What is considered to be a successful film? Well this depends on who you choose to ask. Those in the creative roles such as actors, directors, producers etc will undoubtedly crave critical acclaim and award recognition. The move companies such as Warner Brothers however, will judge a film's success by it's profit. For example, Tim Robbins, Morgan Freeman and Co. were no doubt overjoyed by the seven academy award nominations received by 1994's The Shawshank Redemption but Warner Brothers were probably underwhelmed by the relatively unsuccessful gross revenue of only $28,341,469 (http://en.wikipedia.org/wiki/Shawshank_Redemption)
This is where the accountants come in and suddenly the actors and directors are not the only ones being creative! In a bid to increase overall takings from big movies movie companies such as Warner Brothers are taking advantage of the creative accounting skills of those looking after their books.
The cast wages on a film represent one of the largest of the largest expenses. A growing trend has seen actors insist upon a percentage of gross profit as opposed to a fixed salary. This presents accountants working on a film with an opportunity to reduce the cast salaries figure on the balance sheet. They can endeavour to prepare the accounts in such a way that the gross profit figure is understated. Thus, the payment received by actors is less and the film company is able to retain a greater proportion of the film's takings. This form of creative accounting is ofetn referred to as "Hollywood Accounting". Of course this a fairly cynical point of view but in my opinion the movie industry is no different to any other industry - it is eat or be eaten!
Indeed, there are a number of high profile instances where such creative accounting has been suspected. The film My Big Fat Greek Wedding was considered hugely successful for an independent film, yet according to the studio, the film lost money. Accordingly, the cast, with the exception of Nia Vardalos who had a separate deal, sued the studio for their part of the profits. The original producers of the film have also sued Playtone, HBO and Gold Circle Films due to Hollywood accounting practices because the studios have claimed that the film had actually lost $20 million (http://en.wikipedia.org/wiki/Hollywood_accounting#Creative_accountants).
Of Course, indulging in these accounting practices can sometimes backfire for the movie companies. Peter Jackson, director of The Lord of the Rings, and his studio Wingnut Films, brought a lawsuit against New Line Cinema after an audit on part of the income of The Fellowship of the Ring". Jackson has stated this is regarding "certain accounting practices", which may be a reference to Hollywood accounting. In response, New Line stated that their rights to a film of The Hobbit were time-limited, and since Jackson would not work with them again until the suit was settled, he would not be asked to direct The Hobbit, as had been anticipated (http://en.wikipedia.org/wiki/Hollywood_accounting#Creative_accountants). Here, New Line Cinema has lost the services of a phenomenally successful director through its attempts to save a few dollars!
Those in Hollywood who choose to be salaried in such a way have to be aware of these accounting practices. Likewise, movie companies must think twice before adopting these practices because the pitfalls are illustrated in the example of Peter Jackson. It is not difficult to charge the purchase of the New Line Cinema CEO's new yacht against the gross profits of Lord of The Rings but it is difficult to convince a top director to work with you again once who creatively accounted yourself in to his bad books!
Thursday, 20 December 2007
Tuesday, 18 December 2007
Online Procurement – The Case of MARS Incorporated
This article discusses the advantages and disadvantages of using online marketplaces for buying and selling, and for using auctions as a means of setting prices.
One of the main benefits provided by online marketplaces is its relative transparency compared with one-to-one negotiation. MARS occasionally endured problems with its negotiations when situations arose where one valued supplier became upset when a competitor had been awarded a contract on terms which they would have been prepared to better. The transparency of online marketplaces means that availability, prices and stock levels are all accessible in an open environment.
Online marketplaces also provide greater opportunities for both buyers and suppliers to establish new trading partnerships. They create a global marketplace giving MARS access to many more potential suppliers. MARS currently relies on a small number of highly valued suppliers who, presumably, they have used for a number of years. This adheres to MARS’ ‘Mutuality’ principle on shared benefit but a potential danger is that these suppliers could take their respective contracts for granted and as a result, may not be providing MARS with the most competitive deal. An online marketplace allows MARS to see what else is available to ensure they are getting the best deal.
In relation, online marketplaces offer a convenient way to compare from a single source rather than having to spend time contacting and negotiating with each individual supplier as with the current system employed by MARS. Despite online marketplaces being global marketplaces they do not need to “involve any jet-setting or big-agency boon-doggling in far-flung lands” (Creamer 2007). Online procurement is a feasible alternative to face-to-face negotiations that require travel (Chin 2003). This aspect of online procurement will considerably reduce MARS’ travel, time and administrative costs. Some large companies have reported cost reductions of 10% or more through online procurement (businesslink.gov.uk).
Other advantages of using online marketplaces include the reduction of problems of time constraints and differing office hours associated with international trade as online marketplaces can operate 24/7.
However, there are many drawbacks to the use of online marketplaces. For example, MARS must disclose publicly a wealth of information relating to prices and stock levels amongst other things. It may not be desirable for MARS to make these things visible to customers or indeed competitors. This may jeopardise MARS’ ‘quality’ principle – customers could misinterpret MARS’ actions as an attempt to sacrifice quality for profit. It may also provide MARS ‘competitors with an insight in to their operating procedures and trade secrets.
Also, online marketplaces place “a brute force reliance on price.” MARS must be sure that when awarding a contract to the lowest bidder in a reverse auction, it is comparing like for like bids i.e. the lowest bid may also represent a significantly lower level of quality.
Auctions created by online marketplaces provide large companies with an opportunity to set prices.
E-auctions have allowed the NHS to "set the true market price" of supplies (Bradley 2005). By using procurement to award contracts MARS will be able to attract a much larger pool of potential suppliers which means that they can take advantage of the increased competition to gain a more competitive price for supplies as each supplier attempts to undercut the others. The main winner here is MARS as the profit margin for suppliers is driven down. However, if MARS chooses to set its prices in this way then it is in direct contradiction to the ‘Mutuality’ principle which places emphasis on shared benefit.
