blog How much more do hardware servers cost in Australia? Quite a lot more than in the US, according to a report by small business technology media outlet BIT, in yet another case of the Australian technology tax striking fear into local wallets. The publication reports on the cost of some gear from HP (we recommend you click through for the full article), quoting local reseller Complete PC on the ProLiant N40L and mid-range ML350 models:

“The N40L was just $40 dearer here at $390 but the [RRP] for the ML350 was $7075 locally. The equivalent US product was $2085. However, Complete PC said that they would sell the ML350 for about $3100 as the RRP was higher than the market would pay.”

Wow. Gracious of Complete PC to only allocate a 30 percent markup or so, considering the original Australian RRP was more than triple the US price. I guess we can add another product category to the IT price hike inquiry’s growing list.

I can’t say this news is surprising, given the fact that virtually every technology product or service of any level of importance seems to cost a substantial percentage more in Australia than it does overseas (even software delivered via the Internet), but it is always disappointing to see markups in the range of 30 percent for products like this. It makes one wonder what the Australian technology tax would look like on a high-end piece of gear from the likes of Oracle (hello, Exadata), IBM, HP or Dell. Anyone out there got any figures?

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news Search giant Google has revealed it expects to pay just $74,000 in corporate income tax for the 2011 calendar year in Australia, off claimed local revenues of $201 million, despite the fact that industry estimates have continually pegged the search giant’s Australian income at closer to $1 billion.

In its latest set of financial accounts filed this week with the Australian Securities and Investments Commission, Google stated that it received some $201.1 million in revenue in the 2011 calender year in Australia. Expenses largely associated with its significant Australian headcount of 568 staff ($143.5 million) and advertising costs ($18.9 million) meant the company made a loss on paper of $3.9 million in that period. Both Google’s revenues and losses were up over calendar year 2010.

In the statements, Google accounted for just $74,176 in taxation for that year, compared with $1.1 million for the year previously. It had $46 million in cash and cash equivalents on hand as at the end of December last year.

In its financial statements, Google Australia did not list its activities as being the provision of advertising and software services, both of which it charges Australian customers for. Instead, it noted that it has agreements with its US parent, Google Inc, and a company called Walkway Technologies for the provision of research and development services, and with Google Ireland and Google Asia-Pacific for the provision of sales and marketing services. Consequently, almost all of Google Australia’s revenues were listed as being for services thus rendered to those companies.

“The company’s service revenues are generated under service agreements with Google Inc, a company incorporated in the United States of America, Google Ireland Ltd and Google Asia-Pacific Pte. Ltd, all of which have Google Inc as their ultimate parent company,” Google wrote in its ASIC filing. “As a consequence, the company is dependent on the operational support of Google Inc, for future revenues and profit under the agreement.”

Google Australia’s financial statements were audited by accounting firm Ernst & Young, with partner Meredith Scott certifying in the documents that the financial report of Google Australia “gave a true and fair view of the company’s financial position as at 31 December 2011″, and that it complies with applicable laws.

Since Google Australia’s financial statements were published, the company has come under significant criticism from various media outlets for the amount of revenue it declared, and the amount of tax it claimed it should pay.

The Australian newspaper reported that local analyst house Frost & Sullivan had estimated Google Australia’s revenue from the local ad search sector at closer to $940 million a year. The Financial Review listed similar estimates, but Google spokesperson Johnny Luu told the newspaper Google’s actual annual tax expense for the 2011 calendar year was $781,461, and that it complied with all relevant tax rules.

If it is true that its Australian revenues are close to $1 billion, the way that Google Australia accounts for its revenue does not appear to be consistent with the way other major technology companies account for their revenue in Australia.

In January, Apple, a major rival of Google, published its own financial statements for its 2011 financial year, noting that it made $4.88 billion from its Australian division in the year to 24 September 2011. The company made $190 million in local profits, and paid $94 million in tax in Australia. IBM Australia also filed its financial results over the past several weeks. The company made local revenues of $4.5 billion, with Australian profits being $428 million, and taxation taking a $119 million chunk out of IBM’s pocket.

In January this year, Mashable reported that Apple maintained much of its profits in so-called “offshore tax havens” which allowed it to stop the US Government from taxing it to the full extent possible in its home country.

In 2010, The Huffington Post wrote about IBM’s taxation purposes: “In December 2008, the Government Accounting Office reported that 83 of the 100 largest publicly-traded companies in the country — including AT&T, Chevron, IBM, American Express, GE, Boeing, Dow, and AIG — had subsidiaries in tax havens — or, as the corporate class comically calls them, “financial privacy jurisdictions.’”

However, in Australia, neither Apple nor IBM appear to use the same technique as Google with respect to tax accounting. The pair’s financial statements do not contain references to similar international subsidiaries in locations such as Ireland that Google Australia’s do, and both pay significantly more corporate income tax in Australia.

