As one of the biggest users of IT in the UK, the way the financial services sector deals with the recommendations of the recent Independent Banking Commission (IBC) report will have significant ramifications for IT professionals.
The need to ring-fence retail banks from the risky investment operations that caused the 2008 economic crash will underpin finance firms’ IT strategy for the next few years. It could go one of two ways.
The IBC proposals to ensure the continuity of consumer-facing operations could lead to high demand for IT skills, and for major software development projects to migrate away from legacy systems and the complexity that has built up in banks’ IT systems for many years. It’s a great opportunity for creating IT jobs and driving up the UK skills base.
However, given the cost of implementing the reforms, banks could equally look for the cheapest way to meet the requirements – and that would almost certainly mean more outsourcing, most likely to low-cost offshore destinations. Much like the Millennium Bug preparations in the late 1990s, it’s a great opportunity for globalised IT services providers.
It’s an obvious statement to say that the former option would be the best for the IT profession in the UK. It’s almost as obvious to suggest that the latter is the most likely path the banks will take.
After laying off thousands of IT professionals after the crash, financial services firms recently realised they had gone too far, and the sector has become the busiest recruiter of IT skills again. But major structural reform will only accelerate a process that started as a result of the downturn – a clear division between core value-adding IT, such as trading systems, where the banks’ competitive edge lies, and back-office technology, where outsourcing, shared services and the cloud will play a growing role.
Given this trend, the likelihood is that structural separation will be focused on those back-office areas, leading over time to fewer IT jobs.
As global firms, banks have little loyalty to any one location and will justifiably source skills where they are most cost-effective. But if they do, reform of the finance sector becomes an opportunity missed for improving the UK IT skills base.
Public sector IT remains – rightly – under great scrutiny in the UK. Right now, it faces a set of challenges unique to the political cycle, but they are challenges that warrant patience from the many critics of Whitehall IT policy.
Last year, a new government promised new ways of working, widespread IT reforms, an end to the headline-grabbing IT failures. Now, a little over a year has passed with any honeymoon period long-since elapsed, and critics are expecting to see tangible evidence that things are really different, not simply empty political promises.
It’s easy to point fingers at government IT policy today and highlight the lack of progress on implementing open source; to point out how often contracts still go to the big oligopoly of systems integrators instead of SME suppliers; or to criticise major legacy problems such as the NHS IT contracts.
It is right, of course, to hold government to account on these and any other intentions – and Computer Weekly has been at the forefront of that.
But there is a real sense that, quietly, thoughtfully, behind the scenes, genuine change might just be taking place.
Transforming years of public sector IT culture and moving away from complex legacy systems is not so much like turning round the proverbial oil tanker, it’s like taking all the oil and trying to push it back into the well too. It takes time.
Bill McCluggage, the deputy government CIO, talked to Computer Weekly readers at a recent CW500 Club meeting, and described the welcome improvements in attitude and environment within the Cabinet Office and among the Whitehall IT community over the past year.
He talked about the greater collaboration, more openness, more honesty about mutual difficulties and failings. He highlighted the desire to look beyond traditional IT providers and take advice from other voices – but also the acceptance that Whitehall has outsourced too many of its IT skills. Outsourcing service provision is one thing, but government needs to re-build its in-house IT capabilities to better hold those service providers to account.
When you talk to Bill and his IT leadership peers in government, they have the air of knowing the things they need to change, and give the impression they know how to do it. They also bear the weariness of knowing that everyone expects them to have done so yesterday.
I get the distinct feeling they are absolutely genuine in their desire to use more open source, to move away from big contracts and projects, to work with more innovative SMEs, to be more agile, and tackle the failings of the past.
But more than that, I detect the confidence that they believe they are on the right path, and that they are slowly proving it.
For example, former Guardian digital supremo Mike Bracken recently took on the role of government digital director, responsible for delivering the “digital by default” agenda for public services. He arrived to quite a fanfare having made The Guardian a leader in digital media. In his first interview since taking on the role, he told Computer Weekly that he has to do the boring things first – get the organisation structure right, get the right people in place, agree a budget – but that he knows what is possible once all that is in place.
