Category Archives: India

Capita – an NAO insight.

By Tony Collins

Capita is a remarkable success story. Formed in 1984 with two people, as a division of the Chartered Institute of Public Finance and Accountancy, it grew rapidly to become a FTSE 100 member in 2006. In 2012 its turnover was £3.35bn, its pre-tax profits were £425.6m and it employed 52,500 people. It now has 62,000 staff across the UK, Europe, South Africa and India. It  acquired about 36,000 staff through TUPE.

In a survey, 71% of Capita staff agreed with the statement that “Overall I feel Capita is a good place to work” and 85% have an overall satisfaction with management.

The company’s  public sector turnover in the UK is about £1bn, divided roughly equally between local and central government. Two of its most recent UK contracts are at Barnet Council.

Yesterday the National Audit Office published an insight into four companies, Capita being one, after a request by the chair of the Public Accounts Committee, Margarget Hodge. She is not so impressed by Capita’s success.

“I asked the NAO to carry out this work after looking at case after case of contract failure- G4S and the Olympic security, Capita and court translation services, Atos and work capability assessments, Serco and out-of-hours GP services, to name a few.

“In each case we found poor service; poor value for money; and government departments completely out of their depth,” said Hodge.

Capita, however, comes out of the NAO investigation fairly well, better than the other three companies (G4S, Serco and Atos) but the NAO made some general points, unspecific to any of the four contractors, that indicate contracting arrangements between government and some of its major suppliers are far from ideal.

One of the NAO’s findings is that some suppliers may be “too big to fail” – and “difficult to live with, or without”.

The NAO memo provides information on Capita that would not otherwise be in the public domain. The audit office based its information on interviews with suppliers and civil servants, surveys, company reports, data from “open book” accounting and Cabinet Office files.

The four suppliers co-operated with the NAO but not completely. Where the contract did not have “open book” clauses Capita did not provide information on its costs or profit margins.

Below are some of the NAO’s findings in its “Memorandum on the role of major contractors in the delivery of public services”.

Capita has contracts with most major central government departments. In 2012/13 these contracts by value included:

Department for Work and Pensions: £146m.

Home Office: £99m

NHS: £71m

MoD: £40m

Department for Transport: £28m

Ministry of Justice: £23m

Cabinet Office: £19m

Department for Education: £17m

Department for Business Innovation and Skills: £11m

Department for Culture Media and Sports: £5m

DEFRA: £5m

Department for Energy and Climate Change: £3m

Department for International Development: £2m

HM Treasury: £2m

HMRC: £1m

Department for Health: £1m

Capita’s profits

The NAO says:

“Capita has been profitable for many years. Its accounts allocate its activities to 11 operating segments according to the nature of the services provided. All of these operate globally and contain at least one public sector contract as well as UK private sector and overseas work.

“The information that we saw at Capita indicates the following

• Public sector work generally has a margin, before both divisional and global overheads, of 6 to 18 per cent, falling to between 1 to 10 per cent once overheads are included. Capita told us that its other public sector contracts would be similar, but that they were ‘doing better’ in the private sector.

• Two contracts reported a loss. Capita said this was because costs such as investment were being incurred at the start of the contract. Capita told us they expected these contracts to achieve a whole-life gross margin of at least 15 per cent.

• Some contracts had higher margins. Capita told us these were older contracts, some of which had made losses early on.

“Capita only showed us information on contracts that had open-book clauses. They believed that most of their clients regularly use open-book access rights. It  [Capita] said: ‘We do not distinguish between public and private sector contracts in our internal management information systems and it would be additional work for us to make available the information in a comparable format.’”

Capita’s UK taxes

The NAO estimate Capita’s UK tax paid in 2012 was £50m-£56m.

Below are some of the NAO’s general points that are not specific to any one of the four companies.

Making money through contract changes

NAO: “Changing a contract and adding requirements allows a contract to evolve, but can be less competitive than fully tendering the new requirement.

“Because of such changes, the total revenue through contract tends to grow, as reflected in the four contractors’ portfolios. In our experience the contractors tend to make higher profit margins on these changes. Good practice aims to build flexibility to the contract and relies on transparent costs and profits…

“Generally contractors manage their profit across a portfolio, targeting an overall level of profit. Low margins are often established during the bidding process, but can increase during the contract lifetime.”

Easier to stick with existing suppliers?

“Incumbents can be seen by procurement and policy officials as the easier and safer option. Across the 15 applicable services we looked at as case studies for this memorandum, seven had been re-tendered at least once, with four of the most recent competitions for each service being won by existing providers and three by new providers.”

Open book accounting not always open

“The government only has access to information on the profits contractors make where ‘open-book arrangements’ are written into contracts. Open-book arrangements either require the contractor to update the client department regularly on their costs and profit, or allow the client to audit those costs and profit on an ad hoc basis.

“We found that use of open-book access rights varies. Some public bodies do not try to see data on contract profits. Comparing profit levels from the open-book arrangements we reviewed also posed challenges as contractors vary in how and when they allocate central overhead costs against profits from contracts…

“We do not have direct audit rights over government contractors. It is normal, however, for government contracts to require the contractor to give us information and help when we audit that public service and government entity. Where there are open‑book accounting arrangements with the government then this includes making those available to us.”

Suppliers pass risk back once contract start?

The original allocation of risk in the contract often changes once the contract starts. For instance:

• Contractors will often pass risk back to clients who do not fully enforce or carry out their part of the contract. The government department therefore needs the appropriate skills to manage the type of contract it is using.

• The original understanding of the risks in the contract may prove to be wrong. This can lead to the contract being terminated (Figure 18) and risks that the government thought the contractor would manage returning to the public sector.

• The government sometimes ignores the commercial terms and risk allocation in the contract when trying to settle a dispute or vary the requirement. Instead, it can put political pressure on the contractor and threaten their reputation

You can’t rely on contracts

The standards expected of all public services are honesty, impartiality, openness, accountability, accuracy, fairness, integrity, transparency, objectivity, and reliability, says the NAO. They should be carried out:

• in the spirit of, as well as to the letter of, the law;

• in the public interest;

• to high ethical standards; and

• achieving value for money.

In these respects public contracts are limited in what they can achieve. Says the NAO:

“Many of the standards expected of all public services do not easily translate into a contract specification. It is not possible, for instance, to contract for ‘integrity’ or the ‘spirit of the law’.

