ITO Insight

Logica has updated NelsonHall recently on its application management (AM) capabilities in Europe and the U.K.

The company derived in 2010 £823m in application management revenues, representing ~51% of outsourcing revenues and ~23% of Logica's overall revenues. Logica is one of the few firms that has grown its AM revenues during the crisis:

• AM revenues were up 17.4% in 2010, on a constant perimeter/constant rate basis, up from +9.8% in 2009
• H1 2011 AM revenues were up 14% at constant perimeter/constant rate to £329m, representing 53% of overall outsourcing revenues
• NelsonHall estimates that full-year 2011 AM revenues will up at least by 10% to ~£900m.

Most of the success has from several elements including:

• A continued growth in its French AM business, the largest AM country of Logica and in the U.K.; and strong growth in Nordics thanks to several contracts including:
  -The January 2010 PostNord contract in Sweden and Denmark, which involved 280 personnel transfer
  - The 2011 renewal of its 2008 Michelin contract
  - The 2011 extension of a large contract with the U.K. MoJ as well as large contracts with Shell and the U.K. crime agency
• Management focus on outsourcing with:
  -The appointment of a global AM managing director (coming from the former SIS)
  - The appointment of a new AM director in the U.K.
  - A transformation of the AM line in terms of delivery and offering. Logica is driving further industrialization of the AM delivery with the alignment of tools and processes used in onshore and offshore factories
• Continued development of the company's nearshore and onshore factories including
  - The Philippines: SAP services and English language
  - Czech Republic: SAP services and German language
  - Morocco: for French-speaking clients.

Looking ahead, AM is expected to remain a strong driver, with revenue come budgeted to accelerate over time to 14% annually. To achieve this, Logica AM has proceeded to several changes:

• Added personnel to its sales and account management teams to drive further contracts
• Industrialization of processes around incident and enhancements.

One of Logica's major initiatives is to further industrialize its incident and management teams through:

• Deployment of ITIL-based processes
• Grouping personnel around competencies i.e. incident management and enhancements and delivering shared AM services through these production centers

The move is intended to further enhance work quality while also reducing costs. The company is to market the offering in Q1 2012

Of all country units, Logica U.K. in AM stands out of the other country units for having completed the alignment of tools used in the U.K. with those used in its global delivery network. This is because the unit traditionally is the most India-centric AM unit of the company: Logica U.K. has 550 dedicated AM personnel and uses the services of an additional 600 in India.

The U.K. AM business unit has structured its service line in three main offerings

• Core application maintenance, support and enhancement services relying on a nearshore factory in South Wales and from India. This unit has a 350 headcount
• ERP services i.e. Oracle and SAP services (with a shared services center in Birmingham, Philippines and Czech Republic). Services provided by the ERP practice are AM-centric and include technical refreshes, upgrades and functionality enhancements. The unit works with its SAP practice for large implementations (over several hundreds of man days or for greenfield implementations). It has a 100 headcount
• Software testing , which is part of the the global managed testing unit. The unit in the U.K. currently has 50 personnel
• Delivery managers (50 AM specialists AM) and shared delivery managers

Logica AM U.K. has 100 clients in the U.K. out of which, local government (SAP application management and shared AM service centers) is the largest segment. Other key sectors include energy and financial services.

iGATE has held an 83% stake in Patni since May 2011. The combined Patni iGATE business generates revenue of ~$1bn and has a global headcount of ~25,500. Together, the companies derive 82% of their revenues from North America, 11% from EMEA and 7% from APAC.

Revenue breakdown by verticals is:

• Insurance and healthcare: 30.3%
• Manufacturing, retail and distribution: 30.3%
• Banking and financial services: 11.6%
• Communications, media and utilities: 11.2%
• Product Engineering Services: 16.7%.

iGATE Patni has 2,600 career testers in its software testing practice: 1,900 from Patni and 700 from iGATE. Software testing represents 10% of global headcount and contributes 14% of overall revenue.