One other positive aspect of using auctions to set prices is the fact that prices set will be the most up to date available. Online marketplaces provide regular updated information on price and availability. Reverse auctions in particular provide MARS with the opportunity to create price competitions in a much shorter space of time.
However, using auctions to set prices could be irreparably damaging to the business relationships with MARS have developed with its small number of highly valued suppliers. Such relationships are based on trust, understanding and mutual benefit and help MARS to stick to all five core principles. These relationships can be considered intangible assets and no amount of money or cost reduction can replace them. Online marketplaces may quickly set a price but it takes years to develop these relationships. In a study by Kjerstad (2005) the main results are that auctions give thicker markets compared with negotiations, as expected, but that auctions do not result in significantly lower prices compared with negotiations.
Other potential dangers of using auctions to fix prices include suppliers which could make ‘predatory’ which may prove to be unsustainable in practice (Bradley 2005). For example, Supplier One who offers $2,050 to supply all Mars display boxes could be so desperate to win the contract that they have come in with a bid which is over ambitious and unfeasible. This means that any prices fixed using the data from this particular auction will be inaccurate.
Another danger is that suppliers could inflate prices if they are certain that MARS will invite them to participate in a reverse auction. For example, Supplier 6 notices a lack of competition for the supply of 3 Musketeers display boxes and decides to bid a certain price where they would easily be able to supply cheaper. Such incidences would also make prices fixed by auction inaccurate.
MARS must consider all of these aspects if it is to consider online marketplaces.
REFERENCES
Bradley 2005
NHS uses e-auctions to set the true price of goods
Supply Management. London: Vol. 10, Iss. 21; pg. 12, 1 pgs
Chin 2003
Reverse auctions come home to roost -- Allocation does little to dampen OEM enthusiasm for online tool
EBN. Manhasset: pg. 1
Creamer 2007
Gillette taps 9,000 creatives online
Advertising Age. (Midwest region edition). Chicago: Vol. 78, Iss. 37; pg. 1, 2 pgs
Kjerstad 2005
Auctions vs negotiations: a study of price differentials
Health Economics. Chichester:. Vol. 14, Iss. 12; pg. 1239
http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1075387458
One of the main benefits provided by online marketplaces is its relative transparency compared with one-to-one negotiation. MARS occasionally endured problems with its negotiations when situations arose where one valued supplier became upset when a competitor had been awarded a contract on terms which they would have been prepared to better. The transparency of online marketplaces means that availability, prices and stock levels are all accessible in an open environment.
Online marketplaces also provide greater opportunities for both buyers and suppliers to establish new trading partnerships. They create a global marketplace giving MARS access to many more potential suppliers. MARS currently relies on a small number of highly valued suppliers who, presumably, they have used for a number of years. This adheres to MARS’ ‘Mutuality’ principle on shared benefit but a potential danger is that these suppliers could take their respective contracts for granted and as a result, may not be providing MARS with the most competitive deal. An online marketplace allows MARS to see what else is available to ensure they are getting the best deal.
In relation, online marketplaces offer a convenient way to compare from a single source rather than having to spend time contacting and negotiating with each individual supplier as with the current system employed by MARS. Despite online marketplaces being global marketplaces they do not need to “involve any jet-setting or big-agency boon-doggling in far-flung lands” (Creamer 2007). Online procurement is a feasible alternative to face-to-face negotiations that require travel (Chin 2003). This aspect of online procurement will considerably reduce MARS’ travel, time and administrative costs. Some large companies have reported cost reductions of 10% or more through online procurement (businesslink.gov.uk).
Other advantages of using online marketplaces include the reduction of problems of time constraints and differing office hours associated with international trade as online marketplaces can operate 24/7.
However, there are many drawbacks to the use of online marketplaces. For example, MARS must disclose publicly a wealth of information relating to prices and stock levels amongst other things. It may not be desirable for MARS to make these things visible to customers or indeed competitors. This may jeopardise MARS’ ‘quality’ principle – customers could misinterpret MARS’ actions as an attempt to sacrifice quality for profit. It may also provide MARS ‘competitors with an insight in to their operating procedures and trade secrets.
Also, online marketplaces place “a brute force reliance on price.” MARS must be sure that when awarding a contract to the lowest bidder in a reverse auction, it is comparing like for like bids i.e. the lowest bid may also represent a significantly lower level of quality.
Auctions created by online marketplaces provide large companies with an opportunity to set prices.
E-auctions have allowed the NHS to "set the true market price" of supplies (Bradley 2005). By using procurement to award contracts MARS will be able to attract a much larger pool of potential suppliers which means that they can take advantage of the increased competition to gain a more competitive price for supplies as each supplier attempts to undercut the others. The main winner here is MARS as the profit margin for suppliers is driven down. However, if MARS chooses to set its prices in this way then it is in direct contradiction to the ‘Mutuality’ principle which places emphasis on shared benefit.
One other positive aspect of using auctions to set prices is the fact that prices set will be the most up to date available. Online marketplaces provide regular updated information on price and availability. Reverse auctions in particular provide MARS with the opportunity to create price competitions in a much shorter space of time.
However, using auctions to set prices could be irreparably damaging to the business relationships with MARS have developed with its small number of highly valued suppliers. Such relationships are based on trust, understanding and mutual benefit and help MARS to stick to all five core principles. These relationships can be considered intangible assets and no amount of money or cost reduction can replace them. Online marketplaces may quickly set a price but it takes years to develop these relationships. In a study by Kjerstad (2005) the main results are that auctions give thicker markets compared with negotiations, as expected, but that auctions do not result in significantly lower prices compared with negotiations.
Other potential dangers of using auctions to fix prices include suppliers which could make ‘predatory’ which may prove to be unsustainable in practice (Bradley 2005). For example, Supplier One who offers $2,050 to supply all Mars display boxes could be so desperate to win the contract that they have come in with a bid which is over ambitious and unfeasible. This means that any prices fixed using the data from this particular auction will be inaccurate.