It’s not the first time Google Australia has been in a similar situation with respect to its taxable income in Australia. In May 2011, the company reported similar finances. In a statement at the time, a Google Australia spokesperson said: “Google complies fully with all relevant tax legislation in all the countries in which it operates, including in Australia. That means that we contribute to all relevant local and national taxation schemes – as well as providing employment for over 400 employees in Australia.”

opinion/analysis
In this article we have compared Google’s revenue disclosure and taxation approach to that of several other major technology companies operating in Australia; direct competitors of Google’s in several areas that also make significant amounts of money locally and are known internationally for their success in areas such as taxation minimisation.

However, neither company appears to take the same approach that Google does in Australia when it comes to disclosing how much money it is making locally and how much tax it is paying on those revenues. It appears that Google is going far beyond what large corporations such as IBM and Apple are doing in terms of taxation minimisation in Australia.

Of course, Google Australia does pay more tax than its ASIC statement would indicate — at the very least it would be paying many millions in income tax for the 500-odd staff it employs locally. And I’m sure that its spokesperson’s claims this week that its real tax figure in Australia is closer to $800,000 is correct.

However, that doesn’t change the fact that it appears as if fellow technology companies IBM and Apple are paying at least a hundred times more in real dollars in tax in Australia than Google is.
I don’t know enough about Australian taxation law to say whether Google is breaking Australian law with respect to its taxation practices. But what I do know is that if you asked anyone on the street locally whether a company which makes an estimated $1 billion in Australian revenues should be paying less than $1 million in tax, the answer would definitely be “no”.

When Google was founded in 1998, its infamous unofficial slogan was “don’t be evil”. Its current approach to paying tax in Australia does not appear to fit well with that slogan. Right now, Google is making hay while the sun shines off Australian businesses and consumers. And it is not contributing its fair weight back to the nation in return. I would encourage the Australian Government to change taxation law, if necessary, to make Google’s practices illegal; and I would encourage the Australian Taxation Office to conduct an investigation into Google Australia in the meantime.

Image credit: Posted by Mark Anderson under Creative Commons (original from Walt Disney)

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news The Australian newspaper (click here for the full article) has reported that the cost of fixing Queensland Health’s botched payroll systems implementation may rise eventually to $440 million. The newspaper quoted the new LNP Health Minister Lawrence Springborg today as saying:

“There is a lot of information that has been put together about what it has cost so far and what it could cost to fix and it is an unholy disaster, a massive debacle … There is very little dispute that it will eventually cost double what the previous government told the public.”

For those that need a refresh about this disastrous project, it was kicked off in December 2007, after IBM initially prepared a statement of scope for the replacement of the project, providing an estimate of $6.13 million to replace the previous LATTICE system. However, the initiative, based on SAP software and implemented by the Government with assistance from IBM, quickly got out of hand, blowing both its budget and its projected timeframe for delivery.

A large number of Queensland Health staff have received little or no pay in some periods since the new platform was introduced in March 2010, leading to a widespread public outcry, although the situation is believed to have been gradually improving. The system serves some 78,000 of the department’s staff every fortnight, with the total payroll amount being $210 million. In March 2011, the state’s then Labor Health Minister Geoff Wilson claimed the project had been “stabilised”, but with further work to be done.

The Queensland State Government at one stage demanded that IBM provide reasons why its contract at the centre of the project should not be terminated, with the state reserving its right to withhold payment on the deal and seek damages. The state’s auditor-general has found that all concerned in the implementation — prime contractor IBM, Queensland Health itself and government shared services provider CorpTech — significantly underestimated the necessary scope of the project.

The payroll overhaul project is not the only IT-related issue which Queensland Health is suffering at the moment. The department also needs a mammoth $439 million injection of government funding to fix its ailing patient administration system, according to explosive documents tabled in the state’s parliament by the then-Queensland Opposition in September. And another IT system associated with ministerial correspondence is also apparently on the verge of failure.

opinion/analysis
If you work in Queensland Health’s IT department, best to evacuate now. The tally for fixing the department’s IT problems is rapidly approaching $1 billion. There is only doom ahead. Run, run, while you still can. Deny all knowledge of ever having been employed there and find a new life and a new career in a completely unrelated field — landscape gardening, maybe. A ticking time bomb is about to explode in that department and you do not want to be associated with it. You may think I’m joking; but I’m not joking. I’m completely serious. If you work in IT at Queensland Health, be aware that you probably work in the worst place in Australia when it comes to IT. Get out if possible.

In all seriousness … what the hell has been going on at Queensland Health over the past decade? How did things get billion-dollar bad?

Image credit: US Government, Creative Commons

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blog The Sydney Morning Herald has reported that up to 200 technology jobs at Westpac subsidiary St George may be outsourced to IBM. The newspaper reports (we recommend you click through to read the whole article):

“Staff were informed that management had formed the view that the current in-house IT operation at St George no longer fit Westpac’s service delivery model,” said one St George IT staff member who asked not to be named.