The testing practice has worked on integrating the software testing capabilities of the two companies in terms of service portfolio and accelerators & IP. Currently, about 70% of the revenues of the combined Patni and iGATE software testing capabilities come from snsurance, healthcare, banking and financial services clients

• Approximately 75% of the revenues from iGATE's testing practice comes from retail banks. The unit started testing custom applications and expanded to testing packaged applications when iGATE overall was involved in two contracts:
  - The implementation of a core banking application for a U.S. bank in 2009
  - The deployment of a retail banking and Insurance for a Canadian bank. Since then, the testing contract has expanded to packaged applications, wealth management and capital markets for the custody arm
• The Validation & Verification (V&V) practice of Patni is also financial services-centric, deriving 70% of its revenue from financial services clients. The focus within financial services has been larger than iGATE, with testing areas of strengths including insurance, mutual funds and capital markets. The unit also services the manufacturing sector (20% of revenues), largely around ERP testing, and communications & media (10%)
  - The largest client of V&V is a U.S. insurance firm, which contributes annual revenues of over $10m. Services provided include testing of 150+ insurance specific and PeopleSoft applications
  - In 2010, Patni separated out its technology engineering testing activity (headcount of 600), which provided testing services around medical products e.g. x-ray machines and pacemakers or high-tech products. The spin off was decided because the product engineering testing team required different skills e.g. combined knowledge of development and testing as well a higher knowledge of the product itself. In addition, senior management at iGATE considered the product engineering testing team had critical mass and wanted to re-energize the unit.

In terms of IP and accelerators, Patni has brought its FAAST testing automation, now renamed SPRINTEST. SPRINTEST creates an object library and allows users to write test cases through a spreadsheet to connect those objects. In many cases, clients have their own frameworks. The specificity of Patni's framework is that test script can be used, irrespective of whether the test framework is there or not. It runs and supports multiple tools such as HP QTP, IBM RFT and open source Selenium. iGATE has brought additional IPs including iAuthor, a BPM-based visual requirement modeling tool used for generating test scenarios.

Initiatives in the testing unit since the May 2011 acquisition include:

• Testing in an agile environment: a contract win three years ago from one of its UK based client for the development of medical insurance software. Patni was initially awarded the development part of the contract and recently was also awarded the testing part, ousting a third party that originally had won the contract
• Go-to-market focus on application security testing and on its experience setting TCoEs: iGATE Patni has created a methodology for creating TCoEs for clients, rolling out consistent processes and metrics to its clients. The combined companies promote a phased approach, allowing for a planned expansion, rather than a big bang approach. Services provided initially for clients include staff augmentation, moving gradually to SLA- and outcome-based contracts. iGATE Patni highlights that very often it promotes opex offering for test automation projects, where the client is not paying for the automation of the test cases
• Cloud computing: the combined organizations offer HP testing products e.g. QC and QTP as a SaaS model to its clients. The agreement with HP allows iGATE Patni to use the licenses it has purchased to resell across different clients. The company is also working with its IT infrastructure services unit to offer virtual testing environments, for private clouds.

Wipro Technologies had announced the consolidation of its India and Global IT infrastructure business to form a New Business Unit called Global Infrastructure and Services (GIS).

As well as combining R&D efforts, the consolidation of its India and iternational IT infrastucture businesses is intended to facilitate the establishiment of standardized global practices, integrated delivery, program governance and provide more global career opportunities for its personnel.

Anand Sankaran will lead the GIS business, in addition to his current responsibility as Head of Wipro Infotech.

Spanish software testing pure-play has recently briefed NelsonHall on its capabilities. MTP was founded in 1997 and is based out of Madrid with offices in London, San Paulo, Mexico City and Buenos Aires. The company had 2010 revenues of €21m and is targeting €27m in 2011. Headcount is 500, of whom 400 in Madrid where the company has a testing factory and 100 in Latin America (Brazil and Mexico).