Another danger is that suppliers could inflate prices if they are certain that MARS will invite them to participate in a reverse auction. For example, Supplier 6 notices a lack of competition for the supply of 3 Musketeers display boxes and decides to bid a certain price where they would easily be able to supply cheaper. Such incidences would also make prices fixed by auction inaccurate.
MARS must consider all of these aspects if it is to consider online marketplaces.
REFERENCES
Bradley 2005
NHS uses e-auctions to set the true price of goods
Supply Management. London: Vol. 10, Iss. 21; pg. 12, 1 pgs
Chin 2003
Reverse auctions come home to roost -- Allocation does little to dampen OEM enthusiasm for online tool
EBN. Manhasset: pg. 1
Creamer 2007
Gillette taps 9,000 creatives online
Advertising Age. (Midwest region edition). Chicago: Vol. 78, Iss. 37; pg. 1, 2 pgs
Kjerstad 2005
Auctions vs negotiations: a study of price differentials
Health Economics. Chichester:. Vol. 14, Iss. 12; pg. 1239
http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1075387458
Monday, 10 December 2007
Open Source Software and MySQL
Open source software is software for which the underlying code has been made available for users. Users are then able to read it or change it as they wish. In a business setting, use of open source software is expanding and the advantages and disadvantages are considered here.
At first glance, the most obvious advantage is the cost benefits of open sourcing. Open-source free software is comprised of open-source codes and is available for use in program applications. This code can be developed and upgraded by anyone or company and has no intellectual property rights given to any person or company. This software offers the freedom to modify and use software programs within established standards and guidelines, so the software remains "free" for all users (Walker 2006). It is not always the case that such software will be completely free of charge, MySQL began charging for services in 2005, but in almost all cases it is far cheaper than closed source proprietary software. This factor alone makes open source software extremely beneficial to businesses looking to cut costs, particularly smaller or younger companies who are more vulnerable. Open sourcing will provide the essential software programs which these companies need to set up and survive. They may also be able to make use of a high quality range of software which they could otherwise not afford.
The first enterprise wide users of MySQL were internet-enabled start up companies which turned to free open source software stacks such as LAMP (Linux, Apache, MySQL and PHP/Perl/Python) to get their business off the ground.
Indeed, it can be argued that open source software is of a higher quality than closed because it is subject to constant peer review. Closed source software proprietors are able to disguise or hide any flaws and/or issues with their software since they do not release the source coded and therefore have complete control of the product. A major benefit is that more individuals, i.e., programmers, quality control technicians, etc., have access to the software source codes. This allows for the ability to expedite and increase the software enhancements at a potentially much greater rate than proprietary programs (i.e., the ability to view source code, fix bugs, improve and adapt applications, etc.) (Walker 2006).
MySQL’s version 5.0 incorporated so many advanced requests from enterprise users that its feature sets were comparable to the big three closed source software providers of Oracle, IBM and Microsoft.
This, coupled with the fact that open source software is highly customisable makes it become a more attractive option for many businesses. This software offers the freedom to modify and use software programs within established standards and guidelines which means that users can adapt the software so that it can better meet the individual needs of the business. For example, Yahoo uses open-source software and development tools to build and support the services that customers have come to love about the company, such as E-mail, music, and search. About a dozen of Yahoo's Web-page templating systems were designed using the PHP programming language and help define how Web pages will look. "There aren't a lot of commercial products out there that meet our needs, so over the past few years open source has become the technology we consider when there's something we need," says Jeremy Zawodny, a member of Yahoo's technology development team (Greenemeier 2005).
Yahoo was one of the start-up companies which adopted MySQL’s open source software along with Google and Travelocity. The ability to modify parts of the underlying software allowed them to differentiate themselves in their own markets.
However, the implementation of open source software may not be suitable for all types of business. Boye (2006) warns that “the later you begin to test performance, the more expensive and painful it tends to become in practice” meaning that companies should be sure that the open source software which they are implementing will meet their needs as it can be difficult to backtrack. His basis is that many enterprises try to stretch their open source package to fit other use cases, such as an ebusiness portal or enterprise intranet whereas open source software works best for simpler forms of dynamic web publishing. The makers of the market leading enterprise resource planning (ERP) software SAP found the functions of MySQL’s software to be insufficient to meet the database needs of its applications.
Another disadvantage of open source software is that it is non-commercial and providers such as MySQL are unable to compete with the providers of closed source software such as Oracle, IBM and Microsoft. Oracle’s CEO Larry Ellison reinforces this point when he says “…I think the revenues from MySQL are between $30 million and $40 million. Oracle’s revenue next year is $15 billion.” This means that companies like MySQL are vulnerable. To look after its own interests Oracle had to respond to the growing popularity of MySQL open source software. In an aggressive manoeuvre they acquired the Finnish four-person outfit Innobase. Innobase exclusively provided a key input component (transactional engine) for MySQL. This component was used by 30-40% of MySQL customers including Travelocity. If the production of this component was then discontinued by Oracle then this can seriously harm MySQL’S business and therefore the businesses of those using MySQL’s open source software.
In the end, Oracle did not discontinue production but this is the sort of situation businesses leave themselves vulnerable to when operating open source software.
REFERENCES
Boye 2006
Open Source Portals: Frustration & Promise
EContent. Wilton: Vol. 29, Iss. 6; p. 38 (5 pages)
Greenemeier. 2005
Open Source Goes CORPORATE
InformationWeek. Manhasset: p. 38 (7 pages)
Walker 2006
OPEN-SOURCE FREE SOFTWARE: Benefits, features, and Uses
Contract Management. McLean: Vol. 46, Iss. 7; p. 18 (6 pages)
At first glance, the most obvious advantage is the cost benefits of open sourcing. Open-source free software is comprised of open-source codes and is available for use in program applications. This code can be developed and upgraded by anyone or company and has no intellectual property rights given to any person or company. This software offers the freedom to modify and use software programs within established standards and guidelines, so the software remains "free" for all users (Walker 2006). It is not always the case that such software will be completely free of charge, MySQL began charging for services in 2005, but in almost all cases it is far cheaper than closed source proprietary software. This factor alone makes open source software extremely beneficial to businesses looking to cut costs, particularly smaller or younger companies who are more vulnerable. Open sourcing will provide the essential software programs which these companies need to set up and survive. They may also be able to make use of a high quality range of software which they could otherwise not afford.
