Category Archives: Brazil

Too easy for councils to make up savings for IT outsourcing?

By Tony Collins

Birmingham City Council, Barnet Council and Somerset County Council have in common outsourcing deals that are subject to effective, independent scrutiny.

That scrutiny comes from bloggers and a former council IT employee. Their unpaid commitment continues for years. They are energetic, tenacious, local citizens with strong social consciences who look closely at what their local officials and councillors say in public about the benefits of their outsourcing contracts.

What they have found out shows that official claims for savings from IT-based outsourcing deals are based on subjective interpretations of council-supplied information. Interpreted differently, the same facts and figures could show the success of the contract – or the opposite.

This is usually because the council-supplied information raises questions that it does not always answer.

In the published costs of the outsourcing deal what is not included? Charges and mark-ups for items the outsourcer buys from other suppliers? Are redundancy payments taken into account? Are the costs of consultants and agency staff taken into account? Are the costs included of hiring a company to handle work that would otherwise present the potential for a conflict of interest if handled by the outsourcer Capita – as has happened at Barnet?

And what assumptions have council and supplier made about profit sharing? Somerset County Council concedes it has had endless arguments with IBM over what should be included and excluded when calculating the profit sharing in their joint venture.

Some of the uncertainties in working out savings from a big IT-based outsourcing contract are set out in an  email from Somerset County Council to an investigative and campaigning former IT employee Dave Orr:

“Since internalising the service, we have revised our working arrangements within the procurement service as many of the reports and practices performed by SWO [Southwest One, owned by IBM] were not satisfactory.”

Orr elicited this admission by Somerset County Council on the extent to which savings figures can be the subject of  dispute:

“Over the years there were disputes on individual savings initiatives and therefore also on the overall total that qualified towards the threshold. That dispute escalated to the courts and was settled before a full hearing.

“Along the way, for 6 years, a running total was kept by both sides as to how much they thought savings were and these were reported to various committees of the Council (and indeed to other authorities’ committees too).

“The agreed savings (where there was no dispute) and the value of savings believed to be achievable by SCC were fed into the Council’s budget process and reduced the overall need for budget pressures within services. Again, this is as per guidance in SERCOP and was reported to Scrutiny and Full Council meetings as councillors regularly asked what was happening with regard to savings realised.”

A murky pond

Those who support an outsourcing deal can fish facts and figures from a pond of numbers that show huge savings, while critics of the deal can fish in the same pool and show that payments to outsourcers are excessive.

Establishing the truth about the success or otherwise of a complex outsourcing deal can be impossible – because the truth may be subject to variables and interpretations.

At least, though, the independent scrutineers bring into the open facts and figures that would otherwise be unnoticed. And they hold officials and councillors to account in a way that internal auditors – who answer to the council – don’t always do.

Birmingham

For the Birmingham Post, Professor David Bailey of the Aston Business School writes regularly on the cost to the city council of Service Birmingham, which is two-thirds owned by Capita, the rest by the council.

SB was set up in April 2006 “to support the council in changing the way it works, using information communications technology to pave the way”.

Bailey gives detailed arguments for his belief that the council is making excessive payments to Service Birmingham. He questions the council’s claims that terminating the contract would be uneconomic.  Too much information is withheld by the council under the guise of commercial confidentiality, he says.

His columns go some way to countering the secrecy; he gives Birmingham’s residents a chance to see figures the council would probably not want exposed in an easy-to-understand context.

One of his latest blog posts says that Birmingham City Council paid Service Birmingham £102m in 2013 – of which £23m went in dividend payments and £5m in taxes.

“So that’s £28m that went out of the council in 2013 that could have been avoided if Service Birmingham had been scrapped,” says Bailey.

Barnet

Mrs Angry [Theresa Musgrove] is a much-respected blogger who writes the “Broken Barnet” blog, in part about Capita’s outsourcing contracts with the London Borough of Barnet.

