In the wake of increased competition
and the economic downturn, how do businesses ensure
profitability and growth without increasing operational
costs? The answer to this question lies in 'Outsourcing.'
The premise behind Outsourcing
is simple: Why do something yourself when someone else
can do it better and cheaper? In Outsourcing, the key
lies in flexibility.
IT infrastructure implementation
and maintenance forms an important part of an organization's
outsourcing strategy. As per the survey findings, about
45 percent of the companies have already invested in
some sort of outsourcing or are planning to invest.
About 30 percent of the companies have invested in outsourcing
in the last financial year, and the same number plan
to invest in the year 2003-04.
Outsourcing provides numerous benefits in terms of reduce
operational and infrastructure costs. So what are the
main factors driving Indian organizations towards outsourcing?
As it will be obvious, 53 percent
of the respondents say it is their 'Desire to reduce
costs' which is driving them towards outsourcing. This
is closely followed by 'Focus on core competencies'
(47 percent) and 'Access to special expertise' (41 percent).
In the wake of increased competition
and a slump in the economy, CIOs and CTOs are under
pressure to extract the maximum from existing infrastructure.
Yet at the same time, IT budgets are constrained, and
IS managers are expected to reduce costs associa-ted
with operating and maintaining IT infrastructure. Companies
want to concentrate on their core competence and not
worry about developing expertise for IT systems in-house.
An interesting point to note
is that in-house resource constraints and reduction
of IT staff is last on a CIOs priority list, when it
comes to outsourcing.
To analyze exactly which component of their IT setup
is being implemented/ managed externally, we divided
outsourcing into six main areas:
- LAN & Clients
- WAN & Servers
- Help desk
- Data Center
- Application Development/
- Business processes
Of these, Application Development/Management,
Help desk and WAN & Servers are the top three focus
areas for outsourcing.
A substantial chunk of the
companies (50 percent) are planning to outsource their
Application Development/Management for the year 2003-04.
This is understandable, given the amount of time and
manpower required to develop/ implement a customized
As per the survey, organizations
of all sizes (in terms of turnover) have given priority
to this area of outsourcing. 40 percent say their investment
towards Application Development is more this year. BFSI
and the Services segment are the largest outsourcers
for this area.
The next area that companies
are looking at outsourcing is Help Desk management.
As per the survey, 41 percent of the respondents plan
to outsource this function.
Outsourcing Help Desk management
is of high priority for FMCG/Consumer Durables (64 percent)
and Telecom/IT/ITES verticals (58 percent). Both these
sectors are clearly customer-focused or service-drivenso
help desk or customer support is given high priority.
It makes perfect sense for
companies that operate at a national levelin sectors
like Telecom, Banking, or FMCG/ Consumer Durablesto
outsource their Help Desk functionality.
This way they can provide optimum
customer satisfaction without the associated costs/
overheads eating into profitability.
Another major area where companies
are planning to outsource is setup/maintenance of 'WAN
& Servers'. Outsourcing of 'WAN & Servers' requirement
is predominant in large companies (42 percent), which
have dispersed offices.
As the WAN becomes more dispersed
it grows in complexity, so it becomes increasingly difficult
to manage and upgrade infrastructure. That's why large
enterprises prefer to outsource WAN & Server management.
In the area of Local Area Networking,
it is mainly the small-sized companies (43 percent)
that are focused on outsourcing the management of LAN
& Clients. Companies that are growing at a fast
pace will find their LANs becoming increasingly complex.
In this context it may make
more sense to segment the LAN (break it into subnets)
and put in good network management software.
At a later stagein case
of a well-developed networkit might make more
sense for companies to reduce 100 percent dependence
on the service provider and develop a certain level
of in-house expertise.
Not many companies are looking towards outsourcing their
Data Center or Business processes. Only 26 percent of
the companies surveyed are looking at outsourcing their
Data Center needs, while only 23 percent are planning
to outsource their core Business processes.
Business Process Outsourcing
or BPO is still a new concept in Indian enterprises.
Unlike their international counterparts, who are outsourcing
a major chunk of their BPO needs to third-world countries,
Indian ent-erprises feel more comfortable managing their
core processes, rather than let an outside party do
it for them.
However, BPO may make more
sense in the long run for certain sectors like Tele-com,
Travel, or BFSI, and Indian enterprises need to explore
that option. Already cellular telecoms and certain banks
are outsourcing areas like customer billing to an external
Managing a data center in-house
requires high expertise and high investment in support
infrastructure (power and environmental conditioning).
Unless an enterprise has developed this expertise over
the years, it is best to outsource management of the
While many small companies
may not require a data center, the medium and large
companies, especially those who use the Web to acquire,
service, or retain customers, or manage suppliers, need
to look at a data center for hosting their servers and
Out of the 26 percent companies
planning to outsource their data center requirements,
medium-sized companies (29 percent) form a major chunk.