The first enterprise wide users of MySQL were internet-enabled start up companies which turned to free open source software stacks such as LAMP (Linux, Apache, MySQL and PHP/Perl/Python) to get their business off the ground.
Indeed, it can be argued that open source software is of a higher quality than closed because it is subject to constant peer review. Closed source software proprietors are able to disguise or hide any flaws and/or issues with their software since they do not release the source coded and therefore have complete control of the product. A major benefit is that more individuals, i.e., programmers, quality control technicians, etc., have access to the software source codes. This allows for the ability to expedite and increase the software enhancements at a potentially much greater rate than proprietary programs (i.e., the ability to view source code, fix bugs, improve and adapt applications, etc.) (Walker 2006).
MySQL’s version 5.0 incorporated so many advanced requests from enterprise users that its feature sets were comparable to the big three closed source software providers of Oracle, IBM and Microsoft.
This, coupled with the fact that open source software is highly customisable makes it become a more attractive option for many businesses. This software offers the freedom to modify and use software programs within established standards and guidelines which means that users can adapt the software so that it can better meet the individual needs of the business. For example, Yahoo uses open-source software and development tools to build and support the services that customers have come to love about the company, such as E-mail, music, and search. About a dozen of Yahoo's Web-page templating systems were designed using the PHP programming language and help define how Web pages will look. "There aren't a lot of commercial products out there that meet our needs, so over the past few years open source has become the technology we consider when there's something we need," says Jeremy Zawodny, a member of Yahoo's technology development team (Greenemeier 2005).
Yahoo was one of the start-up companies which adopted MySQL’s open source software along with Google and Travelocity. The ability to modify parts of the underlying software allowed them to differentiate themselves in their own markets.
However, the implementation of open source software may not be suitable for all types of business. Boye (2006) warns that “the later you begin to test performance, the more expensive and painful it tends to become in practice” meaning that companies should be sure that the open source software which they are implementing will meet their needs as it can be difficult to backtrack. His basis is that many enterprises try to stretch their open source package to fit other use cases, such as an ebusiness portal or enterprise intranet whereas open source software works best for simpler forms of dynamic web publishing. The makers of the market leading enterprise resource planning (ERP) software SAP found the functions of MySQL’s software to be insufficient to meet the database needs of its applications.
Another disadvantage of open source software is that it is non-commercial and providers such as MySQL are unable to compete with the providers of closed source software such as Oracle, IBM and Microsoft. Oracle’s CEO Larry Ellison reinforces this point when he says “…I think the revenues from MySQL are between $30 million and $40 million. Oracle’s revenue next year is $15 billion.” This means that companies like MySQL are vulnerable. To look after its own interests Oracle had to respond to the growing popularity of MySQL open source software. In an aggressive manoeuvre they acquired the Finnish four-person outfit Innobase. Innobase exclusively provided a key input component (transactional engine) for MySQL. This component was used by 30-40% of MySQL customers including Travelocity. If the production of this component was then discontinued by Oracle then this can seriously harm MySQL’S business and therefore the businesses of those using MySQL’s open source software.
In the end, Oracle did not discontinue production but this is the sort of situation businesses leave themselves vulnerable to when operating open source software.
REFERENCES
Boye 2006
Open Source Portals: Frustration & Promise
EContent. Wilton: Vol. 29, Iss. 6; p. 38 (5 pages)
Greenemeier. 2005
Open Source Goes CORPORATE
InformationWeek. Manhasset: p. 38 (7 pages)
Walker 2006
OPEN-SOURCE FREE SOFTWARE: Benefits, features, and Uses
Contract Management. McLean: Vol. 46, Iss. 7; p. 18 (6 pages)
Why Did Taurus fail and Crest Succeed?
The London Stock Exchange (LSE) is one of the world’s oldest stock exchanges and can trace its history back more than 300 years. Starting life in the coffee houses of 17th century London, the Exchange quickly grew to become the City’s most important financial institution (londonstockexchange.com). The LSE has seen many milestones throughout its long history, none bigger than the “Big Bang” in 1986 when market de-regulation occurred. Interest in the market increased hugely and the old system whereby stock certificates changed hands to represent ownership was no longer practical. London realised that computerisation was the way forward and the share settlement system TAURUS was introduced with share ownership becoming an entry in to a computer database.
TAURUS was a huge project and received heavy investment. In a bid to please member firms that would all have to use the system, the TAURUS design team tried to accommodate everyone’s demands. It made an ill-fated attempt to become “all things to all men”. Inevitably the system became far too complex. As a result, TAURUS’ implementation encountered one difficulty after another – deadlines were being missed and budgets were continually being over run.
The TAURUS project is widely thought to have been such a fiasco because of the impossibility of mediating the demands of the powerful vested interests of the financial community (Flowers, 1996). In his book, Flowers reveals a system that never possessed a stable architecture and as such never had a realistic chance of achieving its objectives. The TAURUS project was terminated on March 11 2003, a failure costing £75million.
To take its place, a new system called CREST was designed. Having learned from the mistakes made in designing TAURUS, the design of CREST was co-ordinated by a core, high level design team of 4 or 5 who kept an overview of the entire project (Currie, 1997) instead of the hundreds of staff used for TAURUS. This might have been a major factor in the success of CREST.
In designing CREST, the team did not have to give in to the demands of member firms as they did for TAURUS, because CREST usage was optional. The result was a far less complex, easier to use system. The designers took advantage of this and could afford to exploit the Pareto effect, and cater only for the 10-15% of the business functions that made up 85-90% of the volume of transactions (Head, 2001).