“Achieving the standards expected for public service depends largely on the corporate culture, control environment and ethics of the contractor. It is not easy, however, to use contract negotiations to meaningfully assess and set standards for the contractor overall.

“Government therefore needs to supplement traditional contractual mechanisms with other means of ensuring the expected standards are met. In particular, they need to ensure that the companies’ own corporate governance, management and control environment are aligned with taxpayers’ interests.

“This requires both transparency over performance and incentives to implement the rigorous control environment required including credible threat to profits and future business if problems are found.”

The NAO says officials need to better understand the general control environment that contractors use to manage government contracts, and how far senior executives in those companies should understand what is happening within their companies.

US is more open than UK

The NAO says that companies’ own public reporting and transparency to the public is important to facilitate public scrutiny and trust. Although the government publishes new public contracts on its website www.contractfinder this contains only recently awarded contracts and “very few of the four contractors’ contracts are on it”, says the NAO which adds:

“By contrast, the US government website www.USAspending.gov sets out the full contracts and spending on all government suppliers.”

On Freedom of information, contractors compile information to answer freedom of information requests when asked by their government clients, where they hold the information for the government, but the department answers the actual request.

Says the NAO: “Freedom of information does not apply to the contractor’s business and commercially sensitive information can be exempt.”

On the openness of suppliers in reporting profits the NAO says:

“Even where transparency exists, it is inevitably difficult to interpret profit information. It can be unclear what a reasonable margin looks like. In theory, the margin is meant to reflect risk, innovation and investment. But these are difficult to measure. Furthermore, profit is rarely presented consistently. It can be unclear how overheads are allocated. The profit margin changes, depending on the stage of the project. And different companies may target different rates depending on their business model.”

KPIs of limited value

The NAO says KPIs give a limited overview of performance and are normally focused on things that are easily measurable.

“The main way the government can gain quality assurance is through the contractual reporting. This normally includes a set of KPIs that track performance and that are often linked to financial incentives. Together these make up the service level agreement (SLA). These can be used effectively to manage performance. However, there are three major risks that mean that contractual reporting is not sufficient on its own to monitor performance.”

The NAO says there are risks of misreporting. “There have been instances of contractors misreporting performance, including the case of Serco’s Cornwall out-of-hours healthcare contract …”

Poorly calibrated KPIs.  

“All the contractors told us about instances where poor calibration has resulted in green SLA traffic lights where the client is unhappy or red traffic lights where the client is content with the service. This reduces the SLA’s relevance and can indicate that incentives are not working.”

Are some suppliers too big to fail?

“The current government, like the one before it, sees contracting out as a way to reform public services and improve value for money. Contracting out can significantly reduce costs and help to improve public services. However, there are several indications that better public scrutiny is needed across government contracting:

• There have been several high-profile allegations of poor performance, irregularities and misreporting over the past few months. These raise concerns about whether all contractors know what is going on in their business and are behaving appropriately; and how well the government manages contracts.

• The government believes that contractors generally have often not provided sufficient value, and can contribute more to the overall austerity programme.But the general level of transparency over contractors’ costs and profits is limited. The government needs a better understanding of what is a fair return for good performance for it to maintain the appropriate balance between risk and reward.

• Third, underlying both these issues is the concern that government is, to a certain degree, dependent upon its major providers. There is a sense that some may be ‘too big to fail’ – and difficult to live with or without.

Can we see whether contractors’ profits reflect a fair return?

The NAO’s answer to its own question appears to be “no”.

It says there is a need to explore further:

• Whether there is sufficient transparency over costs, profit and tax.

• Whether the balance of risk and reward is providing the right incentives

for contractors.

• Whether profits represent a fair return.

Shareholder v taxpayers’ interests

The NAO suggests that suppliers are likely to put their own interests before taxpayers’.

“Companies’ own control environments will likely concentrate on maintaining shareholder value. Government needs to ensure that it is in the contractors’ financial interests to focus their control environment more widely on meeting the standards expected of public service.

“This involves using contractual entitlements to information, audit and inspection to ensure standards are being met. And it is likely to involve financial penalties, banning from competitions and political fallout when problems are found.”

The NAO says that, to be a well-informed customer, the government needs to satisfy itself that contractors’ corporate governance structures work in taxpayers’ interests, and that the companies are not paying ‘lip service’ at the centre with little group-wide control to back it up.

“Companies that are large and have sprawling structures, involving a vast number of subsidiaries, may have to make particularly strenuous effort to demonstrate this.”

The NAO suggests further areas to explore:

• Whether contractors are meeting the standards of performance the public expects.

• What contractors consider themselves accountable for.

• Whether transparency is sufficient to ensure contractors work in the taxpayers’ interests.

• Whether contractors’ control environments focus on ensuring standards of public services are met.

Supplier information unverified

The NAO says: “We are grateful for the help and cooperation provided by Atos, Capita, G4S and Serco in the preparation of this memorandum. Most of the information in this report is based on information the companies provided.

“Much of this would not otherwise be in the public domain. The contractors also helped us to understand their business and talked frankly about the risks, challenges and incentives they face.

“However, we do not directly audit these companies and have not been able to verify all the information provided against underlying evidence. We have therefore presented the information in good faith, and attempted to compare different evidence sources wherever possible.”

NAO memorandum on the role of major contractors in the delivery of public services

Comment

Capita is not a bad government contractor.  Perhaps it is one of the best. But is that a ringing endorsement?

The NAO has carried out a thorough investigation but its inquiry suggests that much about public sector contracting remains hidden. On suppliers in general, it is not difficult, if both sides tacitly agree, to hide problems from Parliament, the media and even the Cabinet Office which asks the right questions of departmental officials but does not always get answers, let alone accurate answers.

The NAO did not always get answers to its questions. Indeed Amyas Morse, head of the NAO, said there is an impression that some officials are not in control of their suppliers.

“Contracting with private sector providers is a fast-growing and important part of delivering public services.  But there is a crisis of confidence at present, caused by some worrying examples of contractors not appearing to treat the public sector fairly, and of departments themselves not being on top of things.

“While some government departments have been admirably quick off the mark and transparent in investigating problems, there is a clear need to reset the ground rules for both contractors and their departmental customers,” said Morse.

My thanks to campaigner Dave Orr for drawing my attention to Morse’s comment.

