Capgemini's return to NZ highlights offshore debate

Capgemini has major contracts with IRD, ANZ bank and is in talks with a tier one NZ telco

Capgemini’s return to New Zealand was heralded by the French multinational winning one of the largest ICT contracts in the country – the planning phase of the Inland Revenue’s transformation project – in January.

Ron Grindle, Acting Deputy Commissioner, Business Transformation for IRD says Capgemini was appointed to assist with the planning phase of its transformation programme “as they had the necessary global experience in public sector change, including other major revenue authorities.”

“This enabled Inland Revenue to learn from other organisations that have experienced change on a similar scale, to adopt international best practice in our approach, and develop our own expertise. This work has been undertaken in partnership with a local company, Tenzing Management and Technology Consultants Limited, to complement the expertise that Capgemini are providing.”

As at 30 June 2012, $10.6 million had been paid to Capgemini although the final amount for the contract has yet to be finalised, Grindle says.

“We estimated that the transformation programme’s overall spend could be in the region of between $1-$1.5 billion over a ten year period in the ‘Briefing to the Incoming Minister- 2011’. The Government has not yet considered or approved the programme.”

Grindle says the IRD can’t comment on Capgemini’s personnel and operating structures, so Computerworld spoke to the company’s Australia CEO Paul Thorley, who is based in Sydney.

Did Capgemini come back to New Zealand for the IRD contract?

“No,” says Thorley. “We came back about 18 months ago with really a focus on testing and on certain key accounts, and one of the key accounts that came good for us was the Inland Revenue Department. In parallel we’ve been building up a focused practice around testing services. So a bit of strategy, a bit of good luck.”

The company has so far employed 25 staff in Wellington, and “mobilised” between 30 and 40 staff from Australia and around the world to work on the contract. Thorley says it was Capgemini’s seven-year contract with the UK’s IRD equivalent, Her Majesty’s Revenue and Customs, that helped the company secure the deal.

At the pitch, Thorley says “we were scrutinised for our ability to mobilise global people, and global best practice around tax, technology and transformation.”

Globally, the sectors that Capgemini gains most work in are government, banking and telecommunications. In New Zealand it may soon achieve this trifecta. In addition to the IRD contract, Capgemini is involved in a large transformation project with ANZ bank which will include the New Zealand operation, and Thorley says it is working with a local tier one telco which he couldn’t name.

In Australasia Capgemini employs almost 1000 staff, with an additional 500 staff based in India servicing the Australia and New Zealand market. The company has a presence in 40 countries and employs 120,000 staff worldwide. A third of its workforce are based in India, including about 6000 software testers.

“About 60 percent of our 9000 software testers are based in Indian centres but they’re all mobile so they will come out from Bangalore or Mumbai into New Zealand,” he says. “Some of them will want to settle here permanently, some will come on secondment and they’ll be here for six, 12, 18 months and then rotate out. [We] try and transfer their skills to either the client’s testers or our local hires, so it’s a model we’re using all around the world.”

Thorley says that India has around 50 times more engineers than New Zealand and Australia. “We’ve got more hope of finding talent in India than in New Zealand.”

To some extent this is a short to medium term strategy, as in the long term New Zealand needs to build its software development and testing capacity through tertiary instituations and in partnership with business, Thorley says. In Australia Capgemini is offering career programmes for 30 undergraduates and is in talks with Victoria University offer internships to graduates here.

But even if Capgemini build up the local capacity, there always be mix of onshore and offshore capacity.

For the IRD contract Thorley says specialist transformational design consultants with “scarce skills” were flown into Wellington at the start of the contract to consult with everyone from “ministers downwards”.

If the contract proceeds on the same basis as other Capgemini projects then once the high-end work is complete, software development and testing will be handled by a mix of local and international staff.

For software testing the onshore/offshore ratio is around 30 percent /70 percent. That’s a ratio which Thorley says is becoming the norm in European and American countries.

“Around 25 to 30 percent of the IT spend is on testing and if you can generate 25 to 35 percent cost savings and quality improvements, then that’s a pretty good place for Capgemini to be.”

He suggests that the New Zealand industry should focus on developing high-end transformational design skills in development and testing “and not worry too much about the 70 percent because they are accessible through this huge India capacity and in other offshore companies in China and Vietnam.”

In Capgemini, country managers work closely with the India-based software testers and developers, holding video conferences every day and ensuring the engineers are immersed in the culture of the countries they work for. “You go and see them and they know as much about Fosters as the local team do. They sit there with AFL banners, and its sounds a bit twee maybe, but they really do want to be part of the culture,” says Thorley.

In terms of the entire application life cycle, Thorley says the ratio is about 40 percent onshore and 60 percent offshore and he says this is the same for the US, UK and the Nordic countries. The percentage of offshore work is smaller in continental countries where the labour laws place restrictions on offshoring.

“Where there is a free market and where companies are highly competitive industries they are seeking the sort of ratios that I am describing to you,” Thorley told Computerworld.

“Free markets usually operate for a reason, they operate that way because it’s the best answer for shareholders and Capgemini, as part of that system, needs to be able to respond to that with the right price point and the right skill mix and all I’m sharing with you is the last five years, averaging out those sort of ratios. Why would New Zealand be different to UK, USA, and the way Australia?”

Capgemini has pursued an onshore/offshore model for around 15 years. “Some customers give up quite early because of the cultural challenges of working with people who don’t have the same DNA or background as yourself. Personally I think its short-sighted not to persevere, because of the huge benefits you can get – talent and price point.”

Thorley, who is originally from Manchester, England, moved with his family to Australia in 2002 on an three-year expat deal with Capgemini but after two years decided to stay. He says the company is looking for IT companies in New Zealand that it can help through investment and with a “go to market strategy” in the 40 countries in which Capgemini has a presence.

He says Capgemini wants to work with industry groups and possibly government agencies to assist entrepreneurial IT companies.

“We’ve got to find ways to flush out some of these start ups and get some conversations going... it’s something we’re doing in other geographies,” he says. “We are very much putting our roots down here now.”

See also: Institute of IT Professionals CEO debates onshore/offshore ratios

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