She calls the borough “Capitaville”. Under the banner of “One Barnet” Capita runs a range of services from IT to cemeteries (and has produced a produced a business document for the council on the “opportunities” from making funerals more efficient).

Her blog posts are humourous, passionate and full of informed comment. She attends some council meetings and asks awkward questions that are often obliquely answered, if at all. She shows what happens when the council’s attempts to be open meet reality.

Barnet Council is lucky enough to have several effective scrutineers of the Capita contracts including “Mr Reasonable” who wrote in September that Barnet paid Capita £59m in 2013/2014 – compared to £53m which he says the services cost before outsourcing.

Does Barnet know what it is doing? Not according to the bloggers who, as well as Mrs Angry and Mr Reasonable, include The Barnet Eye and Mr Mustard. The Barnet Alliance is also a useful campaigning website.

Somerset 

Like the bloggers at Barnet and David Bailey at Birmingham, Dave Orr is not put off by unsubstantiated, vague or impenetrable council claims on outsourcing savings. A former IT employee at Somerset County Council, Orr has followed closely the authority’s joint venture with IBM-owned Southwest One.

He has objected formally to the council’s 2013/14 accounts, with the result that Somerset’s  officers and its auditors Grant Thornton in essence have negotiated to persuade him to withdraw his objection.

Orr agreed to withdraw his 0bjection on condition that:

–   2013/14 procurement savings figures are publicly published

– future years’ procurement savings figures are publicly published

The council agreed to the changes.

Comment

When interpretations of the known facts are optimistic,  proclaimed savings from IT-based outsourcing deals can seem large. When interpreted coldly or sceptically, the same facts may suggest there are no savings at all.

The truth may be that the council has no real idea whether costs are lower or higher than before given that the costs at the point of outsourcing were complex and uncertain and subject to an interpretation of the facts.

As Somerset council suggests: some lower costs can be cancelled out by reducing an overspend elsewhere.

It seems that big council IT-based outsourcing deals are like GPS systems which have parts of the map missing and the “my location” designation is never very close to where it actually is – while the supplier and council officials who are enthusiasts of the deal can claim without fear of authoritative contradiction that the facts are 100% certain and the savings are guaranteed.

The Barnet and Birmingham bloggers, and Dave Orr, have forced councils to be more open than they would otherwise be but there is still too much secrecy, especially at Birmingham and Barnet.

Can council officials and councillors always self-justify their decision to outsource IT and other services in a major long-term contract? Yes – always.

Can the critics credibly show that the outsourced service costs more than claimed, or that the savings are less than the council could have made itself if it didn’t have to pay the supplier’s profits?

The critics usually produce more credible arguments than the unnecessarily complicated and sometimes obfuscatory arguments of the council’s outsourcing enthusiasts.

Update:

Such are the bizarre complexities around council outsourcing deals and the claimed potential savings that a new trend is emerging: councils claiming savings by bringing IT-based outsourced deals back in-house.

This happened at Somerset and now Liverpool Council, which is full of praise for BT , is nevertheless scrapping its “Liverpool Direct” joint venture with the company. The Council is taking ownership of Liverpool Direct from BT.

The move will save  £30m over three years, as reported by Computerworld UK.

A Liverpool Council report on the savings says:

“Following the transfer of ownership, it is anticipated that the integration
of services from Liverpool Direct Limited to Liverpool City Council will deliver budget savings over a 3 year period from 2014-2017 totalling £30m.

“This delivers the best value option for Liverpool City Council, reflecting an
internal service delivery model with no further investment requirement
from BT and hence no return needing to be paid to BT for such
investment.”

Achievements

Service Birmingham lists its achievements here.

Barnet says its Capita contracts “will save £165m”

Southwest One – delivering value

BT and Liverpool Council’s “Liverpool Direct” delivers “growth and success”.

Should Liverpool Council smile now it’s ending joint venture with BT?

Liverpool Council expects to save £30m by ending joint venture with BT

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

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?