ISG predicts that this segment will continue to see accelerated growth in the months and years ahead, both globally and in EMEA, as clients leverage increased automation and continue to shift operations to the cloud. The Global combined market saw ACV of €6.4 billion awarded in the second quarter, down 2 percent from the prior year. At the half year, global ACV of €13.4 billion was up 10 percent compared with the first half of 2015, with record high As-a-Service values somewhat offsetting the sluggish performance in the traditional outsourcing market.

Market insights
By market, the Nordics led the way. In the first half, its traditional outsourcing ACV was up 25 percent over the second half of 2015, and more than doubled compared with the first half of 2015. France followed their lead, with values up 14 percent sequentially and up by one-third year on year as a result of some large contract awards. However, performance in the other sub-regions was lackluster.
In the UK, EMEA’s largest market, the figures revealed a surge in the value of traditional outsourcing of almost 40 percent compared with the admittedly soft previous half year period. Compared to the first half of 2015, ACV fell 11 percent as the result of a pullback in contracting activity.
Despite healthy contracting activity, which rose by a third for the half year, DACH’s traditional market ACV plummeted by 71% sequentially and 30% year on year as large companies in the region adopted a characteristically cautious approach to some of the newer transformational services in the market.

Sector breakdown
By industry, Financial Services remained the leading sector for both value and contracting activity. Its €1 billion ACV represented a decline of 17 percent compared to the first half of 2015, despite its number of contracts increasing by 17 percent for the same period.
Manufacturing had its strongest 12-month performance since 2011 and while slightly down on the prior period’s impressive performance, the first half picture was positive, up 34 percent on the previous year. Other industries fell short at the half year; with the exception of Retail, which was up slightly on a small base.

Forecast
John Keppel, partner and president of ISG, said:
“EMEA’s traditional sourcing markets pulled back in the second quarter and came in at lower levels than projected, due to a lack of large deals and restructurings, and alongside some challenging macro-economic factors within the European Union. These factors, and notably the result of the UK referendum on EU membership, will continue to have an impact, although it is too soon to tell exactly what this will look like. We expect traditional market ACV for the year may come in slightly lower than 2015.
“At the same time, As-a-Service growth should continue along on a steep, upward trajectory as corporations in EMEA increasingly harness the flexibility and speed on offer.”

Source: sourcingfocus.com-EMEA As-a-Service Boom Contrasts Sluggish Traditional Outsourcing Activity 

Digitalisation top priority for IT managers in 2016

Maturity, the European IT benchmarking company, has published its yearly Strategic IT Agenda – a survey of European IT managers on the hottest topics in the industry.

Unsurprisingly, costs and security are still top concerns for IT managers around Europe. However, this time digitalisation – a new entry – managed to outdo both, appearing in the survey as the number one strategic priority for 2016.

Maturity introduced digital transformation to the survey for the first time this year in response to the growing buzz surrounding the subject in the financial media. IT security was the second-highest priority on the list. IT managers pointed to the growing importance of internet business models for businesses everywhere, as well a string of recent high profile incidents, as the reasons for the increased standing of company security issues. The past year saw an unprecedented number of cyber-attacks – both in terms of scope and scale – take place around the world, from the theft of customer data from Telecoms companies to attacks on banking systems; even the German parliament’s IT was subject to cyber-attack.

Costs dropped to third place on the list of concerns, falling in importance for the third year running. However, the report did highlight that the minimisation of resources is still very much at the heart of company strategies around Europe where the motto “do more with less” still heavily applies.

Maturity also points to a trend of the last few years which has seen “classic” topics (such as optimisation) lose standing in relation to recent entrants such as IT sourcing strategy, which increased in importance by 10 per cent within the last two years. Budgetary concerns are still the main driver for action in IT, followed by business innovation.

According to the survey, outsourcing in IT seems to have come to a standstill over the last year and is expected to continue to stagnate throughout 2016 – more than half of the companies surveyed have no plans to increase the weight of outsourcing in the business, stating that the relative amount of work done in-house will stay the same.