MTP is specialized in servicing telecom service providers, financial services clients and in particular banks. Approximate revenue contribution from key sectors is:

• Telecoms 50%
• Financial services 19%; of which banking 15% and insurance 4%
• Manufacturing 12%.

The company primarily services Spain-headquartered organizations Clients include Telefonica and Orange in the telecom sector, Santander and BBVA in the banking sector as well as Spanish public sector bodies.

MTP has specialized into several offerings. In telecom, MTP was selected in 2010 as the sole provider of testing services for Telefonica in Spain. The company provided more than 700,000 hours of testing to its clients per year.

• The company is running a Madrid-based factory for regression testing; and validating and certifying the client's releases before they are move into production. As part of the contract, MTP is to reduce costs through several levers including increased level of test case automation
• MTP service CRM applications, web sites as well as application running on the network and applications running on mobile devices
• The company also provides selectively performance testing for the client's critical applications and has introduced agile and cloud testing.

MTP also services Orange (Spain) from its Madrid test factory, providing full responsibility over testing projects and carrying test design and execution work, as well as support to UAT.

• MTP also provide code analysis work based on CAST software tools and IBM AppScan. MTP is highlighting that software quality analysis and security assessment are increasing in demand.

MTP is also active in the telecom sector working for device and equipment manufacturers around network testing and especially around LTE/4G and /3G as well as radio-frequency networks. Clients for LTE have included Japanese clients and 3G: Nokia Siemens Networks and Ericsson. The company has developed its Exhaustive/TTCN tool to define, automate and execute test cases based on the TCCN-3 standard. TCCN-3 is a standardized language set by the European Telecommunication Standards Institute used in industrial environments to automate test validation of software applications.

The company has recently expanded into the U.K. and opened an office in London in 2010, initially accompanying Spanish clients with presence in the U.K. e.g. Santander, the 3^rd largest bank in the U.K. by deposits (resulting from the merger of Abbey National and Alliance & Leicester) as well as O2 (Telefonica). MTP also has U.K.-headquartered clients e.g. Yell Group for which it was working in South America e.g. Yell Publicidad. MTP is aiming to win managed testing services contracts from U.K. clients with delivery done from its Madrid factory. The company is promoting the notion of total cost of doing testing and a cost per test case approach, aiming to differentiate from pure labor costs from its Indian competitors.

The company is promoting a subscription-based engagement type. Under the model, the client is paying a fixed fee per month but is free to use or not to use the work it has paid for. Work that is not used can be executed on a different month, provided the client gives MTP two weeks' notice and a low monthly minimal payment is maintained. The service is available for functional, automation and performance testing. The subscription' only constraint is that testing work must be delivered from the MTP Madrid factory. MTP is able to manage its work load thanks to the client base to absorb variations. Clients for this offering include Orange Spain and MTP is betting that the subscription approach will be a significant differentiator for the U.K. market.

MTP had Experimentus, the U.K. TMMi consultancy, certify its Madrid delivery center to TMMi level 3 and is currently under certification for TMMi level 4. The certification comes on top of a non-testing specific certification by ISO 9001. The TMMi certification, which Experimentus certifying that MTP is the first IT services vendor in the world to be certified against TMMi level 3 is used to reassure clients about MTP's quality approach to software testing.

In addition to its Madrid factory, MTP has two delivery centers in South America: Mexico City and Sao Paolo (Brazil), providing low-cost alternatives to Spanish sourcing and extended business hours for testing. Sao Paolo services clients including Telefonica South America while Mexico City services the U.S. market.

Siemens IT Solutions and Services has announced a number of offerings based on WMware technology. SIS and WMware are to jointly develop, market and deploy new services including:

• "Development and test clouds". These offerings are based on WMware technologies: Spring Framework (for Java applications), vFabric (for private virtual infrastructures) and Secure Virtual Test Center, and allow development of Java-based applications.
• "A cloud desktop". The offering is a virtual desktop offering, hosted by SIS and based on WMware 4.5.

