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Should you outsource?
M. D. Agrawal


M. D. Agrawal is Chief Manager-IS, Refinery System, Bharat Petroleum Corporation Limited. He carries over 20 years experience in developing and integrating IT solutions and manages a very large nationwide WAN. He is the former chairman of CSI, Mumbai Chapter and Founder President of the CIO club in Mumbai. He has spoken at several seminars on subjects as diverse as knowledge management and business intelligence.

Outsource with caution and look for a gradual knowledge transfer from the service provider to your team

Outsourcing IT services may seem like a good idea. Your staff may not be proficient in every aspect of your IT functions. Whether its managing security or running your e-business infrastructure, outsourcing has the potential to save money. You don't have to make a big infrastructure investment to do the task yourself. You don't have to invest in the equipment because the service provider supplies it, and you don't have to invest in the staff because the provider has its own staff who are highly trained and know what they're doing. But before you sign on the dotted line ask yourself, what am I really getting into?

Outsourcing is primarily used as an IT strategy for complementing in-house IT resources, expediting IT solution implementation, and deploying effective IT management. Cost-wise it works out to be cheaper than developing and using in-house resources.

However, a cautious approach is required because the service provider needs to be accountable and provide continuous quality of service. In our country, the biggest problem with outsourcing IT infrastructure requirements is the lack of accountability among service providers. The legal framework and the sensitivity to complaints need to be strengthened. The level of professionalism among service providers in developed countries is higher compared to that offered in our country. The ASP (Application Service Provider) and MSP (Management Service Provider) models in IT services have yet to catch up in the Indian scenario. Worldwide, these models have had mixed success.

If a service provider bungles or does not comply with the SLA (Service Level Agreement) that was earlier signed, the corrective action cycle is lengthy and cumbersome. Considering delay aspects, the legal tangle may not offer an immediate solution. Since IT is a real-time function, projects need to be implemented fast and systems need to be deployed quickly or the opportunity is lost. You cannot stop your vital network functions midway.

The attitude of people in a service provider’s team also matters.

The outsourcing route
'Outsourcing means benefits,' is not a rule of the thumb. There are many service provider companies that are good, but their approach to servicing is 'quality in terms of quantity.' The IT Head should thus be aware of the consequences of outsourcing.

In case of negligence on the service provider's part, what immediate action can an IT Head take? Call up the provider repeatedly for assistance, raise his voice, and perhaps avoid the company the next time. But that still leaves him in a fix because the provider may be playing for time or passing the buck to equipment vendors or other entities. The customer's demand for quality service is not met. In the meantime top management will certainly blame the IT Head for poor outsourcing management. Such a situation may be controlled with good planning, quality management, clever manpower planning, and a reliable fall-back arrangement.

The outsourcing route may offer cost savings in the initial phase but one should take into account the aftermath. A balance between in-house service and outsourced service may be a better option especially for large corporates in our country. Uncertainties prevailing among IT service providers is also an inhibiting factor.

Since IT skills are diversifying and there are continuous technological developments providing new benefits, outsourcing may be an unavoidable option for most companies who want to cash in on these developments. A futuristic approach is required while envisioning IT initiatives in terms of business continuity and governance. A calculation of potential ROI and a logical assessment of the situation in the aftermath should be done carefully. A business-like approach, rather than simply employing a technology partner, is required.

The other face

Dun and Bradstreet's 'Barometer of Global Outsourcing' study indicates that as many as 25 percent of all outsourcing relationships fail because the clients don't communicate their needs clearly, costs exceed expectations, and quality of service is poor.

Companies that consider outsourcing for the first time realize they don't know much about the process. They often have no way to determine the competence of a particular service provider, apart from customer references. In such cases, it is best to carefully scrutinize the SLA. The client company should clearly specify its requirement and deadlines. This will dissuade the service provider from getting complacent.

Sometimes, companies lose control over their own network due to bad network management policies. They procure applications and solutions that demand different operating and functional environments. With the availability of a variety of new applications, there is a culture of using a separate system for each application. This results in a hodgepodge of IT backend systems. This poses a challenge for effective IT management and integration. Managing an environment like this may go beyond the control of an already overworked IT team. Companies are now forced to outsource their network management needs. A pre-planned IT policy along with good network design could help prevent this situation.