Another example – BBC technology correspondent Rory Cellan-Jones wrote a thoughtful article recently based on a Freedom of Information request to Whitehall departments asking for a breakdown of their software spending between proprietary and open source. Not surprisingly, it showed lots spent on proprietary, not much on open source. Critics jumped on this as proof that government is failing to deliver its commitment to open source.
Rory was kind enough to share the data he received with Computer Weekly in advance to get our opinion – and there was little revelatory in there. All it showed is that over the last 12 months government spent its software budgets in the same way they always used to – it’s far too soon to see major shifts to open source. The figures highlighted the difficulty of introducing a policy to encourage open source – but gave no indication that it wouldn’t be achieved.
And a final example: we recently talked to a number of SME IT suppliers to find out their real-life experiences of trying to win government contracts, and it wasn’t pretty. Many had stories that help build a picture that government will always favour big, apparently safe, suppliers.
One of the biggest critics of the “big company” procurement policy is Mark Taylor, CEO of a small open-source specialist, Sirius, who has added plenty of personal experience to the debate. So what has the government done as a result? It asked Taylor to chair a working group on how to bring new suppliers to Whitehall. That’s not yet a sign that things have changed, but it shows an openness to listen to critics in a positive way that has often been absent in the past.
We have of course been here before. It’s by no means the first time we’ve been told government IT is changing, only to be disappointed. And such bitter experience means that every cynic is entirely justified in questioning any of the latest initiatives.
But slowly, cautiously, carefully, there are signs that this time might, actually, be different.
Among all the many words published in the last couple of days about Steve Jobs, what stood out for me was some of his own quotes rather than the many “expert” opinions expressed about his stepping down as CEO of Apple.
Jobs – who will still be chairman of Apple, so his creative influence is not going away – is one of the few technology leaders who can genuinely be described as a visionary, a much over-used word in the industry.
A visionary is someone who can visualise a future, and work out how to get there, regardless of the doubters, distractions and failures along the way, remaining convinced, essentially, that they are right all along – and who then delivers that vision.
There are plenty of people in IT described all too quickly as visionary. At any one time, you can find dozens of creative company executives with a vision. But the visionaries are the ones who, years later, are proved right. Being a visionary is a long-distance race, not a beauty contest.
The visionary that Jobs has most in common with is not a modern technologist, but Henry Ford, the giant of the early 20th century car industry.
Ford once famously said, “If I’d asked customers what they wanted, they would have said ‘a faster horse’.”
Compare that with these quotes from Steve Jobs (thanks to the Wall Street Journal for its round-up of Jobsian quotations):
“For something this complicated, it’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.”
“This is what customers pay us for – to sweat all these details so it’s easy and pleasant for them to use our computers. We’re supposed to be really good at this. That doesn’t mean we don’t listen to customers, but it’s hard for them to tell you what they want when they’ve never seen anything remotely like it. Take desktop video editing. I never got one request from someone who wanted to edit movies on his computer. Yet now that people see it, they say, ‘Oh my God, that’s great!'”
And as far ago as 1985, he said, “The most compelling reason for most people to buy a computer for the home will be to link it to a nationwide communications network. We’re just in the beginning stages of what will be a truly remarkable breakthrough for most people–as remarkable as the telephone.”
See the similarities? Ford-like, Jobs has always been driven by the belief that his vision of the future was right – it’s only in the last five or 10 years that he has really been proved correct.
Apple will continue to flourish because Jobs has yet to achieve the entirety of his vision, and as chairman he will still be there, health permitting, to continue that direction.
Compare and contrast with Microsoft.
The Seattle giant was driven from inception by Bill Gates’ vision of a PC on every desk and in every home, and of software becoming a revolutionary force. He was right, he achieved his vision, despite doubters, distractions and failures along the way. And once he had delivered, he went on to delivering a new vision, for improving global healthcare and education, funded by the riches amassed in delivering his original vision.
