LSE hitches wagon to offshoring's rising star

David Lester: We see a lot of IT and BPO possibilities from the MillenniumIT acquisition

The London Stock Exchange’s (LSE) acquisition of an offshore software house will play a key role in the firm’s survival as it struggles with immense financial pressure and competition.

Last week, LSE reported profits down 37 per cent to £79m for the six months to October. Meanwhile, trading was affected by a connectivity glitch that lasted four hours. Given that IT represents almost half of LSE’s total costs, there are hopes that its purchase of Sri Lankan firm MillenniumIT will help reverse the firm’s fortunes.

“Exchanges haven’t had a fantastic track record on building the next-generation IT that fast-moving multi-trading facilities have. We want to be in that league and MillenniumIT has the technology to take us there,” said LSE chief information officer (CIO) David Lester.

“The market has changed enormously and our answer to that is to have our IT systems serviced from a centre of excellence that is very low cost. Even with the pool of talent available due to the recession, I wouldn’t be able to match the cost that [MillenniumIT] is able to offer,” said Lester.

“It is a matter of life or death for us as a business. [Rival exchanges] are providing highly competitive services to ours and if we carry on with the same IT construct, we won’t be around in two years’ time – it’s as simple as that.”

Over the next few months, LSE plans to scrap its TradElect electronic trading platform, which is based on Microsoft .Net and HP servers with Cisco networking technology.

In May, the exchange started investigating 18 approaches to revamping its core systems, which ranged from using Indian service providers to overhauling its in-house IT setup.

Four options were then shortlisted in July for detailed due diligence, in cluding MillenniumIT, which finally won out because of its proven track record in developing systems capable of handling throughputs of hundreds of thousands of transactions every second.

“We also wanted to have more security over the future of the platform rather than licensing it. The fact that [the business] was open for an acquisition was also key, as we can control intellectual property over the systems,” said Lester.

“MillenniumIT also brought an interesting revenue expansion opportunity because it already sells its platforms to other exchanges worldwide, so it brings earnings to the group,” he said.

Despite Sri Lanka’s 25-year civil war, which ended only recently, LSE believes the country is poised to play a significant role in the IT sector.

“It is the year of IT in Sri Lanka, but [the deal] was a complete coincidence. Clearly one takes note of the political situation when acquiring a company, more so than when licensing a platform or embarking on a supplier relationship,” said Lester.

“But on meeting the company for the first time, I was impressed by its people and quality of products. When you visit the country a couple of times and get to know the political players, you realise there is a commitment to move the country forward,” he said.

However, the main driver for the LSE’s decision to take its development to Asia is cost. According to Lester, the fees of a UK-based business analyst are four times higher than a Sri Lankan professional of the same calibre.

As part of its restructuring programme, 10 per cent of all LSE jobs across London and Milan have been cut. Currently, the exchange employs 170 in-house IT staff in London, who are now working with 10 employees brought in from Sri Lanka.

The brief of the Sri Lankan workers is to help define the business specifications of the new platform and translate them into technical requirements. The LSE is also selecting suppliers for the infrastructure and software, and expects up to 20 MillenniumIT staff to be working in the UK, on tasks ranging from building to live production.

Two UK staff will move to the Asian island to manage the transition, ensure legal compliance and look at opportunities to offshore other functions.

“You will see us leveraging the MillenniumIT campus to employ the people that we need for new products and services and maintain their low cost – we see a lot of IT offshoring and business process outsourcing possibilities from the acquisition,” said Lester.

“For areas such as data services, it would be much more appropriate and cost effective to build the teams providing the data management type of services in Sri Lanka rather than in London or Milan,” he said.

“With our new footprint, we can build our own captive centre for operations, and that is our plan for the coming years.”

According to Lester, the LSE’s offshoring drive creates many opportunities for in-house UK staff.

“I have been telling my team to embrace Millennium’s culture, innovation and processes, rather than the other way round – we are asking them to teach us the tricks of fast software development and new ways of rolling out hardware,” he said.