Yup. Postponing major IT projects, offshoring jobs within its main operation and now radically changing the successful IT service delivery model at a subsidiary, with its visionary chief information officer stepping down and its major technical lead quitting. It certainly feels like Westpac is shifting into full IT cost-cutting mode. It’s a pity. Perhaps the only person who will be enjoying this is CommBank’s Michael Harte. The CBA’s technology-driven lead is beginning to look unassailable.

Image credit: Newtown graffiti, Creative Commons

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blog Remember in May 2011, when we broke the news that Westpac confirmed it would finally shift off IBM’s troubled Lotus Notes/Domino platform, in favour of an organisation wide shift to a hosted version of Microsoft Outlook/Exchange? Well, it appears that shift isn’t going too well. iTNews reports today (we recommend you click here for the full article):

… the bank has decided to “defer the project until a later stage.” Sources told iTnews that Westpac CIO Clive Whincup and CTO Jeff Jacobs, both installed in late 2011, ultimately took the decision after a group-wide review of ICT priorities.

Presumably this means that the bank’s tens of thousands of staff will remain on Notes for the forseeable future — and that those working for the bank’s St George subsidiary will remain on Novell GroupWise. Fantastic.

Does it seem to anyone else that things have started to unravel in Westpac’s IT department since mid-2011? The bank’s superstar chief information officer Bob McKinnon steps back into a more limited role, the bank kicks off widespread offshoring initiatives that are hitting its Australian headcount, it confirms it’s still running Internet Explorer 6, chief technology officer Sarv Girn exits stage left and from our point of view the bank doesn’t have a long-term plan for dealing with its ageing core banking systems … a situation St George, for example, dealt with quite some time ago.

Furthermore, in this morning’s Financial Review, McKinnon’s replacement Clive Whincup is quoted as saying there is “little demand” from staff for the bank to implement so-called Bring Your Own Device computing policies, despite industry analysts flagging BYOD as one of the hottest trends in current enterprise IT thinking, and fellow financial services giant Suncorp going headlong down that path.

All of this is dramatically different from the road paved with gold vision which McKinnon was selling technology journalists in October 2010. At that point it looked like Westpac was poised to start challenging CommBank for the crown of Australia’s most technologically progressive financial services group. Today it is increasingly looking like that title might go, ironically, to NAB — historically one of the most conservative of Australia’s top banks. Ironic. From my point of view it looks like Westpac is now heading full steam ahead into cost-cutting mode when it comes to IT.

Westpac’s decision on its unified collaboration platform does also raise a number of questions about the bank’s capacity to deliver. This should not have been that complex a project in the grand scheme of things. It uses standardised software from the Microsoft stack, and was slated to be implemented with the help of several gold-class IT services firms — IBM and Fujitsu. It would have brought uncounted productivity benefits to the bank. If Westpac can’t get this kind of ‘basic hygiene’ IT infrastructure project off the ground, how will it go trying to implement the much more ambitious core banking overhaul projects which are going on at CommBank, Suncorp and NAB?

Image credit: Winam, Creative Commons

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analysis If you are a close follower of technology-related news in Australia’s banking and financial services sector, there is no doubt that for most of the past few years, you will have appended a question mark in your mind to the name ‘National Australia Bank’.

When it comes to the bank’s rivals, a great of information is available. The Commonwealth Bank of Australia has conducted a constant series of self-promoting activities when it comes to its $1.1 billion core banking systems replacement project and its claimed benefits. Westpac has been similarly up-front about its lack of such a project and focus on other areas (see a new interview with its new CIO in the AFR today), as has Suncorp, and ANZ, even if it hasn’t been saying much of substance, has at least been talking up its own internal IT projects.

In this context, NAB has for some time stood out as an organisation about which relatively little has been known about its technology operations.

Like CommBank and Suncorp, but unlike the other banks, the bank has reached a criticial inflexion point with respect to the legacy core banking systems which have been weighing down its operations for the past decade. Spurred by the efforts of its then-chief information officer, highly respected industry veteran Michelle Tredenick (formerly the CIO of MLC and Suncorp), the bank in mid-2008 announced that, like Suncorp did last year, it had selected Oracle as the key partner for its core banking systems refresh — a revamp it dubbed its Next Generation Platform.

The guinea pig for the project was to be NAB’s fledgling Star Direct business, which is perhaps better known for launching its online savings project UBank.

At the time, it was heady stuff. Finally another major bank had blinked in the ongoing staring contest with early adopter CBA with respect to the issue of core banking systems replacement. With NAB pursuing a similar project, much of the industry thinking went, it would only be a matter of time before Westpac and ANZ followed suit and the sector was awash with such projects, unlocking billions of dollars more of spend that seemed destined to pour into the willing hands of companies such as Oracle, SAP, Accenture, IBM, CSC and others. For a comprehensive overview of this period of history, see the following article: Changing of the Guard: National Australia Bank.

However, matters at NAB quickly took a different path.