NPfIT central costs rise by tens of millions – even after “dismantling”

By Tony Collins

On 22 September 2011 the Department of Health announced the dismantling of the NPfIT. As the press release was being issued some officials at the department were aware that they were continuing to spend tens of millions on central administrative costs of the programme.

Today’s report of the Public Accounts Committee has a figure for the central costs of the NPfIT until the end of March 2012 of about £890m. Before the DH announced the dismantling of the programme, in March 2011, the DH put the central costs at £817m.

So there has been a rise in central admin costs of about £70m since the NPfIT was supposedly dismantled.

The administrative costs are separate from spending on the contracts with BT or CSC. The admin costs don’t include the delivery of a single laptop to the NHS under the NPfIT. They are simply the central costs of administering the programme – including day rates for consultants – such as day rates of £1,700 to help senior officials prepare for appearances before MPs on the Public Accounts Committee.

The central costs have never been explained, not even by the National Audit Office which has published several reports on the NPfIT.  It is known that some central costs are explained by items of questionable benefit such as the commissioning of DVD films that marketed the NPfIT.

Some of the cost categories have emerged as a result of an FOI request (below).  Officials made regular visits to various parts of the globe to promote the success of the NPfIT. It’s thought that the DH has spent more than £100m on consultants for the programme.

Millions of pounds have been spent with public relations companies. The DH spent about £30,000 on press cuttings in two years alone.  Released central costs for just two years of the NPfIT between 2005 and 2007 include:

  • £1.23m with Expotel Hotel Reservations
  • £1.87 Harry Weeks Business Travel
  • BT conferencing – £1.15m
  • Intercall video conferencing – £274,973
  • MWB (Serviced Offices) – £15.8m
  • Regus – offices and meeting rooms – £3.17m
  • Spring International Express (courier and other services) – £192, 662
  • Cision UK (press cuttings) – £30,000
  • Fishburn Hedges (includes public relations) – £559,310
  • Good Relations (public relations] – £1.55m
  • Porter Novelli (public relations and information) – £943,000
  • ASE Consulting – £31.7m
  • Capgemini – £15m
  • Deloitte MCS – £42.8m
  • Atos Consulting – £32.3m
  • Gartner – £3.8m
  • QI Consulting – £14.5m
  • Tribal Consulting – £6.9m

Comment

Central administrative costs of nearly £900m on a single IT programme are breathtaking. That makes the National Programme for IT in the NHS one of the world’s largest public sector IT projects – before a penny has been spent on deliveries of hardware or software to the NHS.

It’s almost as surprising that not even the National Audit Office has been able to obtain a breakdown. Has central spending been properly controlled? Perhaps not, given that the DH, even this year, spent up to £1,700 a day on consultants to brief a senior official for a hearing of the Public Accounts Committee in June 2013.

Maybe the taxpayer should be grateful that the consultants were hired for only 52 days between February and June 2013 to prepare for the Committee’s hearing, and that the DH managed to renegotiate the day rate down from £1,714 to £1,000 a day between April and June.

Maybe the taxpayer should be grateful that the total cost of the consultancy for preparing for the PAC hearing was only £73,563.

But the £73,563 was spent after the DH estimated its central administrative costs on the NPfIT at nearly £900m – which are costs up to 31 March 2012.

It’s also remarkable that some at the DH still consider the NPfIT a success. This was the NAO’s conclusions on the NPfIT in its May 2011 report on the NPfIT Care Records Service:

“Central to achieving the Programme’s aim of improving services and the quality of patient care, was the successful delivery of an electronic patient record for each NHS patient. Although some care records systems are in place, progress against plans has fallen far below expectations and the Department has not delivered care records systems across the NHS, or with anywhere near the completeness of functionality that will enable it to achieve the original aspirations of the Programme.

“The Department has also significantly reduced the scope of the Programme without a proportionate reduction in costs, and is in negotiations to reduce it further still. So we are seeing a steady reduction in value delivered not matched by a reduction in costs.

“On this basis we conclude that the £2.7 billion spent on care records systems so far does not represent value for money, and we do not find grounds for confidence that the remaining planned spend of £4.3 billion will be different.”

But this was the Department of Health’s view on NPfIT Care Records Service value for money:

“The Department considers, however, that the money spent to date has not been  wasted and will potentially deliver value for money… The Department believes that the flexibility provided by the future delivery model for the programme will deliver functionality that best fits the needs of the clinical and managerial community. The future architecture of the programme allows many sources of information to be connected together as opposed to assuming that all relevant information will be stored in a single system. This approach has been proven in other sectors and is fully consistent with the Government’s recently published ICT strategy.”

This contradiction between the DH’s view of the NPfIT, and the NAO’s, indicates, perhaps, that the DH continues to live in a world not entirely attached to reality.

From April 2013, the DH’s central team and some local programme teams responsible for the NPfIT moved to the Health and Social Care Information Centre which has taken over the local service provider contracts with BT and CSC. Will it be able to control central spending on the very-much-alive NPfIT?

Update:

The central costs could rise much further – possibly by more than £100m – if the eventual settlement of the legal case between the DH and Fujitsu works out badly for the taxpayer. Legal costs on the case so far are about £31m.

Natwest/RBS – what went wrong?

By Tony Collins

Outsourcing to India and losing IBM mainframe skills in the process? The failure of CA-7 batch scheduling software which had a knock-on effect on multiple feeder systems?

As RBS continues to try and clear the backlog from last week’s crash during a software upgrade, many in the IT industry are asking how it could have happened.

Stephen Hester, RBS’s boss, told the BBC today:

“In simple terms there was a software change which didn’t go right. Although that was put right quickly there then was a big backlog of things that had to be reprocessed in sequence. That got on top of our technical teams … it is like the landing path at Heathrow. Once you get out of sequence it takes a time to get back into sequence even if the original fault is put right.

“Our people are working incredibly hard … I am pleased to report that as of today RBS and Natwest systems are operating normally.

“We need to make sure they stay normal for the next few days. There is still some significant catch-up today, much less tomorrow and so on as we go through the week.”

The immediate technical cause of the problems might not have been too difficult for those inside the bank to establish – but finding out how and why it happened, why processes were not in place to stop a backlog of work building up, and why testing of the upgrade did not pre-empt the failure may take weeks and possibly months to establish.

Attributing blame could take many years. After BSkyB appointed EDS to supply a CRM system in 2000, and the project failed, it was ten years later before a court reached a judgment on blame. The cause of the failed project was never definitively established.