The report mentions both the increasing professionalisation of internal IT personnel and the expansion of cloud usage as the two main factors driving increased user operation of infrastructure as opposed to contracting out of operations.

Source: Sourcingfocus-Digitalisation top priority for IT managers in 2016

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

IBM in 10-year IT outsourcing deal with Telefonica

Enterprise IT vendor IBM on Wednesday announced its 10-year IT outsourcing deal with telecom network operator Telefonica.

IBM will modernize and manage different Telefonica Human Resources and Finance Management processes as part of the agreement announced on Wednesday.

IBM will also be acquiring three companies of Tgestiona, a Telefonica company and provider of finance and human resources processes management for communications sector in Spain, Argentina and Peru.

Tgestiona provides business process outsourcing (BPO) services, with offices in Spain, Argentina and Peru serving clients across Europe, Latin and Central America.

Telefonica, which has 327 million subscribers across 21 countries, aims to simplify operations, drive efficiencies, and deliver client experience as part of the IT outsourcing contract. IBM did not reveal the size of the IT contract. IBM is currently working with telecoms including Bharti Airtel in emerging telecom markets.

IBM said it differentiated with its consult-to-operate approach and its digital reinvention point of view, which aligns with Telefonica’s transformation strategy.

“IBM was chosen as our strategic partner based on its ability to demonstrate market-leading best practices in finance and HR, deliver a superior user experience to Telefonica, and demonstrate automation and digital innovation while respecting the cultural diversity of our clients,” said Javier Delgado, director Planning, Projects and Global Services of Telefonica.

Jesus Mantas, general manager of IBM Consulting and Global Process Services, said: “Our deal with Telefonica represents the future of process transformation in the digital age. It delivers efficiencies while addressing the cultural and human elements of digital change, reducing risks and operational disruption.”

Source: Telecomlead.com-IBM in 10-year IT outsourcing deal with Telefonica

Government to review all Atos contracts over £10m – but can it really point the finger?

The Public Accounts Committee recently criticized the outsourcing firm after it emerged that Atos had not delivered on a NHS data extraction system, costing millions of pounds.

The British government is to hold a review of all contracts worth more than £10 million held with Atos, following a scathing report from the Public Accounts Committee that found that the outsourcing company did not show an “appropriate duty of care to the taxpayer” when working on an NHS IT project.

However, whilst Atos has proven to be an ineffective supplier in a number of cases, when the government is conducting its review it should also consider the role it has played in managing these agreements.

It’s worth remembering that this isn’t the first supplier to come under fire for poor performance following a botched IT outsourcing deal. CSC, G4S and Serco have all faced similar scrutiny.

And so, whilst Atos likely deserves its fair amount of criticism for its role, equally I think we need to remember that there are two parties involved here and that the government cannot likely place all responsibility for failure on its private providers.

And that the government’s commercial capability has been regularly highlighted as lacking when it comes to contract management, which often leaves it in a tight corner when things go wrong.

Equally, how effective are these reviews in driving change? Obviously something needs to be done, but it seems that the long term results are never particularly significant. For example, those suppliers that have been investigated or criticised in the past still continue to win government contracts.
All eyes on Atos

The project that has prompted this review is the General Practice Extraction Service (GPES), which was intended to allow eight NHS organisations extract data from all GP practice computer systems in England. The data extracted was supposed to allow for better monitoring of quality, better planning of health services and to keep up with medical research.

However, the Public Accounts Committee found that the project overran by a number of years, the costs increased from £14 million to £40 million (with at least £5.5 million of write-offs) and that the service was only delivering about half of what it was specified to do.

The report stated:

“We are not satisfied Atos provided proper professional support to an inexpert client and are very concerned that it appears to have acted solely with its own short term best interests in mind.

We found that Atos’s chief executive, Mr Adrian Gregory—the company’s witness in our enquiry appeared rather indifferent to the plight of the client; we expect more from those contracting with government and receiving funds from the taxpayer.”