Less than a year later, Tredenick had exited the bank courtesy of an executive reshuffle stimulated by the appointment of Cameron Clyne as NAB’s new chief executive, replaced by Adam Bennett, a comparatively lower profile IT executive who had served with Clyne at the Bank of New Zealand. But while Bennett remains NAB CIO on paper, in practice since that time it has been his boss, NAB group executive of Group Business Services Gavin Slater, who has become the public face of NAB’s IT transformation.

And from then on it became customary for the bank to talk down the NGP project.

Clyne regularly name-checked it at the bank’s annual results sessions, but neither Slater nor Bennett have appeared in public regularly to divulge details of its progress, and rumours began to spread throughout the industry about numerous delays, scope cuts, functionality delivered outside the core banking area, budget cutbacks and more.

The rumours weren’t hard to believe — after all, these were exactly the sort of outcomes which always stem from a business which ramps back its focus on major IT projects such as the Next Generation Platform project. And in October last year NAB formalised the delays with the confirmation that it had pushed back the delivery of its core overhaul to 2012, having focused on other aspects of the project in 2011, despite its pronouncement in May that 2011 was the year for key parts of its overhaul.

And in the meantime NAB’s technology support team had plenty of other worries on its plate — including an ongoing series of outages that were taking down its systems in the kind of ‘Severity 1′ incidents which are banks’ number one enemy, and a rolling series of outsourcing moves which had many of the bank’s employees up in arms as their roles were transferred directly to IBM.

Last week, for the first time in several years, the bank conducted a relatively open and transparent briefing on what’s really going on behind its closed doors, with Slater addressing a lunch held by the Trans-Tasman Business Circle, with a startlingly open view into its operations.

There are currently three major IT transformation programs running within NAB, according to Slater, in the areas of infrastructure and network transformation, systems re-platforming (the Next Generation Platform project) and lastly, customer process transformation.

With respect to its infrastructure, Slater said, NAB was conducting a project with the aim of hardening its operating environment and improving stability and performance, with key partners IBM and Telstra. In this area, the bank was “18 months” into a three year transformation of its infrastructure, with the effort affecting its datacentres and its voice and data networks (presumably, the implementation of unified communications).

With respect to its NGP project, Slater said that NAB was working with Oracle on its core banking, finance, risk and treasury systems and SAP on its general ledger replacement. The platform is already driving benefits for its UBank subsidiary, such as the ability for customers to open savings accounts online within a few minutes (also a key benefit of CommBank’s core systems replacement effort).

In terms of the bank’s wider operations, Slater didn’t go into specifics about precisely what technology had been put in place where yet — and as yet the changes which the bank has made to its core platform don’t appear to be showing up on the customer side.

However, he said, he was “very happy” to be able to report that “in the last few weeks we have successfully implemented a major foundational release that hardwires our new banking platform into the banks’ wider ecosystem”.

“It is this foundation that future releases will be built [on] without having to repeat this work,” Slater (pictured, right) added. “Clearly, change on this scale is progressive — not instant, which is why we have adopted a release-based approach as part of our risk mitigation strategy, with several major releases being delivered over the life of the program.” The executive added that the release itself was “a significant milestone for NAB”, as it was the culmination of almost two years’ work.

“Nothing of this magnitude or complexity has been implemented into our environment before,” he said.

The impact on customers, Slater said, would be substantial, with customers gaining access to greater customisation; a better choice in products and how they deal with NAB; faster fulfilment times; and greater levels of self-service.

The third piece of the NAB’s puzzle relates to what Slater described as ‘customer process transformation’, which the executive said had three key objectives: To improve the experience of staff and customers by removing many of the “system and process frustrations” that they faced; reducing risk and driving efficiency by replacing more than 100 “cumbersome legacy systems” with 10 integrated applications and migrate NAB to a new general ledger; and providing the flexibility, capability and capacity to allow NAB to “differentiate and drive innovation”. In these areas, Slater said, the bank had made “good progress to date” — in areas such as “mortgage transformation”, improved turnaround times, reduced turnovers and the ability to handle growth.

One tangible outcome from this project that Slater listed would be the ability to deliver customers a single view of the products and services which they bought from NAB — “from 20 systems/databases to a single customer view”.

A lot of this almost sound easy — and Slater made it sound in his speech as though NAB was making substantial progress on its strategy, despite the well-publicised delays in its core banking systems replacement project. However, it is obvious that modern banks operate some of the most complex IT infrastructure on the planet, and the executive also acknowledged this fact in his speech.

“The scale of our investment is clearly costly and complex,” he told the audience. “It requires careful planning and execution. A good way to describe it — if we were an airline — it would be a bit like converting a 747 to an A380 whilst in full flight. Some components are able to be built on the ground, whilst others need to be delivered while still being open for business.”

Slater noted that economic conditions continued to be uncertain — and it could be “tempting” for NAB to scale back on this level of IT investment. However, he said, the growth in usage of NAB’s digital banking platforms — the bank operates over 140 million ATM and EFTPOS transactions per month, and over 20 million Internet banking transactions — means it needs to continue to build for the future.

