POL00114269 - Post Office Limited - Extract from minutes of a Board meeting held on 19 September 2012.
POL00114269
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Post Office Limited — Strictly Confidential
POLB (12)9"
POST OFFICE LIMITED
(Company no. 2154540)
Extract from minutes of a Board meeting held on 19"" September 2012
Present:
Alice Perkins
Neil McCausland
Tim Franklin
Virginia Holmes
Alasdair Marnoch
Susannah Storey
Paula Vennells
Chris Day
In attendance:
Alwen Lyons
Sue Barton
Charles Colquhoun (CC)
Susan Crichton
Nick Kennett
Ken Potter
Nick Farhi
Vivek Madan
POLB 12/97
at 148 Old Street, London EC1V 9HQ
Chairman
Senior Independent Director
Non-Executive Director
Non-Executive Director (items 12/88-12/93)
Non-Executive Director
Non-Executive Director
Chief Executive
Chief Financial Officer
Company Secretary
Strategy Director (item 12/89 only)
Head of Corporate Finance (items 12/94 and 12/95 only)
HR and Corporate Services Director (item 12/91 only)
Financial Services Director (item 12/90 only)
Pensions Consultant (item 12/91 only)
OC&C Strategy Consultants (item 12/89 only)
OC&C Strategy Consultants (item 12/89 only)
ITEMS FOR NOTING
(c) The paper on Horizon Evolution was noted
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POST OFFICE LTD BOARD
Noting Paper
Horizon Evolution Update
1. Purpose
The purpose of this paper is to update the Board on:
1.4
1.2
1.3
the current state of the Horizon Counter system and underlying Fujitsu HNG-x*
contract;
the review that was conducted with Fujitsu earlier this year and the work we are
continuing to undertake to ensure we minimise risk and cost to the business through
transition planning;
the approach being taken to identify the options for the provision of Post Office
counter’s services for 2015 and beyond.
2. Background
24
2.2
2.3
2.4
2.5
26
27
2.8
The Fujitsu HNG-X contract terminates at 31* March 2015.
The current Horizon system has fundamentally changed little since it was originally
designed in 1995.
Many of the components of the current HNG-x service will have reached end of life by
March 2015.
Fujitsu have estimated the cost of extending the service life to 2020 would be circa
£70m of investment during 2012-15, with on-going operational costs similar to today’s
charges.
The Post Office business requires moving to a more flexible counter service than can
currently be provided through the current or proposed Horizon counter application.
Currently adding new facilities and changing existing ones is slow and expensive
when compared with industry norms.
To compete successfully in the commercial marketplace, our future business strategy
recognised the need for improved speed to market and cost efficiencies.
Under Public Procurement Law, Post Office is required to competitively tender the full
scope of the existing HNG-x contract.
In May 2012 Fujitsu approached Post Office requesting the opportunity to engage and
bring to the table a compelling proposition for the future provision of counter services
through to 2020.
1 FING-x: The contractual means through which Fujitsu provide the Horizon counter system and other IT services
(eg, finance and management information systems, etc.) to Post Office.
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2.9 Through June and July 2012, Fujitsu and Post Office Information Technology and
Change (IT&C) worked together on an in-depth study into the opportunities for
renewing and extending the current HNG-x contract for up to five years. The outcome
of this investigation was reported to the Executive Committee of Post Office Limited
during July, fully explored and declined based on a number of criteria including:
2.9.1 legal advice based on Public Procurement Law
2.9.2 insufficient value for money over the strategic term
2.9.3 lacking the flexibility required by our business
2.9.4 it did not provide a compelling future vision of how to satisfy the business need,
focussing largely on a significant technology refresh during 2012-15.
2.10 Post Office are moving to a new IT Supply Chain model providing increased flexibility,
speed to market and improved cost savings.
2.11. Under the new IT Supply Chain the capabilities provided through the current
monolithic HNG-x contract will be provided through our Tower” suppliers.
2.12 Fujitsu have the opportunity to competitively win work under the new IT Supply chain
model.
3 Strategic Landscape
3.4 There will never be a good time to migrate to a new counter solution.
3.2 All solutions will require significant business activity and investment.
3.3. Any future counter capability will be likely to have a minimum expected lifetime of ten
operational years following its introduction, equating to an end of life circa 2025. This
is based on industry norms for e-POS® longevity.
3.4 Post Office will need to negotiate an extension to the existing Fujitsu HNG-x contract
of circa 12 and 18 months to ensure we continue to provide the stable business
platform demanded by:
3.4.1 Successful completion of the current Network and Crown Transformation
plans over the 2012-15 period.