Knowledge transfer
Sometimes, you outsource to a service provider because they are specialists in providing a specific, narrowly-defined task. While your company may be the world's best manufacturer of electrical components, somebody else is probably the world's best provider of fulfilment services. But, that does not mean you should be compelled to outsource every time the need arises.

In course of, or after the project, your IT team should work alongside and interact with the provider's team. The idea is to capture knowledge that the provider is applying to solve your needs. Armed with this new knowledge, you should be able to take the project forward at a faster pace and handle similar projects independently in future. The solution providing process should not be a closed activity where, once the project is over; assembled knowledge is an island. You should be able to move ahead on your own.

I always advise the service provider and my staff to work towards that. At the end of the project my staff is very happy to have acquired new found knowledge. It's something they can cherish throughout their professional life. So, you 'empower' the worker by providing him the opportunity to acquire more knowledge, and the worker in turn becomes a better listener to you and is more cooperative. 'Empower' may sound like management gibberish, but it works! It's a good idea to capture the learning process, solutions used, and project reviews in a knowledge repository, which then becomes a valuable asset.

Vendors and us
Be cautious of vendors who sometimes ask you to oversubscribe your needs. The trick is to foresee your requirements for the next 18 to 24 months and size down the procurement accordingly. Otherwise, you might see equipment like servers mushrooming in your network causing integration problems. You should decide on a suitable platform and network design right in the beginning and see to it that the vendor deploys products that fit into your network architecture with minimal reconfiguration or restructuring. This will reduce TCO (Total Cost of Ownership) and also lesser chances of security lapses.

In my experience, a long-term arrangement of three to five years with a single outsourcing provider company works better. Periodical review of performance and SLA will help maintain and upgrade the quality of service.

In seminars, laudable claims are made for products and technologies by the vendors. But, there is also the need to discuss and understand their solutions in light of the perfect fit for an enterprise. I do not mean that we should discount their innovations and developments. But in the end, it is you who are answerable to manage and maintain the network over the next three years and more. So, you should also take a call on cost optimization.

Proper sizing of the solution, keeping in mind needs like scalability and future application load, is essential for obtaining desirable returns. Let me give you an example. A vendor supplies a few servers to a company. The servers can only support four RAM slots. In order to provide 512 MB RAM, the vendor provided four 128 MB RAM modules that occupied all four slots leaving no room for expansion.

Now, if the company wants to increase RAM, it has no choice but to purchase a single 512 MB RAM module, remove an existing 128 MB RAM module and put the new one in its place. Maybe the vendor will agree to buy back the 128 MB RAM module, which the company doesn't require. Instead, the vendor could have made the server future-proof by providing a single module of 512 MB. The cost incurred could have been reduced and the delay avoided. In such a case, is the vendor accountable? We thus have to be very specific when procuring hardware equipment. Hardware and software procurement has become a knowledge game now.

Partners, not providers

I believe that the moment you invite a vendor or outsourcing service provider to work for you in your premises, it will be a win-win situation if you consider them as your partner. With this approach, you again 'empower' each other. A good level of trust between service providers and the beneficiary is required.

It's us that matter
We should know how to react and what action to take in case of difficult situations. Sometimes the service provider quotes low in order to bag the contract and lands up not being able to provide adequate service. Keep in mind that ultimately, it is you who stand to lose. Be prudent, weigh the pros and cons, and then outsource. It shouldn't be too difficult.

Top 10 Business Motives When Outsourcing

1. Cost reduction                               23.3 %
2. Focus on core business                    17.2 %
3. Service improvement                       12.9 %
4. Organizational Strategy                   10.8 %
5. Competitive advantage                    10.3 %
6. Skills enhancement                           9.6 %
7. Reduce time to market                      5.1 %
8. Legacy migration                              2.7 %
9. Technology renewal                          3.0 %
10. Rapid Industry transformation           3.8 %

Source: Computer Sciences Corp. Critical issues 2000 survey


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