“Ultimately the economy will find its balance, and we don’t want to find ourselves behind the eight ball,” said Slater. One wonders what other banks such as ANZ and Westpac, which are not yet pursuing core banking transformation projects, would make of that comment.

“It is difficult to predict what the bank of tomorrow will look like in ten years and beyond,” said Slater, “but we do know that growth in the digital economy will continue at an exponential rate … large organisations the world over, regardless of industry, will have to, at some point, face into the strategic challenge of addressing complex, ageing and inflexible technology in a substantive way.”

“They will have to content with the growing chasm between old and new technology. Simply putting a new roof on an old house with weakened foundations will not be a sustainable solution.”

To download a full copy of Slater’s speech click here (PDF).

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news Top tier bank Westpac yesterday confirmed it was planning to outsource a further 125 jobs in its technology support division, as part of an ongoing campaign of workforce rationalisation which the bank’s main union has claimed has been characterised by “media-type spin” to disguise its actions.

“About 125 mostly Sydney-based roles supporting IT development and system maintenance will be done by three specialist companies, including IBM,” the bank confirmed in a statement yesterday, following reports of the outsourcing. Other players the company has been involved with over the past several years include Infosys, Tata and Wipro.

In a separate statement, the Finance Sector Union said the outsourcing move came after some 560 jobs had already been affected in February and a further 188 in November.

The union said the bank had engaged in “spin” when shifting the roles offshore to conceal the situation on the ground, highlighting the use of the terms “best sourcing”, “systems knowledge transfer” and “Westpac maintains oversight”. The union claimed that these terms actually referred to the idea that Westpac would send work offshore when it could be done cheaper, but would bring it back when that failed, that local staff must train offshore staff in how to do their job (before losing it) and that offshore providers would be doing the work of local employees.

The union said over the coming days it would be holding workplace meetings with affected staff to discuss the impact of Westpac’s proposals and to develop alternatives. Its membership was growing fast as a result of the changes, it added, with 184 staff joining the RSU in February, with 66 more taking on responsibility as union representatives. “This has seen Westpac staff across the country protesting the bank’s job slashing and offshoring,” the union added, noting that complaints had been lodged with State and Federal Governments over the issue and that politicians had begun meeting with FSU members over the issue.

“The FSU calls on Westpac to provide assurances that no Westpac employee should be forced to remain redundant; no one should be forced to train the offshore provider that is replacing local jobs and that jobs should not be offshored when the skills and the employees are already here doing the work well,” the union noted, additionally calling on politicians to get involved in the issue.

Westpac first flagged the job cuts in November last year at its regular financial results session, with the bank’s chief executive Gail Kelly stating that the bank was shifting to a new “best sourcing” model that would allow it to precisely target the best way to deliver services. The changes would involve “systematically identifying and engaging the most skills and cost efficient resources to identify functions or processes, whether they work through us directly or indirectly through one of our local or off-shore supplier partnerships”, Kelly was quoted by iTNews as saying at the time.

At the time, the bank specified that it was at that stage at historically high levels of employment — having brought on an additional 1,200 contractors over the preceding 18 months to conduct IT work in the area of application development. However, it did not have the same amount of work on an ongoing basis, leading to a planned rationalisation of its workforce. In November, Westpac said it wasn’t in a position to confirm future staffing levels as it was still undergoing consultation on the issue.

This week, the bank said it was “committed to retaining our core and high skilled technology workforce in Australia”. These are difficult decisions,” a spokesperson added. “We are aware of the impact on our people and we make it a priority to train and redeploy as many of our staff as possible into new roles.”

“But some IT roles can be more efficiently provided by external specialists.”

To put the announcement into perspective, the bank pointed out it was one of the largest employers (counting 34,000 staff in total) in Australia. “During the last 8 months alone we hired 1,800 people from outside Westpac and found 1,500 new roles for our own staff,” the bank said.

opinion/analysis
The sad thing about what’s going on at Westpac right now isn’t that the bank is conducting an offshoring initiative; frankly, as I’ve previously written, in the current Australian skills climate, and with the cost of employing Australians as compared with workers in countries such as India, Westpac would be foolish not to look carefully at such a strategy. No, as I’ve also previously written, the problem is the bank’s approach to its strategy.

Westpac staff are understandably going to be deeply upset and frustrated if they are asked to train their offshore replacements. Faced with such a prospect, I would expect many staff simply to instantly resign in protest at being asked to dig their own grave. Why would anyone willingly train offshore staff that are obviously intended to replace them in their jobs? It’s an unpalatable scenario which casts dishonour upon Westpac’s staff and I can see why they wouldn’t want to go through with it.

Secondly, the union’s right. Westpac is not being up-front and honest about the cuts.