So what is Microsoft’s vision now? Where is the visionary leader? CEO Steve Ballmer has many strengths, he’s perhaps a great leader (although many Microsoft investors might not currently agree), but he is nobody’s idea of a visionary.
Microsoft has become a collection of very good products, supported by a world-class global marketing and product distribution network. But I couldn’t tell you what its vision of the future is.
Bigger and better PCs, running bigger and better versions of Windows and Office? I think not. An open, integrated, flexible network of standards-based devices and software interacting in real time across a global interconnected network? Ah no, sorry, that’s what pretty much everybody else is doing. Microsoft is involved in that of course, but few would call the firm a leader, an innovator, or a visionary company these days.
Given the decades of rivalry and bad feeling between Apple and its great rival, perhaps one of Jobs’ legacies will be the perspective that it brings to the post-visionary Microsoft.
I recently read an interesting footnote to last week’s £7bn purchase of UK software star Autonomy by HP.
Apparently the deal was helped by a US tax law that puts a punitive 35% tax on any cash that US companies earn overseas, when that money is brought back into the country. As a result, many US multinationals – and in particular, many of their technology giants – are sitting on huge piles of cash that they can’t invest in their home country without losing more than a third of it.
So that means that, for example, HP was able to use its overseas cash pile to buy Autonomy in the UK, effectively saving itself 35% of the purchase price had it tried to do the same with its US cash.
According to The Telegraph, IBM, Cisco, HP, Google and Microsoft are sitting on more than $130bn of cash, much of which is held outside the US – Cisco alone cites $40bn of cash overseas.
With that much money floating around – and with UK share prices for tech companies historically staying lower than those traded in the US – there are not just bargains to be had in a depressed stock market, but huge tax efficiencies for US buyers too.
Good news for investors, of course, but not so good for the independence of the UK IT industry. And there’s not a thing anyone can do to stop it happening. The sales start here?
Today is proving to be a busy day for IT journalists the world over, after HP – for not much longer the biggest technology company in the world – shocked the industry with three huge announcements:
- Buying UK software firm Autonomy for £7bn;
- Deciding to spin-off or sell its $41bn-a-year PC business;
- Ditching its WebOS range of devices, just 49 days after launching its Touchpad tablet.
As with any strategic change of this magnitude, it will take time to determine the wisdom of HP CEO Leo Apotheker’s big bet on the future, but one thing that it proves is the sudden and dramatic polarisation of the IT industry. Well, when I say sudden, you could say sudden to everyone but IBM, whose strategy has been entirely verified by HP’s move – more of which below.
Apotheker justified the announcements by saying HP’s future lies in the cloud, software, and information management – the latter based increasingly on Autonomy’s world-leading technology for analysing unstructured data, an area increasingly known as Big Data.
Ditching the PC and devices business shows where the schism in the industry has developed.
From here on, there are two types of IT supplier – you either provide the software and internet services that consumers and businesses want to access, or you provide the devices they use to access them.
The future is increasingly looking as simple as that. The traditional big players in IT are moving to the back-office – datacentres, business applications, web services, virtualisation, storage, cloud, all the complex processing and analysing stuff that goes on unseen to the end user.
Alongside that, you have the device makers – PCs, laptops, tablets, smartphones and so on, which is increasingly a consumer-oriented market, that needs to think and act with the speed, flexibility and agility of fast-moving consumer goods. Increasingly, in marketing terms, Apple has more in common these days with Unilever or Procter & Gamble than it does with IBM or HP.
From the perspective of business technology, the big winner here is IBM. HP’s move basically says to its long-time rival: yep, OK, you were right. With the divestiture of HP’s PC business, it will also relinquish the title of world’s biggest IT company back to IBM – a title ironically gained by HP when IBM sold its PC business to Lenovo.
The long-term question marks now lie over two obvious candidates – Microsoft and Dell.
Although both suppliers are doing fine at the moment, with record financial results from Microsoft and impressive profit growth at Dell (albeit with a reduced sales forecast), they are sitting pretty. But how long will that last?