Time and budget constraints were a major part of the failure of TAURUS and part of this could have been down to the fluid nature of supplier contracts (Currie, 1997) which would allow suppliers to prolong jobs and increase their own profit. During the design of CREST, fixed price contracts were negotiated with suppliers giving incentive to deliver their product on time and on budget.
Also during design, the CREST team decided to adopt a “follow the recipe” approach using only tried and tested technology. The disadvantage suffered by TAURUS was that the technology it used was relatively untried and untested which meant there was no support when problems arise.
Overall, it is quite clear that TAURUS was simply an over-ambitious project which in hindsight, never really had much chance of success. The problems all started at the development stage, principles used in running the overall organisation (LSE) were applied to running the project creating a legacy of “development by committee” (Flowers, 1996), a form of management totally inappropriate for systems development (Goulielmos, 2003). In my opinion, the number one reason why CREST succeeded where TAURUS has failed is that CREST was able to learn from the mistakes made by TAURUS. Each and every problem with TAURUS was addressed and eliminated by adopting a completely different method of systems development. It could be said that the LSE simply could not afford to fail with CREST such was their dwindling position in the financial world, so CREST was always going to be more likely to succeed.
Sources:
Currie, W “Computerising the Stock Exchange: A Comparison of Two Information Systems” Blackwell Publishers Ltd, 1997
Flowers, Stephen “Software Failure: Management Failure: Amazing Stories and Cautionary Tales” 1998
Goulielmos, Markos “Outlining organisational failure in information systems development” Disaster Prevention and Management Volume 12 Number 4 2003 pp. 319-327
Head, C. H “Taurus and Crest, Failure and Success in Technology Project Management”, Henley Management College, 2001
www.londonstockexchange.com
TAURUS was a huge project and received heavy investment. In a bid to please member firms that would all have to use the system, the TAURUS design team tried to accommodate everyone’s demands. It made an ill-fated attempt to become “all things to all men”. Inevitably the system became far too complex. As a result, TAURUS’ implementation encountered one difficulty after another – deadlines were being missed and budgets were continually being over run.
The TAURUS project is widely thought to have been such a fiasco because of the impossibility of mediating the demands of the powerful vested interests of the financial community (Flowers, 1996). In his book, Flowers reveals a system that never possessed a stable architecture and as such never had a realistic chance of achieving its objectives. The TAURUS project was terminated on March 11 2003, a failure costing £75million.
To take its place, a new system called CREST was designed. Having learned from the mistakes made in designing TAURUS, the design of CREST was co-ordinated by a core, high level design team of 4 or 5 who kept an overview of the entire project (Currie, 1997) instead of the hundreds of staff used for TAURUS. This might have been a major factor in the success of CREST.
In designing CREST, the team did not have to give in to the demands of member firms as they did for TAURUS, because CREST usage was optional. The result was a far less complex, easier to use system. The designers took advantage of this and could afford to exploit the Pareto effect, and cater only for the 10-15% of the business functions that made up 85-90% of the volume of transactions (Head, 2001).
Time and budget constraints were a major part of the failure of TAURUS and part of this could have been down to the fluid nature of supplier contracts (Currie, 1997) which would allow suppliers to prolong jobs and increase their own profit. During the design of CREST, fixed price contracts were negotiated with suppliers giving incentive to deliver their product on time and on budget.
Also during design, the CREST team decided to adopt a “follow the recipe” approach using only tried and tested technology. The disadvantage suffered by TAURUS was that the technology it used was relatively untried and untested which meant there was no support when problems arise.
Overall, it is quite clear that TAURUS was simply an over-ambitious project which in hindsight, never really had much chance of success. The problems all started at the development stage, principles used in running the overall organisation (LSE) were applied to running the project creating a legacy of “development by committee” (Flowers, 1996), a form of management totally inappropriate for systems development (Goulielmos, 2003). In my opinion, the number one reason why CREST succeeded where TAURUS has failed is that CREST was able to learn from the mistakes made by TAURUS. Each and every problem with TAURUS was addressed and eliminated by adopting a completely different method of systems development. It could be said that the LSE simply could not afford to fail with CREST such was their dwindling position in the financial world, so CREST was always going to be more likely to succeed.
Sources:
Currie, W “Computerising the Stock Exchange: A Comparison of Two Information Systems” Blackwell Publishers Ltd, 1997
Flowers, Stephen “Software Failure: Management Failure: Amazing Stories and Cautionary Tales” 1998
Goulielmos, Markos “Outlining organisational failure in information systems development” Disaster Prevention and Management Volume 12 Number 4 2003 pp. 319-327
Head, C. H “Taurus and Crest, Failure and Success in Technology Project Management”, Henley Management College, 2001
www.londonstockexchange.com
IT Outsourcing and The BBC
The following are some of the main benefits that the BBC can expect from outsourcing their IT:
Estimated savings up £30m per year including savings on the consolidation of 800 servers and networks and the management of 30,000 desktops
300+ job cuts no longer necessary
Allow BBC freedom to concentrate more on developing content for TV programmes
At present, the BBC’s cost to procure IT services and telephony was 2% more than other comparable broadcasting companies. This is a reason in itself for BBC to exploit the benefits of outsourcing. BBC no longer has a monopoly on TV programmes as it did until September 1955 and it no longer competes only with ITV and Channel 4 – satellite television now offers viewers a choice of hundreds of channels and television programmes to choose from. BBC now finds itself in an extraordinarily competitive industry and it simply cannot afford for other broadcasting companies to enjoy such a cost advantage over them. Therefore, something must be done and there does not appear to be any other reasonable alternative which can offer savings of the magnitude (£30m per year) which outsourcing can. Taking this step can allow the BBC to regain a competitive advantage on its rivals as far as costs are concerned and as mentioned it will also free up time to devote to better programme making. Nelson (2007) demonstrates how outsourcing IT responsibilities can free up workers' time so they can focus on the business of doing business.
General Motors (GM) in the US provide an excellent example of the possible benefits of outsourcing having spent $1billion less on IT in 2003 than in 1996. Although GM did experience problems initially and only found success at the third attempt, a loss of management control was one of the problems they originally found (Olson 2007).