Employees can deal with a large round of cuts if the cuts are made quickly and cleanly. Once they’re done, everyone can move on with their lives, either secure in their job for the time being or forced to look for an alternative. But this isn’t what’s happening at Westpac. Although many in the industry suspect the eventual amount of Australian jobs lost at the bank will number in the thousands, Westpac is killing its local workforce’s hopes by virtue of a thousand cuts — a few hundred jobs here, a few hundred jobs there. The uncertainty is dragging on, which is precisely what I predicted in November last year:

“… the bank last week chose to tell staff and union members that just 188 jobs were at risk in the short term. This action represents something fairly cold — a calculation that the bank can get away with more cuts than it would otherwise, if it sugar-coats them and extends them into a lengthy series of small job loss packages over time rather than a lot hit on the head in one fell swoop.

… Instead of fighting one major battle, it chose to fight the union — which represents its own employees — in a guerrilla war of attrition. It will cut down resistance to the job cuts one step at a time, one small division at a time, until it reaches the level it wants to.”

It’s a cold-hearted strategy not fitting for a bank which just a few scant months ago announced profits were up 10 percent year on year to reach close to $7 billion. It wouldn’t cost the bank that much to show a little compassion to its staff than it currently is — and that’s something even the most cold-hearted Westpac shareholder can surely understand.

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2. Will IBM offshore 800 jobs?
3. IBM shifting jobs offshore, union claims

news Local ICT analyst firm Longhaus has revealed key findings from an industry report ranking cloud providers in the Australian market. The report, entitled ‘Australia’s Trusted Infrastructure-as-a-Service Cloud Provider Market 2012’, is the third annualised study released by Longhaus on the state of cloud computing in Australia.

While the report finds that the market is no longer skin-deep and there is ample evidence of more mature cloud solutions, a significant finding is that 30 percent of the providers suffered a service outage in the past year. Another factor that remains elusive in the local market creating difficulty for providers trying to keep pace is adequate scale; 43 per cent demand minimum terms from their clients.

According to the study, IBM is maintaining its lead in the industry, but concomitantly, a range of rising stars are bringing in diversification and innovation across the category. The the top five performers for 2012 were IBM, Wipro, Datacom, Emantra and Fujitsu. The Rising Star award went to Area9, a Darwin-based provider that has grown rapidly.

The report predicts more change in 2013 with the growth of the API (Application Programming Interface) economy in its own right, and the rise of business-as-a-service.

Longhaus pinpointed 175 companies worldwide that are offering cloud services to Australian firms. Further research shortened the list to 70 providers, out of which 50 qualified for evaluation and 45 made the final list. It took the firm more than three months to complete the rigorous 90+ question RFP process, individual vendor briefings, client reference evaluations and final rankings. Peter Carr, Managing Director, Longhaus said that the Longhaus Cloud Pulse report provides a definitive analysis of the Infrastructure-as-a-Service market. It also indicates that cloud will enable the internal ICT function to transform into a commercially viable IT-as-a-service provider.

“Of significant note, an additional 24 vendors have now crossed the Longhaus solution performance threshold in the last twelve months. In the equivalent 2011 report only 13 vendors scored three or higher (on a scale of 1–5) whereas in 2012 there are now 37. It comes as no surprise, and validates the effort and investment around cloud migration, which we believe is directly related to the consolidation and clear segmentation of solutions on offer in this category,” said Carr.

According to Scott Stewart, lead author of the report and senior research director at Longhaus, one of the key trends from this year’s Pulse Report was the rise of the API economy. This will facilitate access for businesses to optimised business processes delivered as discreet programs through app-store like marketplaces. Businesses will also benefit from the API economy by extending and enhancing the functionality of their core business platforms – somewhat like the genome or DNA for customised SaaS.

Speaking about another crucial movement and a change from the previous annual report, Scott said that Business-as-a-Service epitomises the true transition from operational to capital expense in IT.

One more defining trend in the report is the identification of a whole new market where pure-play IaaS providers such as Amazon are enabling a large pool of non-cloud professional services companies such as KPMG, Deloitte and Accenture to now deliver cloud services. Saying that this would add a completely new dimension to the category and place market-leader challenges on the incumbent, Scott said, “watch out IBM, Wipro, Fujitsu, CSC and others, your competitive landscape is rapidly shifting ground.”

Neeraj Jaitley, VP & Head, Cloud Business Wipro expressed his pleasure on the company’s behalf on its participation in the survey. He described the report as an accurate barometer for customers, vendors and partners in the APJ region. He added that the report offered deep insights into new services that would drive significant change in IT cost, service delivery and user satisfaction.

Scott said that cloud-based disaster recovery would become an inflection point for how more companies would start thinking about moving data across the business. He said, “Additionally, what is becoming more prevalent is that the cloud market is a rich ecosystem in which many service providers are reliant on many other companies to deliver their services. End users should seek to understand that ecosystem and embrace the benefits that this service model offers.”

The top five performers ranked in the Cloud Pulse Report for 2012 are as follows:

IBM – last year’s leader improved again and continues to set the pace. IBM’s cloud business model has been further enhanced and is exemplar of a cloud computing business for enterprise clients at a global level with no minimum commitment and support for a variety of billing models. IBM’s Smart Cloud Enterprise is established in six cloud data centres globally, including two onshore Australian centres, enabling clients to run workloads across any centre of choice. (IBM was also awarded the Peak Vendor Award).