In addition, the Committee recommended that the Cabinet Office should “undertake a full review” of Atos’s relationship as a supplier to the crown. Today the Cabinet Office said:

“In line with the Committee’s recommendation Cabinet Office is undertaking a review of all current ATOS contracts with Central Government with an annual spend over £10 million.”

Estimates of how much the government spends with Atos vary, but is thought that this could be anywhere between £500 million and £3 billion.
All eyes on government

However, as noted above, Atos wasn’t the only party to come under fire from the Public Accounts Committee. Yes, it has a duty of care to the taxpayer, but if the government is going to insist on outsourcing much of its capability to the private sector, it needs to realise that more often than not that those companies are going to mostly be concerned with their bottom line.

And that if they want to get the most out of the suppliers, they need to have a capability that matches what can be found in the private sector.

For example, the Committee’s report also noted:

“The Department accepts that NHS IC did not have the expertise or capability required to run this project and that the governance arrangements were not fit for purpose. There was an exceptionally high level of staff turnover in key roles with ten project managers over a five year period and three Project Board Chairs over three years. The Department did nothing about this despite concerns raised by their own gateway review team. The Department also raised concerns about the adequacy of the testing, but NHS IC did not act on them but instead chose to accept the risk and sign off the system.”

And:

“Whitehall is not learning from past failures in IT projects, and is still repeating the same mistakes. This project exhibits many weaknesses common to other high profile IT failures such as the National Programme for IT in the NHS, the Single Payment Scheme and Tax Credits. These include; lack of staff continuity, inadequate testing, the wrong contracting approach and a governance structure which was not fit for purpose. Whitehall has to start learning from these failures and make real changes to how IT projects are managed and delivered.”

As the Committee highlighted, on this particular project, plus many others, the government did not fulfil its duties to the taxpayer by acting as the best buyer it could to deliver on requirements.

We have seen similar criticisms across a number of IT projects in the past, where the government’s commercial skills have been so poor that suppliers have been allowed to fail without any repercussions. The government’s inability to properly manage contracts has often meant that a lot of the responsibility (and cost) has often fallen with the buyer.

We are all too aware of the skills problem facing the public sector at present, where the need to attract some of the best tech talent is being balanced against the need to slash budgets. And whilst certain gaps are being filled and there is evidence of some top talent being attracted, it’s clear that the skills problem is still very real.

And until that problem is solved (which is likely going to not only come from bringing in top talent, but g-cloud-big-ben-government-westminster-cropalso up-skilling current civil servants and figuring out ways to change behaviours and culture), these project failures will persist.
My take

 

Whilst the Atos review is probably entirely necessary, I hope that when the government is assessing all of the contracts it holds with the company that it is prepared to find that it is also not performing as well as it should.

Both outsourcing provider and government buyer have a duty of care to the taxpayer. But it seems that for the government it is sometimes easier to point the finger of blame outwards, than it is for it to consider that for long term change it needs address its internal faults.

Want long lasting change? Fix the problems internally first.

Source: diginomica.com-Government to review all Atos contracts over £10m – but can it really point the finger?

Europe Overtakes Asia in Setup of New Outsourcing Facilities for First Time

Everest Group has found that, in the first quarter of 2015, Europe surpassed Asia in “new setup activity” of service centres for the very first time.

This is despite a sluggish start to the year for outsourcing overall, with global transaction activity continuing to decline for a third consecutive quarter.

Everest reports that Europe’s success largely came down to the manufacture, distribution and retail sector, as well as local technology firms building research and development centres in nearshore locations.

Salil Dani, vice president of Everest Group, commented: “A highlight of Q1 is that the overall GIC market continued to increase and is shifting toward getting better, thanks to persistent demand from adopters.

“In particular, we are seeing GIC setups for IT and R&D/engineering work gaining traction, driven by the increased adoption of Social, Mobile, Analytics and Cloud—or SMAC—technologies.”

The full Market Vista Q1 2015 report is available for purchase on Everest’s website.

Source: SourcingFocus-Europe Overtakes Asia in Setup of New Outsourcing Facilities for First Time