Dell remains bullish about the future of its PC business, even as it struggles to turn itself into a services company. The firm’s ultra-efficient supply chain means it can maintain respectable margins on the commoditised PC business in a way that most of rivals have been unable to match. But as that PC market fragments, and as businesses start to leave device purchases to users rather than doing big, costly corporate refreshes, even Dell’s supply chain may struggle to deliver the sort of returns that investors will expect.
For Microsoft – well, there’s been reams written already about how the world’s biggest software company will cope with the diminishing status of the PC. Microsoft is not going away, it is not going to go bust, but it is losing its influence and its status as an industry innovator. It has certainly lost its lustre compared to the likes of Apple and Google’s Android in the fast-growing handheld devices market.
Microsoft’s deep entrenchment in corporate IT means it is safe from the industry polarisation, and better placed than any to straddle that gap, but it will need to change and become a very different company to continue that success. Investors are already wary of a stock price that has declined and faded as Apple and Google shares have risen.
If you’re doubtful about the implications for Microsoft or Dell, just look at the example, of Cisco – a successful back-office focused supplier that has suffered tactically and strategically by a misguided attempt to straddle the two worlds of consumer/devices and infrastructure.
Looking more parochially, there is a further important debate to be had about what the sale of Autonomy means for the UK software industry – many observers are already calling this UK IT’s “Cadbury moment” in reference to US giant Kraft’s aggressive purchase last year of one of the UK’s flagship manufacturing companies.
But whatever the short-term impact of the Autonomy acquisition, the long-term future of the UK IT industry will need to reflect the polarisation of the global industry that HP’s latest news demonstrates to be the driving force behind a fundamental re-shaping of the technology world.
Google has become a major player in the mobile phone market in a very short time.
Android was launched as an open source mobile operating system only in 2007, and the software was made available to phone manufacturers in 2008. It has since become the bulwark that most smartphone makers (with the notable and financially devastating exception of Nokia) turned to as a counter to the rise of the Apple iPhone.
In only three years, Android has become the most popular mobile operating system in the world, with over 40% market share. That’s a position that has been achieved through the wholehearted support of the likes of HTC, Samsung, LG, Motorola and others, each attracted by the kudos of association with Google and the attraction of equal billing on the use of Android.
HTC, in particular, has established itself as a major phone maker almost exclusively because of its high-quality implementation of Android – HTC tends to be the phone of choice for many technology journalists (me included) and tech experts.
And as tablet PCs take off as a major new device – a market created by Apple, but now dominated by Android in terms of the range of products available – the buyer’s choice is effectively the iPad and all that goes with being tied into the Apple ecosystem, or to opt for one of the many Android-based tablets, with all the openness that implies.
So it’s a surprise, to me at least, that Google has now purchased a hardware maker – Motorola’s mobile phone division – in a move that seems on first impression to be at odds with what has made Android such a success. That’s a $12.5bn bet on the kindness and largesse of Motorola’s hardware rivals.
Despite their public words of support, you’ve got to think that executives at HTC and Samsung must be privately seething at the hand Google has played.
So why has Google done it? Most observers point to the effect of the “patent wars” – perhaps the most self-serving, anti-innovation, pointless and perplexing development of the whole recent rise in smartphone popularity.
Here’s a selection of recent headlines on the subject from Computer Weekly:
You could summarise most of those stories simply as: Tit for tat. So far missing is the headline: Smartphone users couldn’t give a monkeys and tell suppliers not to be so stupid.
Patents are, of course, a good thing, designed to protect and reward innovation and invention. Unfortunately, in the US in particular, it seems that in the digital world, patents are being used to protect a fart. See here, for example, how Google has patented the means of estimating a product’s shipping time. The problem is that in the US, you can patent a business process – something you can’t do so easily in Europe.
This protection is leading to what many could characterise as a gross misuse of the patent system, and the patent wars we now see between smartphone makers, a process that threatens to stifle innovation in the market and ultimately drive up prices.