Capgemini announced in May 2010 a partnership with Microsoft focused on BPOS, which is part of its Infostructure Transformation Services (ITS) initiative. The deals includes a common go-to-market as well as creating an offshore center of expertise and training 1,000 consultants onshore and offshore as well as developing accelerators.

Capgemini, with its ITS initiative, has partnered with Microsof to develop cloud computing skills at different levels i.e. at the virtualization, datacenter and ISV level, with the intention of selecting the right technology partners for each level. At the business user level, Capgemini has selected BPOS offering for several reasons:

• The wide adoption of the Office suite and its important client base, as well as the strong similarities between the offline version (Office) and its SaaS counterpart (BPOS). The strong similarities mean that needs for end-user training are minimal when switching from Office to BPOS
• BPOS includes SharePoint, which drives high customization work by the client

Capgemini is training 1,000 personnel on migration skills, and in particular in migrating both from Lotus Notes and Office to BPOS, as well as on SharePoint customization.

The 1,000 personnel training effort involves personnel equally split between onshore and offshore locations. Capgemini is focusing its training effort onshore where it already has an established Microsoft community: the U.S., U.K., Netherlands and France. Currently, the company has already trained 600 personnel. In addition, it is currently developing tools to accelerate tools for migrating from Lotus Notes to BPOS.

Capgemini expects to provide the following services to its clients:

• Consulting and advisory Services
• Transition, migration and training services.

BPOS is typically hosted and managed by Microsoft. However, Capgemini highlights that clients with needs for stronger SLAs than those provided by Microsoft, or with requirements for strong development of SharePoint, cannot be accommodated by the ISV. The company will therefore also provide hosting and infrastructure management for such cases.

Capgemini expects several types of clients for the BPOS offering- including organizations that want non-permanent email and collaboration tools for their staff (e.g. an airline carrier for its flight attendant personnel). The company has seen interest in the offering from clients in the U.K. and France. Currently 75% of the prospect base is made of Capgemini clients and 25% are new logos. The company highlights it has already migrated 7,000 seats to BPOS. It has as part of its commercial pipeline 35,000 seats to migrate.

Infosys' Infrastructure Management Services (IMS) horizontal unit achieved revenues of $344m in its fiscal year 2010 (ended March 31, 2010), a growth of 18%. In spite of the economic recession, the unit has almost doubled its revenue in the past two years, outpacing larger competitors in the IT infrastructure management space.

During the crisis, IMS has strengthened its presence in existing markets like US and UK and focused on key regions like Canada, Continental Europe, Australia and India , resulting in new wins in Switzerland, Australia and Canada as well as in India. In Europe, practice has won two significant wins in Nordics (for a retail client) and in Benelux (a telecom service provider) as well as recently in France (a bundled ERP implementation & maintenance together with the underlying IT infrastructure for a oil field service client).

In the past six months Infosys IMS has also built a strong pipeline in the U.S., primarily led by financial services, insurance & healthcare clients, and to a lesser extent by energy & utilities, as well as by retail. Recent major successes in the U.S. include Microsoft, a major contract for Infosys and a telecom services provider for which IMS is providing network management services.

IMS highlights that demand for offerings has changed. IT infrastructure consulting is back with clients exploring their strategies around Windows 7, virtual desktops or server virtualization/cloud computing. Build services activities are being driven by renewed M&A activity that is leading to IT consolidation. Demand for new offerings is also strong including:

• Server virtualization e.g. for development and test environments, for ERP or for data analytics
• Service integration where Infosys is acting as PMO of several IT service vendors, putting into place the right KPIs and putting reporting into place
• SaaS-based ITSM software tools
• VDI-based desktops.

IMS is also seeing growing interest in output-based pricing e.g. per inbox, per terabyte for storage, per CPU power. In one example, the company has a multi-year contract with a European client where pricing is work packet-based relying on a number of parameters including the service mix, the complexity of the systems and criticality of the IT.