Official cause of system crash

The official cause of RBS/Natwest’s problems was given at the weekend by Susan Allen, Director of Customer Services, RBS Group which includes Natwest and Ulster Bank. She told Paul Lewis of BBC’s Moneybox programme:

“Earlier this week we had a problem in our overnight backup. So a piece of software failed that started all the updates that happened to our systems overnight.

“What that has meant practically is that information on customers’ accounts has not been updated… It is horrendous.

“The underlying problem has been fixed, so the computer software that failed has been replaced. That is in and working. The challenge we now have is bringing all the systems back up and working through all the data that should have been gone through over the last three nights …

“We have 12 million customers in Natwest and RBS and just over 100,000 in Ulster Bank. So it is affecting a serious number of people. It is having a terrible impact.

“We are encouraging all of our customers to call us, come and see us in our branches … we have branches open late .. and have doubled the number of people on the phone. Call centres are open 24 hours a day.”

Call centres use 0845 numbers which are chargeable for some. Lewis asked, Why are you making people pay to fix a problem that’s your fault?

“Customers should not be having to pay for those calls,”replied Allen. “If that is a problem for people we will take a look at that.”

Lewis: Will you re-imburse people for their calls?

“Absolutely. We recognise there will be lots of different expenses as a result of this. We apologise and want to make sure they are not out of pocket. If people have got claims they should put them through to us…we will need the information to deal with the claims.”

Lewis: Will you refund charges by credit card companies for late payments?

“We will. We will… we will make sure nobody is out of pocket… in one instance we got cash in a cab to a customer’s home… clearly we trust our customers so if we can see that somebody has a certain amount coming in every week we will give them money against that. So we ask people to come in and bring identification with them such as their bank card, we will do what we can to help.

“We will look after our customers. We realise this has had a huge impact on people. We are not underestimating it … clearly there are things that have gone wrong and we cannot put everything right.”

Lewis: How much damage has this done to the reputation of the bank?

“Time will tell. For us it is pretty devastating. We pride ourselves on being a bank that really cares about our customers and wants to deliver great service. We absolutely mean it.”

Lewis: Should you get a bonus?

“We only get performance bonuses when we perform and this has not been a good performance.”

Comment:

Her explanation of the cause of the IT crash is unclear but otherwise Susan Allen’s answers to Paul Lewis’s questions were exemplary. Her openness and unaffected humility is surely the best way to handle a PR crisis. Small comfort for the millions affected though.

Technical cause of the crash?

Some of those commenting to The Register appear to have a good knowledge of RBS systems. There are suggestions RBS has lost some important IBM mainframe software skills in outsourcing.

One or two have suggested that the crash was caused by a failure of the bank’s CA-7 batch scheduling software. In February RBS had an “urgent requirement” in Hyderabad, India, for people with four to seven years experience of CA7.

One comment on The Register said that RBS runs updates on customer accounts overnight on an IBM mainframe, via a number of feeder systems that include BACS. “The actual definitive customer account updates were carried out by a number of programs written in assembly language dating back to about 1969-70, and updated since then. These were also choc-full of obscure business rules … and I do not believe anyone there really knew how it all worked anymore, even back in 2001…

“Of course the moral is complex mainframe systems require staff with the skills, and in this case, the specific system knowledge to keep things smooth. The fewer of these you have, the more difficult it is to recover from problems like this.”

Robert Peston, the BBC’s Business Editor, asks whether outsourcing was to blame.

“In my conversations with RBS bankers, there is an implication that outsourcing contributed to the problems – though they won’t say whether this is an issue of basic competence or of the complexities of co-ordinating a rescue when a variety of parties are involved.”

An RBS spokesperson told The Register that the software error occurred on a UK-based piece of software.

Some lessons from the crisis – Bank of England Governor.

The story behind India’s struggling Aakash IT project

By David Bicknell

The New York Times has carried a couple of excellent blog posts reporting on India’s struggling “Aakash” IT project.

The India Ink posts detail the story behind a plan to introduce a cheap computer built for Indian students. As the blog explains, last October, the Indian Ministry of Human Resources Development unveiled the new, $35 computer.

Now, more than six months later, with thousands of university students still waiting for the laptop, “the tale of the Aakash looks a bit like an Indian soap opera, complete with a convoluted storyline, multiple characters, and massive personality clashes.”

As India Ink says, the Aakash project, if successfully completed, could enable millions of students to connect with the larger digital world, and is being closely watched outside India as the national government tries to attract foreign investment in public-private partnerships for everything from infrastructure to vocational training.

“The original idea behind the Aakash seemed pleasantly simple. A cheap computer would benefit Indian university students by enabling them to watch lectures or get lecture notes and other class information online. In 2009, a team of government researchers developed the basic design for the low cost device.

“The job of putting the project out to bid fell to I.I.T. Rajasthan, which by spring of 2011 had received 477 million rupees — about $9.2 million — in government funds to pay for procuring and testing 100,000 low-cost tablets. In writing the tender, I.I.T. Rajasthan detailed the technical specifications for the tablet but did not specify the criteria for testing and approving the devices, according to a government source involved in the project. That omission was to prove disastrous.

Here is Part One of the tangled tale of the project, which involves issues with procurement, outsourcing, testing and governance.

And here is Part Two.

India’s $35 Aakash tablet comes apart
Aakash Tablet Problems: India’s $35 slate slammed by testers

How do you create successful software development teams? (Part 2: Outsourcing)

By David Bicknell

I recently reported on a roundtable organised by the Dutch software specialist Software Improvement Group (SIG) which set out to determine what makes successful teams in software development.

The roundtable featured two specialists in creating specialist teams: Andrew de la Haye, chief operating officer, at RIPE Network Co-ordination Centre (RIPE NCC), one of five Regional Internet Registries (RIRs) providing Internet resource allocations, registration services and coordination activities that support the operation of the Internet globally; and author and management expert Kevan Hall, chief executive of Global Integration.

In Part One of the discussion, which focused on creating excellent teams in software development, we examined teamwork, Agile empowerment, a commitment to quality, remote working and getting the right level of teamwork.

In this part of the discussion, we focused on managing multi-disciplinary teams, structure, reducing waste, and outsourcing.

Managing multi-disciplinary teams

Kevan Hall pointed out that when you’re working in a multi-disciplinary environment – for example, if you’re building a very complex piece of kit with tens of thousands of bits – there is a point at which you need to have some co-ordination.