And this, it is suggested, is the reason Google shelled out $12.5bn to buy an ailing hardware company – for the 17,000 patents Motorola Mobility owns, and the 7,500 patents pending. The move is seen as a response to Microsoft, RIM, Apple and others’ multibillion-dollar purchases of the patents of Nortel and Novell.
After each spending so much cash on buying patents – the rights to other people’s inventions – you can bet the patent lawyers are going to have a field day. It’s already rumoured that Microsoft makes more money out of sales of HTC Android handsets than it does from selling its own Windows Phone 7, purely over yet another arcane legal dispute over a patent.
While the entertainment industry continues to fret over the impact of the digital world on its copyrighted intellectual property – and as that topic becomes one for governments and international legislation – the IT industry that overtly stays out of that debate is indulging in its own spat over intellectual property in a way that can only disrupt its customers.
Clearly there is a need for reform of the patent process if it leading to such mud-slinging. But given the success and popularity of Android in such a short time since its creation, wouldn’t you particularly want to see how much more and better innovation could be placed in our hands if Google spent $12.5bn on product development instead, and not on a patent war that brings little or no benefit to mobile users.
Computer Weekly has to declare a conflict of interest when it comes to writing about yet another report from some branch of Parliament that issues scathing criticisms of government IT.
Frankly, if Whitehall ever gets “Big IT” right on a regular basis, it means we have a lot less to write about and have to work even harder to find stories than we already do.
I jest of course.
But it would certainly not be that difficult to recycle here any of the many leader articles we have published over the years on the topic, full of imploring statements such as, “When will they ever learn?”, or “Haven’t we heard this before?” or “This time something has to change.”
It is important to point out that not everything in Whitehall IT is bad. The majority of government works perfectly well every day, and would not do so without the many IT systems that make its operation possible. If you think the public sector is bloated, just try running it without any IT at all. For every IT failure, there are plenty of successes – it’s just that the failures, which occur all too often, tend to be very big.
The report from the Public Administration Select Committee (PASC) inquiry does, however, have one thing going for it that provides cause for hope. It has captured something of the mood of modern technology, with its acknowledgement that smaller is better, that iterative change is preferable to revolutionary change, and that the relationship between government and its suppliers needs radical reform. And that’s before welcoming the talk of openness, transparency and inter-operability that characterise the internet era of technology.
It is easy to blame the big IT suppliers – who have, after all, given plenty of reasons to do so – but government has too rarely been what the MPs’ report calls an intelligent customer. Knee-jerk outsourcing means the IT skills base in Whitehall has fallen far too low.
So it is with both cynicism and optimism that the PASC recommendations should be welcomed. We have heard this before, we hope they are starting to learn, and this time, something has to change.
There is a growing disconnect between IT decision-makers and their suppliers, a communications gap that the technology industry seems to be unaware of, but needs – for all our sakes – to tackle quickly.
We have long talked about the need for suppliers to use less jargon, to listen to their customers better, to not simply push the latest products – but there is a simmering backlash brewing against the industry’s inability to change.
Computer Weekly talks to a lot of IT leaders, and an increasingly common theme from the majority is dissatisfaction with their supplier relationships. It’s not just the usual gripes about service levels, pricing or software licensing – it’s a much more fundamental belief that the industry simply does not grasp the realities of today’s IT department or the role that technology plays in organisations.
HM Revenue & Customs CIO Phil Pavitt expressed such frustrations in words that no doubt many of his peers would echo. “We are the customer,” he said, and then referring to government desktop strategy: “I will never have another salesman talk to me about thin client; that is the IT sector selling me what it wants to sell.”
He went on: “As a slightly jaundiced 25-year IT man, I’m tired of buying concepts sold by vendors,” he said. “Let’s stop buying clichés and sales brochures.”
Cloud computing is a topical example of the problem. IT chiefs have listened to all the hype, and many are convinced this is the way forward. They turn to their suppliers and say, “OK, how do I get all these benefits you’ve told me about – flexibility, agility, pay-as-you-go pricing?” And too many get the response, “Well, you need to buy my product…”
IT buyers want cloud – “by which I mean always on, pay as you go, the day I don’t need it as much I use less, the day I need more I can have it,” as Pavitt puts it. But can their suppliers provide that? Most CIOs are finding the answer is no.