3.4.2 Separation: with many supporting systems provided under the RMG CSC
contract with the majority of transition activities taking place in 2013-15
3.4.3. Embarking on the 2015-2020 strategic period with clarity on our strategic
intent through to 2020, ensuring alignment with the business.
3.5 Post Office will migrate services from HNG-x to our new contractual environment as
early as it is prudent to do so, enabling us to reduce the overall scope, risks and costs
of any extension period.
? Towers: Elements of our new IT supply chain which will provide and run operational IT services for the business. These
currently include Towers for: a) Data Centres, b) Network, c) Workplace, d) Applications and Infrastructure.
2 @-POS: Electronic Point of Service, a system able to provide sales and service capabilities to meet customer needs.
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3.6 Weare currently working to establish the precise nature of the terms and scope of the
extension required including the scale of the overall costing.
4. Activities/Current Situation
441 To reduce the risk to the business transformation programme we are working with
Fujitsu to package a programme of work to manage all of the activities’ and changes
required to the Horizon counter application over the 2012-15 term.
4.2 Included within this programme of work, for the existing Horizon application, are the
following update activities:
4.2.1 Extended Hours: providing support for extended branch opening hours, with
the added benefit of improving our operational capabilities through reducing
the duration of the overnight batch run.
4.2.2 Channel Integration: enabling other suppliers to access the capabilities of the
Horizon counter system, providing industry standard interfaces for a range of
key capabilities. This will enhance flexibility, speed to market and start to
reduce the bespoke nature of the current Horizon system.
4.2.3. Improved IPR* Position: By undertaking new developments we reduce the
IPR vested in Fujitsu, as under the terms and conditions of the HNG-x contract
new capabilities belong to Post Office.
4.3 We are continuing to shape this package of work to ensure where possible the
activities ease any future transition away from the HNG-x contract. An example is
Channel Integration which makes the current system more open and flexible.
44 Arisk and resilience review has been undertaken giving rise to a programme of
planned improvement activities. This is the subject of a separate paper made to this
Board.
4.5 The findings from the risk and resilience review are being input to the procurement
activities being undertaken to secure our Frameworks and Towers. This will ensure
that we procure (subject to cost benefit analysis) solutions which are able to deliver
availability in line with our future business needs.
5. Options
5.1 Over this financial year we have explored the full range of potential options within the
Post Office and with our suppliers. .
5.2 In response to the procurement activities Information Technology & Change (IT&C)
are continuing to consider a number of options for progressing the evolution of the
Horizon counter application.
5.3. There is no ideal option which satisfactorily meets all of the aspirations of Post Office
in terms of time, cost and business capabilities for the 2012-15 strategic period and
beyond.
4 IPR: Intellectual Property Rights.
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5.4 We continue to assess available options as part of our strategic planning for activities
for 2012-15 and 2015-20. As we progress our thinking we will consider new options
which might become apparent to ensure we select the most best available solution.
6. Progress Update
6.1. Weare adopting a phased approach to providing the capabilities required by the
business over the strategic term and beyond.
6.2. Our approach will enable Post Office:
6.2.1 to secure the 2012-15 network and business transformation
6.2.2 _ to transition the counter and other “front line” services safely to a new
capability beyond 2015.
6.2.3 to minimise the duration of an extension to HNG-x for the provision of
Horizon counter services, reducing risk and cost.
6.3. Weare adopting an incremental plan based on clear manageable steps which will
intimately engage and involve all areas of the business. Our intent is to ensure:
6.3.1 our process and decisions are clearly demonstrable to business owners
6.3.2 we can be guided by the knowledge, skill and understanding of our
Directorate’s key personnel
6.3.3 our plans are independently reviewed by industry specialists
6.3.3 our plans are consistent with and take account of our strategic plans for the
2012-15 and 2015-20 terms.
7. Recommendation
The Board is asked to note:
7.1 The actions being taken to secure continued and successful counter service
provision:
7.1.1. over the 2012-15 business transformation, through a package of agreed work
with Fujitsu and the Post Office business
7.1.2 asa flexible and responsive platform for the next strategic term 2015-2020.
7.2 Weare working with Fujitsu to establish the details of an extension beyond March
2015 for a period of circa 12-18 months. This is in advance of the formal contract
termination notification date of October 2013. We will formally update the Board on
progress during Q4 of the 2012-13 financial year.
7.3 We expect to understand more fully the details and structure of the proposed
extension by the end of 2012.
Lesley Sewell
September 2012
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