Given the high transaction volumes, many large-sized
companies (like HDFC Bank and L&T) prefer to build
and accommodate their data centers in-house. This explains
why a lowly 19 percent of large-sized companies are
planning to outsource in this area.
What are the main criteria that enterprises employ when
evaluating an outsourcing vendor?
82 percent CIOs said they were looking for Technical
Competence, while 79 percent said Service &
Support is important. These two criteria are high
across companies of all sizes. 'Price' as a selection
criterion comes distinct third at 64 percent. This is
noteworthy in the Indian context, since India is considered
to be a price-sensitive market.
Other criteria are Vendor's
understanding of customer requirements, Past
experience with the vendor,' 'Industry Experience,'
'Vendor's specialization,' 'Repu-tation,' and 'Geo-graphic
This brings us to the next
query: Who all are involved in decision making when
it comes to outsourcing IT infrastructure/ management?
The CIO (62 percent) and to a lesser extent the CEO
(52 percent) are involved in making outsourcing decisions.
Overall, the CIO has the final authority when it comes
to outsourcing IT infrastructure and management in mid
and large-sized companies. For smaller companies the
CEO acts as the main decision maker (about 50 percent).
Base: All those who have outsourced
in IT or are planning to do so
LAN & Clients
WAN & Servers
- 30 percent of the companies have invested
in outsourcing in the last financial year, and
the same number plan to invest in the year 2003-04.
- The top three reasons why Indian companies
go in for outsourcing are desire to reduce costs
(53 percent), focus on core competency (47 percent),
and access to special expertise (41 percent).
- In-house resource constraints and reduction
of IT staff have the least influence on the
- The major planned areas that companies will
outsource in 2003-04 are Application Development/Management,
Helpdesk, and WAN & Servers management.
- Indian companies feel more comfortable managing
their core processes, rather than let an outside
party do it for them. Therefore few companies
are looking at outsourcing their Business Processes.
- Outsourcing 'Help Desk' management is of
high priority for FMCG/Consumer Durables (64
percent) and Telecom/IT/ITES verticals (58 percent).
- In most cases it's the CIO who makes the
final decisions on IT outsourcing.
- The top three criteria for selecting an outsourcing
partner are 'Technical competence' (82 percent),
'Service & support' (79 percent), and 'Price'
(64 percent). It is interesting to note that
price is a distant third despite India being
a price-sensitive market.
- Companies that want to save costs on IT setup
or maintenance should clearly look at outsourcing.
But as companies scale up their IT infrastructure,
it might make sense to develop certain technical
skills in-house and manage at least the core
- When outsourcing development/management of
infrastructure/applications, go with an established
outsourcing service provider who has a high
reputation and who is likely to be around for
- Service-centric companies should outsource
their help desk, so that they can concentrate
on their core competence (For example, banks,
- Larger companies should look at outsourcing
business processeslike billing or customer
service, since this will significantly bring
down operating costs.
- Cost should not be the only criterion in
choosing an outsourcing partner. Consider parameters
like competitiveness, service and support, technical
expertise, reputation, and track record before
- Insist on service level agreements (SLA)
when you outsource.
AFL an integrated logistics provider with divisions
spread across the country is connected by a huge
terrestrial network linking 85-90 locations. AFL
switched to centralized applications from a distributed
computing environment on a reliable network made
up of leased lines, optical fiber, dial-up lines,
AFL worked with various solutions providers
while building and upgrading its network to support
centralized applications. *Vinod Kamat, Group
Manager, Technical Services, AFL Private Ltd.
said, "The choice of network solutions provider
is generally based on the product one selects
and the relations the channel partner (local product
vendor) has with the OEMs."
Choice to outsource
After setting up its network, AFL had the choice
of managing the network infrastructure in-house
or outsourcing it. If it chose to manage in-house,
the company would need additional personnel, would
have to train them, and send them to the regional
The company decided to partially outsource the
network management and support activity in order
to get an experienced and skilled team on board.
"The criteria for choosing the outsource
partner was a service provider who best knows
the product (technology) and has adequate presence
across the country. AFL chose Convergent Communications
based on their technical knowledge of the systems
at AFL and their strong relations with the OEM,
Convergent Communications is directly supporting
14+4 sites (14 dedicated engineers with full support
and four offer-shared supports).
An experienced and technically skilled in-house
team supports a few other locations.
Kamat opines, "Outsourcing in this manner
offers certain benefits. For one it offers flexibility:
at some locations the service provider (Convergent)
gives AFL full support, while at others it offers
partial support. Also one can add or withdraw
locations, and hence deploy support staff at very
short notices. Then there is the cost advantage
too. The company does not have to incur expenditure
on in-house network professionals' recruitment,
training, incidental expenses etc."
*Vinod Kamat is no longer with AFL Pvt. Ltd.