It is true that IT buyers need to be more intelligent customers too – they have to learn how to get what they want, and to explain what they want. But the IT industry needs to change. It needs to learn to listen, to genuinely partner with customers – where “partner” doesn’t mean “sell more products” – and to understand what IT leaders really need. Without this, businesses and the public sector will continue to be hampered in their desire to deliver the IT-enabled change that the UK economy so desperately needs.
Microsoft, which describes itself as a “cloud company” these days, has made its biggest and perhaps most important foray into the cloud with the launch of Office 365. It’s fair to say that if the software giant can’t persuade customers to take its most widely used business application into the cloud, then it would raise huge question marks over the supplier’s entire strategy.
But in typical Redmond style, there has to be a catch. Microsoft simply cannot afford all its major corporate users to suddenly rip up their desktop Office licence agreements and run to the cloud version instead. This is what Microsoft calls “software plus service” rather than “software as a service”, the latter being the definition most pundits would use for true cloud computing. That, after all, is what you get with the obvious rival for Office 365, Google Apps for Business. To reinforce the point, you can now even buy Google-powered netbooks – or Chromebooks – that act as little more than a window to the cloud, instead of Windows to the cloud.
IIf you’re a small business, you can buy a genuinely cloud-only Office 365 – although for some, the absence of SSL encryption may be too much of a security headache.
But much of Office 365 nonetheless smacks of the result of a business meeting, where a senior executive asked a room of developers, “How do we take Office into the cloud without losing any of our desktop licence revenue?”
It’s an understandable and inevitable question, and one that Microsoft has to ask. Thirty years ago, someone in IBM probably had a similar meeting, and asked, “Look, these PCs are great, but how do we use them to sell more mainframes?” Perhaps similar meetings took place at Digital Equipment Corporation in the 1990s as client-server computing changed the world around the now-defunct supplier.
Perhaps Microsoft itself had similar discussions a decade or more ago, discussing how that internet thing might affect its market.
Bill Gates would often talk of the disruptive power of technology, and while the cloud is in reality an evolutionary not a revolutionary strategy for IT leaders, it promises to disrupt the supplier environment a lot more significantly. Or at least it does for those suppliers that deny the reality of what the cloud really means – and for IT buyers, one of the things it means is freedom from the restrictions of traditional software licensing. And that is the question that should be worrying Microsoft the most.
Google quietly announced at the end of last week that it plans to “retire” – shut down – its Google Health online medical records service.
This may not, at first, appear especially relevant to the UK, since the service was specifically targeted at US citizens with the unique challenges of the US healthcare system.
But it does have a wider significance here too – in that this was one of the prime examples quoted by the then leader of the Opposition David Cameron to demonstrate how wasteful was the NHS National Programme for IT’s electronic patient record scheme, and the apparent simplicity and cost-effectiveness of asking Google to do it instead.
“People can store their health records securely online, they can show them to whichever doctor they want. They’re in control, not the state,” said Cameron in a speech in April 2009.
“A web-based version of the government’s bureaucratic scheme, services like Google Health or Microsoft Health Vault, cost virtually nothing to run.”
It was a principle later touted by soon-to-be-former NHS CIO Christine Connelly last year when announcing that NHS trusts were to be given greater autonomy over their IT choices.
“The department will leave it to the people who will use those systems to decide for themselves if they want to use Microsoft’s products (HealthVault), Google’s products (Google Health), or somebody else’s,” Connelly said at the time.
Google said in a blog post that it was scrapping the product because “it didn’t catch on the way we would have hoped.”
Cameron’s first 18 months in charge of the NHS has surely already proved that great theories in opposition do not always translate into great policies in government.
If Google can’t make a health records service work that “costs virtually nothing to run” it perhaps puts the challenges of NHS electronic records into some context, and certainly puts Cameron’s understanding of how NHS IT works into the spotlight.