Longhaus comments on the top five providers and the rising star:

• Wipro: “Will be a surprise to many. While Wipro’s in-country marketing is no indicator of cloud capability, they are highly resourced and will be a new leader to watch in the “API Economy”.”
• Datacom: “Represent the traditional managed services market that is successfully transitioning to cloud provider (Datacom is also a Local Performer award winner).”
• Emantra: “Longhaus refers to their offer as Microsoft-as-a-Service. Now connected to federal government fibre to AGIMO standards.”
• Fujitsu: “Ranking is based on their “private cloud” offering (they have five “clouds”). Aiming to own the cloud supply chain including manufacturer, wholesaler and distributor.”
• The Rising star award: Area9: “A Darwin-based provider that has grown quickly as a direct result of the anticipation of the NBN rollout. With the arrival of dual network providers the business is now rapidly expanding. Area9 has a predominant Northern Australia focus (Northern Territory, Northern WA and Northern Qld) however could potentially deliver footprint capability into SE Asia. This is one to watch.”

The report can be accessed from 5 March at the Longhaus website.

Image credit: Fred Fokkelman, royalty free

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news Australian condom and medical protection giant Ansell this week revealed a botched implementation of Oracle’s ERP platform which went live last year had caused US$13 million to US$15 million worth of lost sales.

According to documents released by the company during its regular financial briefing this week, the project was kicked off in 2009, as the company recognised the need to update its business processes and consolidate no less than 25 separate legacy systems into a single global platform. At that time the company chose an ERP platform and a systems integrator. The Financial Review has reported that the platform is Oracle and that IBM is assisting with the integration. The project is named Fusion, which is also the name of Oracle’s unified suite of business applications.

The first phase of the rollout, which would primarily impact its North American operations, went live in July 2011, the company wrote, but ran into “systems design and interface issues”, particularly with relation to its largest (third party) warehouse. Since that time, Ansell has devoted “significant resources” to enhancing the system’s performance, correcting design problems, stabilising the platform and returning it to normality.

“Much progress has been made, but we have lost some customers, incurred extra costs and the global rollout has been delayed,” Ansell wrote this week. “It is hard to quantify the impact of Fusion, but lost sales in [the first financial half] are estimated at US$13 to US$15 million, and excess working capital at US$25 to US$30 million. Lost margins and higher expenses have been partly offset through other initiatives and savings.”

In a separate briefing this week, Ansell chief executive Magnus Nicolin said he expected the remaining ERP issues to be resolved by June.

“We needed an ERP system to improve our processes and efficiently support faster growth,” he added. “We went with a top tier ERP system, hired a top tier systems integrator and invested heavily in design and implementation — so we didn’t expect to run into quite as many issues as we have! However, we’ve spent the last few months working on rectifying these issues and I have no doubt we’ll have a fully functioning ERP system during H2″.

Nicolin added that the company had offset part of the negative earnings impact of the Fusion project through other savings and initiatives. “It’s too early to assess the impact on end benefits because the system isn’t yet fully operational,” he said. “But there’s no reason to believe we can’t deliver, albeit with a delay.” In late 2011, Ansell told shareholders at its annual general meeting that the total cost of Project Fusion had been increased to around $80 million.

opinion/analysis
Ansell’s management appears fairly surprised that it’s been having such extensive problems with its ERP rollout, given it’s got the top players in the field involved and it prepared extensively for the rollout. However, I’m not surprised by the problems.

Complex ERP rollouts such as the one which Ansell is undertaken are commonly the end result of a company which has made a number of acquisitions over a number of years but not comprehensively integrated the IT systems of its targets. This is true of Ansell’s case — the company has constantly acquired other companies over the past thirty years, as its company history makes clear.

At one point in its corporate history, Ansell notes on its web site, it had gone through “a decade of acquisitions worldwide and the establishment of factories in Thailand and Sri Lanka, plus the purchase of factories in the US, UK, Mexico, Germany and France.” And then, since that period in the 1980′s, the company made a substantial acquisition virtually every two years.

Given that the IT industry’s knowledge of how to handle such constant acquisition in terms of a company’s ERP systems has only been coming to a good level over the latter years of that period, it’s no surprise that Ansell has been having problems with its major integration project. 25 ERP systems into one? Well. There’s a disaster waiting to happen.

At this point, no real blame appears to have been apportioned to either IBM or Oracle over this one, and I’m not that surprised by that either. Most likely the problem in this case — as with most botched IT projects — was poor project governance at the customer level, combined with a requirements specification which might not have been ideal. And it’s also likely that to implement the new system, Ansell might have had to change large swathes of its actual business processes — which never helps.

Hopefully the company can get this sorted out over the next year or so. I would envisage that it will take at least two to get it totally bedded down.