Indeed, a loss of control should be a concern for the BBC. Barker (2007) believes that outsourcing can be good but warns that companies often mistakenly assume that outsourcers know best and should be left to it whereas they should stay well involved to lend guidance. Whilst part of the BBC’s criteria for evaluation of would-be outsourcers was that it was a cultural fit – there is no explicit mention of someone being hired to help the BBC maintain a certain element of control.
Another concern is that a sell off would distance the BBC from the latest technology innovations whilst the broadcasting industry are increasingly using IT for developing and managing content.
On the whole I believe that in the absence of any realistic alternatives the BBC has made a wise decision to outsource it’s IT as action had to be taken to restore BBC’s cost advantages over its rivals. This had to be done regardless of government pressure to meet savings targets. The main opposition question Siemens’ ability to provide high quality IT services for a 10 a year period but the main point is that BBC will have made a wise decision if they implement the outsourcing in the correct way. Selecting the outsourcer is key to ensuring this.
Garrett (2003) asserts that one of the success factors of successful outsourcing is to “exercise appropriate due diligence in selecting the vendor”. The BBC appeared to have taken heed of this. The selling process was initiated in November 2003 and a winner wasn’t actually announced until July the following year. They also showed a degree of ruthlessness in trying to find the most suitable supplier cutting the shortlist from 80 companies, then to 31, then 9 and finally 3 before Siemens was chosen as the winner. Indeed, the BBC stuck so rigidly to their criteria for evaluation that CSC were withdrawn from the race to supply at the final negotiation stage because they could not meet expectations. They made sure that if its IT division is to be outsourced that it is done on their terms. So thorough was the selection process that the BBC were able to assure their expectations could be met by the winning supplier.
One of the main positives was that the BBC remained true to the criteria for evaluation throughout the selection process. The criteria outlined what the BBC would expect from the contract and importantly, it was kept realistic – this would help attract more interest, particularly from leading firms such as IBM and Siemens. Also, the BBC appointed an evaluating team consisting of 26 core members, this ensures that the responsibility of such a major decision would not be left in the hands of only a few people and that a sufficient number of opinions could be represented. Rodriguez (2007) claims that before exploring outsourcing, business owners should know what they are trying to achieve, the BBC made clear what they were trying to achieve and took sufficient care in finding the right company to help them achieve this.
There are areas of concern regarding the selection process however. The BBC offers a 10 year contract to the eventual winner. I would indeed share the feelings of a union member who worries that should poor services be rendered by the contract winner then 10 years is a very long time to be locked in. BBC could fall so far behind in the industry as a result that the damage could become irreparable.
The initial stages of the selection process involved the 80 interested companies completing a questionnaire for evaluation purposes. It can be observed that only 31 out of the 80 actually returned the questionnaire. This leaves the possibility of a better candidate being lost among the 49 unreturned forms. Also, the questionnaire is a highly structured, impersonal and non-flexible form of evaluating. The answers provided may be unclear or completely irrelevant. This could mean that the BBC may be drawing up a shortlist using data which is unrepresentative of the companies involved. Site visits or interview may have been more appropriate especially given the magnitude of the decision.
One final negative aspect is that the BBC neglected to involve the British government in the selection process. The result was that completion of the sell off was delayed as the government deliberated on endorsing the contract. In the end though, the contract was given the seal of approval.
REFERENCES
Barker 2007 Outsourcing The Right Way
Computerworld. Framingham: Vol. 41, Iss. 35; pg. 39, 1 pgs
Garrett 2003 Four steps to successful vendor management
ABA Bank Compliance. Washington: Vol. 24, Iss. 9; pg. 32
Nelson 2007 Get IT Together
Commercial Investment Real Estate. Chicago: Vol. 26, Iss. 6; pg. 18
Olson 2007 Evaluation of ERP outsourcing
Computers & Operations Research. New York: Vol. 34, Iss. 12; pg. 3715
Rodriguez 2007 Choose the Right Partner
The Practical Accountant. Boston: pg. 15, 1 pgs
Estimated savings up £30m per year including savings on the consolidation of 800 servers and networks and the management of 30,000 desktops
300+ job cuts no longer necessary
Allow BBC freedom to concentrate more on developing content for TV programmes
At present, the BBC’s cost to procure IT services and telephony was 2% more than other comparable broadcasting companies. This is a reason in itself for BBC to exploit the benefits of outsourcing. BBC no longer has a monopoly on TV programmes as it did until September 1955 and it no longer competes only with ITV and Channel 4 – satellite television now offers viewers a choice of hundreds of channels and television programmes to choose from. BBC now finds itself in an extraordinarily competitive industry and it simply cannot afford for other broadcasting companies to enjoy such a cost advantage over them. Therefore, something must be done and there does not appear to be any other reasonable alternative which can offer savings of the magnitude (£30m per year) which outsourcing can. Taking this step can allow the BBC to regain a competitive advantage on its rivals as far as costs are concerned and as mentioned it will also free up time to devote to better programme making. Nelson (2007) demonstrates how outsourcing IT responsibilities can free up workers' time so they can focus on the business of doing business.
General Motors (GM) in the US provide an excellent example of the possible benefits of outsourcing having spent $1billion less on IT in 2003 than in 1996. Although GM did experience problems initially and only found success at the third attempt, a loss of management control was one of the problems they originally found (Olson 2007).
Indeed, a loss of control should be a concern for the BBC. Barker (2007) believes that outsourcing can be good but warns that companies often mistakenly assume that outsourcers know best and should be left to it whereas they should stay well involved to lend guidance. Whilst part of the BBC’s criteria for evaluation of would-be outsourcers was that it was a cultural fit – there is no explicit mention of someone being hired to help the BBC maintain a certain element of control.
Another concern is that a sell off would distance the BBC from the latest technology innovations whilst the broadcasting industry are increasingly using IT for developing and managing content.