But he added, “There is also a big part of the work where I’m an engineer off doing actual work or I’m somewhere writing code. And that’s not teamwork.  If we have this mentality that everything we do is a team, then we can’t make a decision until the next meeting. I distinguish between a team, which is kind of truly interdependent i.e. if you’ve got multi-disciplinary skills, R&D etc,  you really need to work collaboratively, tightly, and you can’t do it on your own, you need teamwork. But most work isn’t like that: most work is me doing my stuff.

“And therefore a simple hub and spoke group of organisations might be much simpler to do that. When you’re working globally, or virtually, that’s much, much easier because in a hub and spoke structure, if I want to talk to you, I just pick up the phone.  If I’m in a team, I have to go into all your Outlook diaries and hope that in the next month, you’ve got some time where we can at least all get on the phone.

“So hub and spoke is much simpler for virtual teams and for remoteness and those kind of things. So when we are  working collaboratively that’s when we really need to focus because it’s really expensive and quite hard to do.”

Waste reduction and communication

Andrew de la Haye from RIPE explained the need for what he describes as ‘waste reduction.’

“One of the things we do as standard culture in our software teams is every three to four months we do waste reduction sessions. So in the old methodology, you do retrospectives. You start a sprint – a sprint is two weeks – you deliver to the business, and after that, the team sits together and then they discuss what went well and what should be improved in the next sprint. And as a larger group in the whole department, we get them together once every four months for an hour or two at the most and we say, ‘OK. Where is waste? Where do we see waste?”

“And most of the time it is not coding or the real work they do, most of the time it is in the communications area.  And we try to get rid of it. So we changed the team from 2 x 6 to 3 x 4 people. It’s just part of our being to look at the waste we created after the last period and where can we improve. And they became  much more efficient and effective.”

According to Kevan Hall, one of the things you often see with teams is the ‘community decay curve’.

“When you have a team, virtual or not, you have a kick off and everyone’s very enthusiastic. And then you start doing the work, and it’s quite hard. And then you come to the end of something and you’ve succeeded and you have a celebration. Successful virtual teams create a rhythm. For our teams, it’s a year. You have a long old slog and there is a ‘periodicity’ of communication. A software team is perfect because you have a closure, a learning opportunity, a celebration and then you go and do it again. If it’s longer than that, then you have to think about other things that are going to have an impact, like a conference call or a coaching call.

“Even worse, if you’re managing a remote organisation or a remote supplier, the risk is that you only call them when you need something or you’ve got a problem. So they don’t really look forward to your next call. ‘Oh, no. Look who’s on the phone.’ You demotivate people just by your number coming up. It’s about keeping that rhythm. It’s a bit like an ECG. You’ve got to create those peaks to keep motivation high.

“Social media has a very powerful role to play in virtual teams, because it’s much easier to share the other things that I’m doing rather than just project updates. I also like Instant Messenger because if you have people in Asia you can see that they’re ‘on’ and to me it’s just like passing someone in the corridor. It’s the virtual coffee machine. Occasionally, people will see say, ‘If you’re there, can we have a quick call?’ And it’s another part of the rhythm for me – like keeping the heartbeat going.”

Outsourcing

“I used to sell a lot of outsourcing,” said Andrew de la Haye. “But I haven’t seen it really working (teamwise). One of the issues with outsourcing is the commitment bit, which is very important in my teams. My people are committed to me because they know me, and they know what the company stands for. If you outsource to somebody, who are they committed to? You hope that they are committed to the organisation they’re working for, but they’re certainly not committed to you. And they are probably more committed to themselves, especially in India because people move around like crazy.

“So one of the issues with outsourcing is the lack of commitment, I think. I don’t see a solution to that. There are two ways of outsourcing: outsourcing commodity items, where there is a new version of SAP and people need to upgrade. That kind of stuff. That’s good enough – it will work fine. But if you truly need to build applications and you need to work together with a company to create business value, and that’s what a lot of outsourcing is about as well, I haven’t seen it working.

“I tried it again last year, and I gave a company a chance. I had a really good relationship with this consulting firm and they told me that they had an excellent team in India, and ‘Let’s try this project just for a three-month trial.’ And it was more or less the only project in the last five years that went belly-up.”

As Kevan Hall pointed out, when you’re managing across distance, culture, time zones, working through technology, and commercial considerations, outsourcing is so much more complex.

“One of the things we see a lot with clients who have outsourced is what I call the balance of trust and control. Because I don’t know you and I don’t trust you, I tend to control you. And so we go out to India and we have these incredibly heavy processes which we beat you up to make sure you follow without any sense of initiative or change, and then you start complaining that the Indians don’t have any initiative and don’t innovate.

“Well, you’ve told them not to and they’ve very smart people, albeit with higher turnover, and then you’re finding that problem of ‘how do we build trust?’ So many organisations outsource processes and spend an enormous amount of time on process, but they don’t have the travel budget to even go and meet the people who are doing a service for them.

“So how are you ever going to build a relationship? You wouldn’t do it in your own business. So doing it in an even more complex environment…how’s that going to work?”

“You have to look at the type of activity being outsourced,” said Dr Joost Visser, SIG’s Head of Research . “There is a lot of success in outsourcing in all sort of activities. In software application development where you are trying to create business value and where people are being creative, like in the automotive industry, thinking of the next engine or concept car, I think that by basically taking the team you need and pulling it out over locations and over time zones, you’re creating a challenge for the teamwork you need for that activity.”

There is another factor: the customer, suggested Kevan Hall.

“If you decided that you’re going to bring your development team into one place and therefore take away one barrier to complexity, which is distance, which makes a lot of sense, then aren’t you just exporting that level of complexity to the customer? Because they still have to manage with the fact that they still have stakeholders spread around the world in different time zones and different cultures. And they’ve got complex needs. It’s OK for you now. But is that the right thing to do for the customer?

“Human Resources has done that. They’ve gone to specialist centres and business partners. And all that’s done is that the business partner has to manage all the complexity rather than the organisation.”

How do you create successful software development teams? (Part 1)

UK technology firms spurn BRICS deals in favour of home investment says Grant Thornton report

By David Bicknell

Medium-sized UK technology companies are forgoing demonstrable investment opportunities in the BRICS economies in favour of domestic deals, according to new research from audit specialist Grant Thornton. 

