Focus on core processes
Outsourcing non-core functions like applications development
and LAN & clients infrastructure are the hot areas in enterprise outsourcing.
It's a good sign since IT priorities are mostly focused on core issues. by Soutiman
The top three business priorities for CIOs in the FY 2004-05 reflect the growing
focus on core business issues. The question is: What happens to the various
functions that are not central to the business but vital for the smooth functioning
of the organization? There are various non-core, yet important IT tasks like
developing and maintaining business applications, managing LAN and client workstations,
handling customer help desk and so on.
A good idea here is to outsource these functions to another organization that
has expertise in the particular area, in the process freeing you IT staff for
managing more business-critical issues.
In the last one year nearly 27 percent of the companies have invested in outsourcing.
And the amount of investments made by companies in the last year compared to
that of the next year will be unchanged. Among those companies who will invest
in outsourcing in the next year, most of them are large industries. The smaller
companies do not seem to be keen to outsource, since their needs are comparatively
What will be outsourced?
Applications development and management is the most active area of outsourcing
for companies. 58 percent of the companies that are outsourcing or making plans
have focused on application development and management, and management outsourcing.
Overall, 47 percent are planning to outsource LAN & Clients, 44 percent
Help desk facilities, and 43 percent WAN and servers infrastructure.
Medium-sized and small-sized companies are more keen to outsource application
development functions while larger companies prefer minimal outsourcing of these
functions. 90 percent of small companies prefer to outsource LAN & Clients
infrastructure, whereas only 46 percent of the large companies outsource these
Compared to last year, most companies will keep on outsourcing in the same areas.
However, there will be some growth in the amount of outsourcing in each area,
as 27 percent companies plan to invest more in data centers, 30 percent in business
processes, and 58 percent in applications development.
The primary objective behind any outsourcing initiative is to reduce costs.
And the survey seems to affirm this. Of the total respondents already outsourcing
or planning to outsource, nearly 54 percent are focused on the cost benefits.
This is followed by reasons like the need to focus on core competencies (46
percent), access to special expertise (41 percent), and faster delivery (39
80 percent of small organizations and 54 percent of large organizations wanted
to reduce costs with the help of outsourcing. An interesting trend here is that
nearly 50 percent of small companies see outsourcing as a convenient way to
have access to new technologies, something that large organizations are not
Given the fast-changing tech dynamics, smaller companies prefer to outsource
IT functions with the view of staying ahead of the technology curve. This way
they can benefit from the latest technologies without spending a packet in procuring,
maintaining and upgrading on these technologies.
Selection of the vendor
While reducing costs is the most important driver for outsourcing, the cost
quoted by the outsourcing vendor is not considered to be of high significance.
When it comes to selecting an outsourcing vendor, Technical competence, and
Service and support are the top two aspects in the mind of the CIO.
93 percent of the companies insist on the relevant technical competence, and
80 percent look for suitable service and support offerings from the partner.
The cost factor comes a distant third with 67 percent of the CIOs interested
in going for the lowest bidder. Also 55 percent of CIOs look at past experiences
with the outsourcing partner before finalizing.
Who makes the decision?
Since outsourcing of IT infrastructure is largely a technology-focused area,
one would think that the CIO would be the highest authority involved in making
the decision to outsource. The survey reports that according to 48 percent of
the CIOs, CEOs are also involved in taking the decision to outsource. However,
32 percent indicated that only the CIOs are involved in such decisions.
A rather small number (10 percent) of functional IT Heads, and only 1 percent
of functional business heads, are involved in making the outsourcing decision.
In large companies it's mostly the CEOs and CIOs who contribute
to make the decision. Only 4 percent of the CFOs are involved in the activity.
- 27 percent of the companies have invested in outsourcing last year.
The amount of investments made by companies in the last year compared
to that of the next year will remain unchanged.
- 58 percent of the companies that are outsourcing
or making plans to outsource have focused on application development
and management, and management outsourcing.
- 90 percent of small companies prefer to outsource LAN & clients
infrastructure, whereas only 46 percent of the large companies outsource
- The primary objective behind any outsourcing initiative is to reduce
costs. Nearly 54 percent are focused on the cost benefits.
- Nearly 50 percent of small companies see outsourcing as a convenient
way to access new technologies, something that large organizations are
not worried about.
- When it comes to selecting an outsourcing vendor, 93 percent of the
companies look for technical competence and 80 percent want suitable
service and support offerings from the partner.
- According to 48 percent of the CIOs, CEOs are also involved in taking
the decision to outsource
- Outsource non-core, yet important IT tasks such as developing and
maintaining business applications, managing LAN and client workstations,
handling customer help desk etc. This will free your IT staff for managing
more business-critical issues.
- It makes sense for medium- and small-sized companies to outsource
application development functions as too much customization will not
be required. However larger companies may prefer to outsource these
functions less as it requires a deeper understanding of the business
- If data security and privacy isn't an issue, do outsource management
of LAN & Clients infrastructure.
- If certain aspects of infrastructure costs grow exponentially, then
it makes sense to outsource that element of the infrastructure.
- Although the primary objective is to improve cost, do consider other
factors like service levels, past experience, reputation, technical
competence etc when choosing an outsourcing partner.
- Do involve the business heads as well as top management when taking
the decision to outsource.