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news The Federal Department of Defence has revealed that it renewed a major IT hardware and software contract with IBM in late 2008 to the tune of $342 million, despite not having put the work out to public tender since 1999.

The contract appears to have been first reported by analyst house and technology media outlet Intermedium, which first published detailed of the deal in 9 December. Intermedium quoted a Defence spokesperson as stating that the five-year agreement, which will now be in force until September 2016, covers:

“Major Defence Systems including our Personnel, Finance and Military Logistics systems and Defence Information Communications Technology Reform Initiatives, including Service Oriented Architecture, Single Secure Desktop and Data Centre Migration and Consolidation.”

Brief details of the contracts are also available publicly on the AusTender website here and here.

Shortly after, time technology media outlet iTNews filed a Freedom of Information request with the Department of Defence to request details of why the department merely renewed the arrangement with IBM, instead of putting the contract out to public tender. We recommend you click through to read iTNews’ full coverage of the issue, as it is comprehensive. Several weeks ago, Defence has published its response to the Freedom of Information request publicly on its website (PDF). It has also published a letter explaining its rationale in responding to the FoI request (PDF), as is common with FoI requests.

The majority of that document has been censored, with eleven pages completely blacked out, with Defence defending the blackout as containing information which was “reasonably regarded as irrelevant to the scope of the [FoI] request. However, one section was not blacked out.

In that section, Defence stated that a decision had been made between the Defence’s Chief Information Officer Group, its Chief Financial Officer Group and the Department of Finance and Deregulation to allow the contract to proceed without going out to tender, with it being classified as a “sustainment activity”.

“A change of supplier would compel Defence to procure hardware and software that does not meet requirements of compatibility with existing equipment or services,” Defence noted in the document. “The requirement for IBM was determined as part of the Market Testing of the Defence Computing Bureau in 1999. Until such time as that decision is revisited, the requirement to sustain our existing IBM infrastructure will remain.”

“IBM is the only entity that can agree to changes to IBM’s terms and conditions of supply and use.”

Defence also noted that clauses of government regulations allowed direct sourcing where “additional deliveries” were taking place that were intended “either as replacement parts, extensions or continuing services for existing equipment, software, services or installations where a change of supplier would compel the agency to procure property or services that do not meet requirements of compatibility with existing equipment or services”.

The news is the second time over the past year or so which a major Federal Government agency has successfully worked around tendering guidelines to renew a decade-old arrangement with IBM.

Two days before Christmas in December 2010 and just 24 hours after publicly denying it had renewed its long-running comprehensive IT outsourcing arrangement with IBM, which has been in place since 1999, the Federal Department of Health and Ageing (DOHA) reversed its statement and confirmed the arrangement.

opinion/analysis
If you examine IBM’s lines of business closely, it is hard to make a case that Defence needed to renew its long-standing software and hardware outsourcing arrangement with IBM through 2016.

On the hardware side, IBM’s lines of business in server, storage and mainframe infrastructure all have direct rivals which provide similar solutions. In a number of cases, those solutions are regarded as being technically more capable than IBM’s (although IBM is also regarded as having the edge in a large number of areas).

For example, when it comes to servers, IBM has major competitors such as HP, Dell and even more integrated solutions from the likes of Oracle (especially through its acquisition of Sun Microsystems). In storage, it is common for major organisations to also look at solutions from EMC, NetApp and Hitachi Data Systems. In mainframe, companies like Fujitsu and CSC play a strong role.

When it comes to software, things are a lot more complicated, especially when you start discussing high-end concepts such as service oriented architecture, where few companies aside from IBM are really capable of providing enough pieces of the puzzle so that everything fits together. However, when major organisations such as the National Broadband Network Company are standardising many different systems on software from Oracle, and German giant SAP also has a comprehensive portfolio which is powering much of the Commonwealth Bank, it is hard to make an argument that the IBM work couldn’t be put out to market. When it comes to secure desktop, I’m sure VMware and Citrix would have a view about that.

And of course, all of these companies have major partner/system integrator ecosystems in Australia. Heck, IBM itself is one of those key partners for quite a few of those players.

Of course, there are two sides to every story. And as I have previously written, the Federal Government’s tendering regulations are onerous and often prevent quick and efficient outcomes from being reached in IT procurement. Defence chief information officer Greg Farr is one of the IT executives who I most respect in Australia’s technology sector — and I’m not the only one. Farr just won a Public Service Medal for his efforts at Defence and the Australian Taxation Office. I’m sure are there very good reasons for Defence to re-sign its contract with IBM.

However, Defence has not yet provided those reasons publicly. In fact, it very explicitly chose not to — releasing the bare minimum amount of information needed to satisfy iTNews’ Freedom of Information request.

Whatever the truth is about this situation, one fact remains. In our fast-changing IT environment, where major new technology products and solutions are released every year, no public sector organisation should sign a single supplier up for a 17-year contractual span without testing the market for that spend several times during that period. I, and I’m sure IBM’s competitors, would like to see some acknowledgement of that fact from Defence.

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