On the whole I believe that in the absence of any realistic alternatives the BBC has made a wise decision to outsource it’s IT as action had to be taken to restore BBC’s cost advantages over its rivals. This had to be done regardless of government pressure to meet savings targets. The main opposition question Siemens’ ability to provide high quality IT services for a 10 a year period but the main point is that BBC will have made a wise decision if they implement the outsourcing in the correct way. Selecting the outsourcer is key to ensuring this.
Garrett (2003) asserts that one of the success factors of successful outsourcing is to “exercise appropriate due diligence in selecting the vendor”. The BBC appeared to have taken heed of this. The selling process was initiated in November 2003 and a winner wasn’t actually announced until July the following year. They also showed a degree of ruthlessness in trying to find the most suitable supplier cutting the shortlist from 80 companies, then to 31, then 9 and finally 3 before Siemens was chosen as the winner. Indeed, the BBC stuck so rigidly to their criteria for evaluation that CSC were withdrawn from the race to supply at the final negotiation stage because they could not meet expectations. They made sure that if its IT division is to be outsourced that it is done on their terms. So thorough was the selection process that the BBC were able to assure their expectations could be met by the winning supplier.
One of the main positives was that the BBC remained true to the criteria for evaluation throughout the selection process. The criteria outlined what the BBC would expect from the contract and importantly, it was kept realistic – this would help attract more interest, particularly from leading firms such as IBM and Siemens. Also, the BBC appointed an evaluating team consisting of 26 core members, this ensures that the responsibility of such a major decision would not be left in the hands of only a few people and that a sufficient number of opinions could be represented. Rodriguez (2007) claims that before exploring outsourcing, business owners should know what they are trying to achieve, the BBC made clear what they were trying to achieve and took sufficient care in finding the right company to help them achieve this.
There are areas of concern regarding the selection process however. The BBC offers a 10 year contract to the eventual winner. I would indeed share the feelings of a union member who worries that should poor services be rendered by the contract winner then 10 years is a very long time to be locked in. BBC could fall so far behind in the industry as a result that the damage could become irreparable.
The initial stages of the selection process involved the 80 interested companies completing a questionnaire for evaluation purposes. It can be observed that only 31 out of the 80 actually returned the questionnaire. This leaves the possibility of a better candidate being lost among the 49 unreturned forms. Also, the questionnaire is a highly structured, impersonal and non-flexible form of evaluating. The answers provided may be unclear or completely irrelevant. This could mean that the BBC may be drawing up a shortlist using data which is unrepresentative of the companies involved. Site visits or interview may have been more appropriate especially given the magnitude of the decision.
One final negative aspect is that the BBC neglected to involve the British government in the selection process. The result was that completion of the sell off was delayed as the government deliberated on endorsing the contract. In the end though, the contract was given the seal of approval.
REFERENCES
Barker 2007 Outsourcing The Right Way
Computerworld. Framingham: Vol. 41, Iss. 35; pg. 39, 1 pgs
Garrett 2003 Four steps to successful vendor management
ABA Bank Compliance. Washington: Vol. 24, Iss. 9; pg. 32
Nelson 2007 Get IT Together
Commercial Investment Real Estate. Chicago: Vol. 26, Iss. 6; pg. 18
Olson 2007 Evaluation of ERP outsourcing
Computers & Operations Research. New York: Vol. 34, Iss. 12; pg. 3715
Rodriguez 2007 Choose the Right Partner
The Practical Accountant. Boston: pg. 15, 1 pgs
Sunday, 18 November 2007
How will offshoring affect UK accountants?
A product of the communications revolution, offshoring is something new and growing fast. ‘Offshoring’ - the process of relocating business processes to lower-cost overseas destinations - is a growing activity (icaew.co.uk). The managament of the function is usually retained.
It started with information technology and human resources related functions. Today, accounting and other financial services face the offshoring or outsourcing revolution. According to consultants IDC, outsourcing of accounting and financial services will grow 9.6% annually for the next five years, and most will go offshore (Bellavance 2004). Normally when we think of offshoring we are thinking of contact centres with the levels of annoying cold calls our households receive and until now, professionals such as accountants have been able to consider themselves relatively safe from the growing offshore trend. A big reason for this is the disparities in financial reporting caused by differing accounting standards. This is now rapidly beginning to change, in many countries, the shift to international standards is already underway. Today, more than 100 countries either require or permit International Financial Reporting Standards (IFRS) as their accounting standard or base their own local standards on it. Canada shifts in 2011, while Brazil, Chile, India, Israel and Korea are among the countries that have also set a date for a move to IFRS (Turley 2007). Harmonization of international accounting standards means there will be no significant difference between developing and developed countries when it comes to outsourcing accounting functions – except cost (Hoque 2007).
It is estimated that more than 350,000 jobs would move in the financial services industry by 2015 (Nuttall 2007). The effect on employment for UK accountants is set to be significant. Areas of accountancy where work can be seasonal are most susceptible, for example, tax. Many firms often have to turn away potentially profitable clients during peak times because they are understaffed. Using offshoring, firms are able to get through work loads such as tax returns much faster. If we consider that in India for example, they are at work whilst UK workers are asleep. Indeed, India is a popular destination for the offshoring of business processes mainly because of it’s unique education system, which generates 200,000-250,000 engineering and computer science graduates and more than 2 million other graduates, most of whom speak very good English. According to a NASSCOM-McKinsey report, India's business process outsourcing (BPO) industry is expected to grow to more than $21 billion by 2008 (ebstrategy.com).
While the tax area of accounting profession may be more susceptible to the threats of offshoring, no area is truly safe simply because of the cost benefits available to firms who offshore. The Deloitte survey showed that offshoring has spread across nearly all business functions, with significant growth around transaction processing, finance and HR (Deloitte.co.uk).