The research shows that three-quarters (75%) of medium sized UK technology companies have no plans to invest in new markets in the next 12 months.

The study reflects trends over the last five years for mergers and acquisitions in the technology market, which show that domestic investment continues to be the number one priority for ICT businesses. 141 UK to UK deals were completed in 2011,  a higher volume than with any other market.

In terms of outbound investment from the UK technology sector, mature markets such as the USA, Australia and Germany have consistently remained at the top of the league in comparison to other emerging markets. 

Wendy Hart, Head of Technology at Grant Thornton UK, is calling on investors in the UK’s technology mid-market to think beyond traditional investment regions and seize opportunities. She says: “Over the last five years the volatility of the global market has inevitably had an impact on the volume of cross-border deals taking place.

“Traditional, mature markets such as those in the G7 remain attractive to UK firms because of a familiar business environment, language commonalities and greater access to highly skilled employees. In contrast, outbound investment into fast-growing, tech-friendly economies such as India, China, Brazil and Israel is still relatively low.”

To help highlight the opportunities available, Grant Thornton has produced an ‘expansion index’ guide, which compares existing UK investment markets such as the UK, the USA, Germany, France and the Netherlands with emerging economies. The data demonstrates that the markets with the biggest opportunities are also the markets that present the biggest challenge for investors.

Wendy Hart continued: “The sheer volume of information that a business has to get to grips with before making an investment into an unfamiliar market can be daunting. There are three key stages that are vital foundations for a market entry strategy: full assessment of the opportunity available; thorough preparation so that a business is ready for execution; and management of the actual execution itself.”

In the report, Grant Thornton has also called on technology investment experts from around the world to provide detailed insight about key technology markets, both traditional and emerging.

Nick Farr, Head of China Britain Business Services at Grant Thornton UK, said: “One of the reasons that UK technology businesses are reluctant to enter China is a fear of copying or reverse-engineering of their products. Whilst this is still a risk, as China’s patent system evolves there are increasing opportunities for businesses to protect their intellectual property (IP). These opportunities are being noticed. Recent research by the China-Britain Business Council showed that 59% of UK businesses with a presence in China want to increase their R&D activity there.”

Some snapshots from the report:

China

“Grant Thornton’s Technology Expansion Index ranks China second for economic growth and third for infrastructure and technology. On the flip side, China is one of the lowest ranked markets for political and legal landscape and has one of the most complex systems in the world for business start-ups. It is this dichotomy, paired with the complexities of Chinese culture, that best explains the lack of UK businesses looking to enter the Chinese market.

“However, great returns are never easily achieved. The opportunity in China is huge, not just in terms of salary arbitrage and tax incentives. Despite the recent slowdown in China, growth is still upwards of 8% and this high growth potential means that those companies able to access the Chinese market will be better at meeting consumer needs and faster to market, leaving those who shied away from early investment trailing in their wake.”

Brazil

“At 8.5 million square kilometres, Brazil is the size of a continent, and currently accounts for 40% of Latin America’s economy. IMF GDP growth forecasts through 2013 are strong at 4%, potentially underpinned by the impact of the 2014 World Cup and 2016 Olympic Games, which will drive technology investment. The domestic market for IT in Brazil is now the seventh largest in the world. $165.7bn was spent on ICT in 2010 with only $2.4bn of services exported.

“Brazil is a potential technology investment hotspot because of its large, stable, growing economy; a modern financial system that has largely escaped the global financial crisis; a strong base of local investors; and robust capital markets and a middle class of almost 100 million people aspotential technology consumers.”

India

“The Indian Government’s new ICT policy aims at speeding up development, including plans for fibre optic cable installation and aggressive broadband implementation.

“A strong driver for IT investment is India’s own Generation Y who are primed to become hungry consumers, particularly of IT, consumer technology and social media. India’s consumermarket, currently the world’s thirteenth largest, is expected to become the fifth largest by 2025. Its telecommunication industry, the world’s fastest-growing, added 227 million subscribers duringthe period 2010–11.” 

UK

“According to our survey, 18% of UK technology companies plan domestic investment in the next 12–18 months. Despite the economic downturn, or perhaps because of it, many technology companies are still lookingto consolidate and strengthen theirpresence at home rather than seeking out riskier, but potentially more rewarding climates.

“There is a trend in the UK technology market where large corporates are increasingly looking to acquire companies that provide specialist services or offer some innovation that addresses a niche they want to reach. Importantly, the current state of the overall market means that these companies can be acquired more cheaply than might have been possible pre credit-crunch,” says Wendy Hart.

For more details or for a hard copy of the report, which also features case studies on a number of UK technology companies, including Galleon Holdings, Ideal Industries, Mobile Tornado, Kelkoo, and Tessella, contact Emma Ap-Thomas at Grant Thornton. Tel: 0207 728 2348 or emma.ap-thomas@uk.gt.com

Grant Thornton UK website

Fast-growing BRICS countries face IT challenges, says economic think tank

Much has been written about the economic potential offered by the BRICS countries: Brazil, Russia, India, China and South Africa.

And yet, despite improvements in many drivers of competitiveness, the BRICS still face important challenges to more fully adopt and leverage IT, according to the latest  Global Information Technology Report 2012: Living in a Hyperconnected World, published by the World Economic Forum.

Despite efforts over the past decade to develop information and communications technologies (ICT) infrastructure in developing economies, a new digital divide in terms of ICT impacts persists,  the Forum says.

Even for the fast-growing BRICS, an insufficient skills base and institutional weaknesses, especially in the business environment, present a number of shortcomings that stifle entrepreneurship and innovation.

It’s not unreasonable to argue that they may have something to learn about delivering successful IT projects too, as developed countries have had to do. Alternatively, they may have some insight to pass on.

When it comes to leadership in IT adoption and usage, it is the usual suspects, Sweden (1st) and Singapore (2nd) that top the rankings in leveraging information and communications technologies to boost country competitiveness.

Switzerland (5th), the Netherlands (6th), the United States (8th), Canada (9th) and the UK (10th) also show strong performances in the top 10.

It is equally perhaps no great surprise to find that ICT readiness in sub-Saharan Africa is low, with many countries showing significant lags in connectivity due to insufficient development of ICT infrastructure, which remains too costly.

Even in those countries where ICT infrastructure has been improved, the Forum suggests, ICT-driven impacts on competitiveness and well-being trail behind, resulting in a new digital divide.