What UK accounting faces is a situation where it is now possible for similarly intelligent, well educated, young people in India and other developing countries can now compete for the same jobs. However, these young accountants in India are willing to carry out the work for a fraction of the salary expected by a UK accountant. This seems like a simple decision for any client. However, there are still reasons why UK accountants should still be preferred. Security is one such reason due to the differing privacy and data security laws in India. In the example of tax preparation, the following quote can easily be applied to UK citizens:
"Offshore tax preparation represents a very real danger for the United States and its citizens. Many taxpayers have trusted a US tax preparer with their most personal and confidential financial information, so they are innocently unaware of being vulnerable to identity theft and fraud when their returns are actually processed in India," according to Steven K. Ladd, CEO, Copanion, Inc., a software developer serving the accounting industry (offshoringtimes.com).
UK accountants will have to step things up. Survival skills will be required under the new employment environment created by offshoring. They will have to demonstrate flexibility, work ethic, productivity, innovative skills and place emphasis on all the things they are capable of which their Indian ‘rivals’ are not. For example, UK accountants will have a working knowledge of the needs and requirements of UK customers as they will be more understanding of UK business culture. Also, whilst Indian workers will speak English competently it is not their primary language. Arguably, they might find it difficult to build a genuine rapport with UK clients. UK clients will find it easier to identify with UK accountants and vice-versa. These are some of the advantages which UK accounting must capitalise on to survive offshoring.
REFERENCES
Bellavance, Christian 2004 Shoring up Business Toronto: Nov 2004. Vol. 137, Iss. 9; pg. 1, 1
Hoque 2007 An interview with Zahirul Hoque Interview by Sarah Powell
Strategic Direction Volume 23 Number 6 2007 pp. 25-28
Nuttall, Chris 2004 'Europe set to move 1m jobs abroad in decade' . LONDON 1ST EDITION] Financial Times. London (UK): Aug 16, 2004. pg. 8
Turley, James 2007 Mind the GAAP. Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 9, 2007. pg. A.18
Websites used:
Icaew.co.uk
Deloitte.co.uk
Offshoringtimes.com
Wikipedia.org
Ebstrategy.com
It started with information technology and human resources related functions. Today, accounting and other financial services face the offshoring or outsourcing revolution. According to consultants IDC, outsourcing of accounting and financial services will grow 9.6% annually for the next five years, and most will go offshore (Bellavance 2004). Normally when we think of offshoring we are thinking of contact centres with the levels of annoying cold calls our households receive and until now, professionals such as accountants have been able to consider themselves relatively safe from the growing offshore trend. A big reason for this is the disparities in financial reporting caused by differing accounting standards. This is now rapidly beginning to change, in many countries, the shift to international standards is already underway. Today, more than 100 countries either require or permit International Financial Reporting Standards (IFRS) as their accounting standard or base their own local standards on it. Canada shifts in 2011, while Brazil, Chile, India, Israel and Korea are among the countries that have also set a date for a move to IFRS (Turley 2007). Harmonization of international accounting standards means there will be no significant difference between developing and developed countries when it comes to outsourcing accounting functions – except cost (Hoque 2007).
It is estimated that more than 350,000 jobs would move in the financial services industry by 2015 (Nuttall 2007). The effect on employment for UK accountants is set to be significant. Areas of accountancy where work can be seasonal are most susceptible, for example, tax. Many firms often have to turn away potentially profitable clients during peak times because they are understaffed. Using offshoring, firms are able to get through work loads such as tax returns much faster. If we consider that in India for example, they are at work whilst UK workers are asleep. Indeed, India is a popular destination for the offshoring of business processes mainly because of it’s unique education system, which generates 200,000-250,000 engineering and computer science graduates and more than 2 million other graduates, most of whom speak very good English. According to a NASSCOM-McKinsey report, India's business process outsourcing (BPO) industry is expected to grow to more than $21 billion by 2008 (ebstrategy.com).
While the tax area of accounting profession may be more susceptible to the threats of offshoring, no area is truly safe simply because of the cost benefits available to firms who offshore. The Deloitte survey showed that offshoring has spread across nearly all business functions, with significant growth around transaction processing, finance and HR (Deloitte.co.uk).
What UK accounting faces is a situation where it is now possible for similarly intelligent, well educated, young people in India and other developing countries can now compete for the same jobs. However, these young accountants in India are willing to carry out the work for a fraction of the salary expected by a UK accountant. This seems like a simple decision for any client. However, there are still reasons why UK accountants should still be preferred. Security is one such reason due to the differing privacy and data security laws in India. In the example of tax preparation, the following quote can easily be applied to UK citizens:
"Offshore tax preparation represents a very real danger for the United States and its citizens. Many taxpayers have trusted a US tax preparer with their most personal and confidential financial information, so they are innocently unaware of being vulnerable to identity theft and fraud when their returns are actually processed in India," according to Steven K. Ladd, CEO, Copanion, Inc., a software developer serving the accounting industry (offshoringtimes.com).
UK accountants will have to step things up. Survival skills will be required under the new employment environment created by offshoring. They will have to demonstrate flexibility, work ethic, productivity, innovative skills and place emphasis on all the things they are capable of which their Indian ‘rivals’ are not. For example, UK accountants will have a working knowledge of the needs and requirements of UK customers as they will be more understanding of UK business culture. Also, whilst Indian workers will speak English competently it is not their primary language. Arguably, they might find it difficult to build a genuine rapport with UK clients. UK clients will find it easier to identify with UK accountants and vice-versa. These are some of the advantages which UK accounting must capitalise on to survive offshoring.
REFERENCES
Bellavance, Christian 2004 Shoring up Business Toronto: Nov 2004. Vol. 137, Iss. 9; pg. 1, 1
Hoque 2007 An interview with Zahirul Hoque Interview by Sarah Powell
Strategic Direction Volume 23 Number 6 2007 pp. 25-28
Nuttall, Chris 2004 'Europe set to move 1m jobs abroad in decade' . LONDON 1ST EDITION] Financial Times. London (UK): Aug 16, 2004. pg. 8
Turley, James 2007 Mind the GAAP. Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 9, 2007. pg. A.18
Websites used:
Icaew.co.uk
Deloitte.co.uk
Offshoringtimes.com
Wikipedia.org
Ebstrategy.com
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