China

At 51st place in the rankings, China leads the BRICS countries. Yet, the report says, “this should offer little consolation in light of the important challenges ahead that must be met to more fully adopt and leverage ICT.

“China’s institutional framework (46th) and especially its business environment (105th) present a number of shortcomings that stifle entrepreneurship and innovation, including excessive red tape and long administrative procedures, lofty taxation amounting to 64 percent of profits (124th), uncertain intellectual property protection—it is estimated that almost 80 percent of installed software in China is pirated—and limited or delayed availability of new technologies (100th).”

In terms of readiness, the country ranks only 87th in terms of its infrastructure and digital content, mainly because of its underdeveloped Internet infrastructure.

In terms of actual ICT usage, although the figures remain low in absolute terms, they should perhaps be considered in light of the sheer size of the country.

ICT usage by businesses is significant (37th). China is becoming more and more innovative and this in turn encourages further and quicker adoption of technologies. The Chinese government is already placing significant hopes in IT as a catalyst for future growth, because more traditional sources of growth are likely to dry up.

The efforts of the government in promoting and using IT are reflected in China’s strong showing in terms of government usage (33rd). For the time being, though, the overall impact of IT on the economy remains limited (79th).

India

However, contrast China’s position with India and you find that India, ranks nearly 20 places behind in 69th position.  India delivers a very mixed picture, with encouraging results in some areas and a lot of room for improvement elsewhere, notably in the political and regulatory (71st) and business and innovation environments (91st).

Extensive red tape that stands in the way of businesses and corporate tax is among the highest of all the countries analysed by the Forum. For instance, it typically takes four years and 46 procedures to enforce a contract in India. Starting a business is longer and requires more paperwork than in most countries. Other variables fare better, such as the availability of new technologies (47th), the availability of venture capital (27th), the intensity of local competition (31st), and the quality of its management schools (30th).

One of the weakest aspects of India’s performance lies in its low penetration of ICT. The country ranks 117th in terms of individual usage, with 61 mobile subscriptions for every 100 population, a relatively low figure. Only 7.5 percent of the population uses the Internet; just 6 percent of households own a PC and broadband Internet remains the privilege of a few, with less than one subscription per 100 population.

“The big story is how India is falling behind in relative terms as far as its overall measure of technology and competitiveness is concerned,” says Soumitra Dutta, Roland Berger Professor of Business and Technology at INSEAD, a co-editor of the report. “A few years ago, India was ahead of China.”

Brazil

Another member of the BRICS, Brazil, positioned in 65th place, benefits from  strong levels of business ICT usage (33rd). These, combined  fairly advanced levels of technological capacity (31st) in particular segments of its industry, allows the country to achieve one of the strongest performances of ICT-enabled innovations in the Latin American region, both in terms of new products and services (29th) and more efficient processes (34th).

However, despite these strengths, its overall business environment with burdensome procedures to create new businesses (138th) and high tax rates (130th), in addition to its high mobile phone tariffs (133rd) and poor skills availability (86th), hinder the potential of the Brazilian economy to fully benefit from IT and shift toward more knowledge-based activities (76th) at a faster pace.

That said, Brazil is now the seventh largest ICT market in the world, with £106bn spent in 2010.

World Economic Forum Global IT Report

Universal Credit: who’ll be responsible if it goes wrong?

By Tony Collins

When asked whether Universal Credit will work, be on budget and on time, Ian Watmore, Permanent Secretary, Cabinet Office, gave a deft reply. He told Conservative MP Charlie Elphicke on 13 March 2012:

“From where I sit today, I think all the signs are very positive. I am never going to predict that something is going to be on time and on budget until it is.”

If the plans do not fall into place who, if anyone, will be responsible? In theory it’ll be Iain Duncan Smith, the Secretary of State for Work and Pensions. But as Watmore told the Public Administration Committee, there are several other organisations involved. Although the DWP and HMRC are building the IT systems, the success of Universal Credit also relies on local authorities, which are overseen by the Department for Communities and Local Government.

There are also the Cabinet Office and the Treasury whose officials seek to “ensure that what is going on is appropriate” said Watmore.

If Univeral Credit goes awry all the departments may be able to blame the private sector: the employers that must pass PAYE information to HMRC so that the Revenue’s Real-Time Information element of Universal Credit can work.

David Gauke is the minister responsible for HMRC so would he take some of the blame if Real-Time Information didn’t work, or was not on budget, or was delayed?

Or would the main IT suppliers Accenture and IBM take any of the blame? Highly unlikely, whatever the circumstances.

There is also a dependency on the banks.

But nothing is wrong … is it?

All those putatively responsible for Universal Credit continue to say that all is going well.

Duncan Smith told the House of Commons on 5 March 2012:

“We are making good progress towards the delivery of universal credit in 2013, and I have fortnightly progress meetings with officials and weekly reports from my office. I also chair the universal credit senior sponsorship group, which brings together all Government Departments and agencies that are relevant to the delivery of universal credit.

“Design work is well under way and is being continually tested with staff and claimants, and the development of the necessary IT systems will continue in parallel.”

He said that universal credit will reduce complexity by putting together all the benefits that are relevant to people going back to work – though benefit systems that are not relevant to the coalition’s “Work programme” will not be included in the DWP’s Universal Credit IT consolidation.

To reduce risks Universal Credit will be phased in over four years from October 2013, each stage bringing in a different group of claimants.

But …

Campaign4Change has asked the DWP to publish its various reports on the progress of Universal Credit and it has refused, even under the Freedom of Information Act. It seems the DWP’s secretiveness is partly because all of the risks related to Universal Credit have not been mitigated. We will report more on this in the next few days.

Meanwhile to try and answer the question in our headline: who’ll be responsible if Universal Credit goes wrong? The answer is: the private sector probably. Or rather nobody in the public sector.

Can hundreds of millions be spent on Universal Credit in an agile way?

Universal Credit suppliers Accenture and IBM look to India for skills.

Is Universal Credit a brilliant idea that’s bound to fail?

Universal Credit latest

Universal Credit and the banks.

New child support system has 90,000 requirements – in phase one

                               A new old-style government IT disaster?

By Tony Collins

While officials in the Cabinet Office offcials try to simplify and cut costs of Government IT, a part of the Department for Work and Pensions has commissioned a system with 90,000 requirements in phase one.

The projected costs of the child maintenance system have risen by 85% and the delivery date has slipped by more than two years.

Even with 90,000 requirements, phase one, which is due to go live in October, excludes 70 requirements that are “deemed critical” says a report published today by the National Audit Office.

The NAO report indicates that the Child Maintenance and Enforcement Commission has commissioned an old-style large IT system using traditional developing techniques and relying on large companies.

G-Cloud and SMEs have not featured in the Commission’s IT strategy – and it abandoned agile techniques last year on its child maintenance project.

The Commission put the cost of its new child maintenance system at £149m in January 2011. Ten months later it put the cost at £275m, an 85% increase. The Commission was unable to give the NAO a full explanation for the difference.

Lessons from past failures not learned?

Today’s NAO report says there is a risk the Commission will repeat mistakes by the Child Support Agency whose IT system and business processes were criticised in several Parliamentary reports. The Commission takes in the work of the Child Support Agency – and indeed runs its own systems and the Child Support Agency’s in parallel.

Officials at the Commission told the NAO they have a good track record of holding back IT releases until they are satisfied they will work.  “Nevertheless, we found that the Commission is at risk of repeating many of the mistakes of 2003,” said the NAO. Those mistakes include over-optimism and a lack of internal expertise to handle suppliers.

Mixing “agile” and “waterfall” doesn’t work

Initially civil servants at the Commission tried to “mix and match” agile and traditional developing techniques – which Agile advocates say should not be attempted.

In 2011 the Commission gave up on agile and “reverted to a more traditional approach to system development” says the NAO report.

The mix and match approach meant there were two distinct routes for specifying requirements and “resulted in duplicated, conflicting and ambiguous specifications”.  The Commission did not have previous experience of using the agile approach.

The Commission’s child maintenance system was due to go live in April 2010 but the delivery date has slipped three times. Phase one is now due to go live in October 2012 and phase two in July next year but the NAO report raises questions about whether the go-lives will happen successfully. The Commission has not planned in its financial estimates for the failure of the system.

The NAO finds that the Commission has struggled to make its requirements for the new system clear. The Commission’s main developer Tata Consulting Services has had protracted discussions over the meaning and implementation of requirements.

The NAO also hints that IT costs may be out of control. It says the Commission may not secure value for money without properly considering alternative options for restructuring and “adequately controlling its IT development …”

These are some of the NAO’s findings:

IT costs could increase further

“The new system is based on ‘commercial off-the-shelf’ products. However, a recent audit by Oracle identified that the performance, maintainability and adaptability of the new system would be key risks. This could increase the cost of supporting the system. The scheme does not yet include plans for the integration with HM Revenue & Customs’ Real Time Information system due to be implemented in 2013, or introducing Universal Credit because of the differing timescales,” says the NAO which adds:

“Achieving the Commission’s plans without further cost increases or delays appears unlikely. The Commission reported to the audit committee in October 2011 on the high risk that the change programme may not deliver phase two functionality within agreed timescales … The Commission did not develop a benefits realisation plan until November 2011.”

103,000 of Commission’s 1.1m cases are handled manually

“Ongoing technical problems have resulted in a large number of cases being removed from the IT system and managed manually. These are known as clerical cases … The Commission has had to operate the ‘old’ and ‘current’ schemes in parallel.  Due to flaws in the IT systems for each scheme, some 100,000 cases have had to be processe:d separately by clerical staff at a cost of £48 million,” says the NAO. It takes 900 contractors to manage the clerical cases.

Comment

Despite numerous NAO reports on failures of Government IT-based projects over the past 30 years the disasters are still happening, with the same mistakes repeated: over-optimism in every aspect of the project including timetables and financial estimates; excessive complexity and over-specification, no sign of cost-consciousness and, worst of all, an apparent indifference to being held accountable for a major failure.

A glance at the monthly outgoings of the Commission (well done to the coalition for requiring departments and agencies to publish contracts over £25,000) show sizeable and regular payments to familiar names among the large suppliers: HP Enterprise Services (formerly EDS), Capgemini, Tata Consultancy Services, BT Global Services and Capita. There is hardly an SME in sight and no sign of imaginative thinking.

Meanwhile some senior officials at the Commission put in monthly expenses for thousands of pounds in travel, accomodation and subsistence for “Commission meetings”. One wonders: to what useful effect?

Officials at the Cabinet Office are trying to change the culture of departments and agencies. They are encouraging departmental heads to do things differently. They advocate the use of  SMEs to show how new ways of working can trounce traditional approaches to projects.

But the Cabinet Office has little influence on the Department of Work and Pensions. Indeed the DWP has lost its impressive chief innovator James Gardner.

We praise the NAO for noting that the Commission risks repeating the IT-related and project management mistakes of the Child Support Agency. But we note with concern that the NAO still puts up with Whitehall’s non-publication of  Gateway reviews, which are independent reports on the progress or otherwise of big and risky IT-based projects.

Would the Commission have been so apparently careless of the risks if it had known that regular Gateway reports on its shortcomings would be published?

How many more government IT-based projects are late, over budget and at risk of failing, their weaknesses hidden by an unwritten agreement between the coalition and civil servants to keep Gateway reviews secret?

NAO report – Child Maintenance and Enforcement Commission: cost reduction

Government repeating child support mistakes – ComputerworldUK

Will the BRICS learn the lessons from developed nations’ limp track record of IT project delivery?

By David Bicknell

There’s not much doubt of the hot spots for IT spending over the next few years:  the BRICS.

According to this piece on ZDNet, while Europe remains transfixed viewing a Greek tragedy, other countries, notably the BRICS, are pushing ahead in terms of IT spend. 

Research firm IDC suggests that total IT spending will grow 5 percent in 2012 with emerging markets, smartphones, storage and software at the head of the pack.
 
Although European IT spending is likely to remain weak for the foreseeable future, spending in BRIC countries (Brazil, Russia, India and China – this seems to exclude ‘the S’ of South Africa) will see double-digit growth rates:
 
  • Brazil IT spending will rise 9 percent;
  • Russia will increase 11 percent;
  • India will  be up 16 percent;
  • And China’s tech spending will jump 15 percent

That spending means we can expect large increases in new IT projects – or perhaps I should say business projects delivered through IT.

Will the BRICS do a better job of the project management and delivery of these IT projects than we’ve managed in the developed world? Well, let’s just say there’s plenty of useful best and worst practice for them to take on board.

Links

Russia last in BRICS for faith in business

Can Brazil drive innovation?