Service provider value
Better Engagement for Better Business
A good deal with the right service provider guarantees a
win-win situation. Here are some strategic tips that can ensure optimum returns
from your outsourcing partner. by Soutiman Das Gupta
Today, CEOs have a large range of outsourcing options and choices that can
be used to fit their organizations' business strategies. However, companies
often fail to take full advantage of the benefits offered by outsourcing. To
get sustained strategic benefits, companies should evolve their outsourcing
strategies along with the evolving needs of business.
Here are some strategic pointers that will help you get optimal results from
your service provider.
Total vs partial
It makes more economic and business sense to outsource the
entire IT processes as compared to letting out specific technology areas to
multiple service providers. The fragmented approach will not allow an organization
to take advantage of growth in business, since it's difficult to orchestrate
the desired leverage from different entities.
The cost of overheads will also increase since the company will have to hire
and retrain quality workforce to manage the various relationships.
Hidden costs and difficulties of outsourcing
Although an outsourcing deal may sound useful and cost-effective,
a few hidden costs and difficulties need to be considered. These could relate
to the selection of the service provider, issues related to handover of work,
and change management.
These factors depend on the type of organization, highlights of the outsourcing
deal and the reliability of the service provider. But an organization that can
overcome these issues will reap the benefits of a successful outsourcing business
Selecting the service provider
The process to begin an outsourcing engagement can be time-consuming
and, in some cases, costly. A company must document its requirements, send out
Request for Proposals (RFPs), evaluate responses, negotiate the contract, get
management committee buy-in and garner support from other department heads.
An RFP contains project details such as required deliverables, deadlines, technical
proposal, time-cost details and additional vital information. It will help a
company compare proposals in a common format, and ease the task of selecting
a qualified vendor.
Personnel from the IT team may have to work full-time on this, and the CIO has
to convince the Board that the course of action will work. In case the company
decides to use a consultant or legal help, the fees will be an extra burden
on the IT budget.
The way to make up for the lost time and money is to extend the years of outsourcing
relationship so that there is sufficient scope for return of investment.
Depending on the nature of the outsourced services, an outsourcing engagement
has to be for a minimum of three years. It usually takes two years before the
vendor actually starts to realize the profitable results of the relationship,
says Michele Caminos, Vice President, Team Manager, IT Services, Asia/Pacific,
Gartner. Gartner actually recommends five to seven years. This is optimal
because the company can get profitable results from the relationship and an
insight into the best practices that may have been introduced.
Handover of work
After a solution provider has been chosen, the operations related to handover
of work can sometimes be costly if there are breaks and differences in levels
of service. Every solution provider has to go through a learning curve before
it can fully grasp the levels of service that the user company gives to its
customers. This gap can be crucial, especially if the user organization has
acquired new customers.
One way to ease the difficulties is to prepare a detailed plan for handover.
If necessary, the pass-over can be gradual, with a few basic services handed
over in the beginning.
There is always a learning curve in any new business outsourcing situation.
The company will need to exercise patience for some time in the beginning. It's
important that the outsourcing partner understands the business objectives of
your company, explains SR Balasubramanian, Vice President - Information
Systems, Hero Honda Motors Limited
There will be a change in the culture of the work environment when an external
agency begins to support tasks previously done by an internal team. It's important
to maintain a free flow of communication and information between the two internal
and external entities to minimize 'culture shock'.
It may also be necessary to allocate a different set of responsibilities to
the internal team that performed the outsourced tasks earlier.
Aneeta Pankaj, Senior Manager - Information Technology, Sony Entertainment Television
(SET) India Private Limited, lists a few likely pitfalls of outsourcing:
- There may be a gap in the culture orientation of the support staff of the
- Many times the onus of training support staff in corporate culture and
even on technology falls on the customer. This uses resources like time and
manpower, and applies mainly to junior-level engineers.
- When there is a change in job role or staff turnover at the solution provider
company, there may be lack of continuity in support. In such cases, accountability
issues are very high and the customer organization has to make a lot of adjustments
in its operations and strategy. In many cases, it's as good as building the
relationship all over again with the same solution provider.
CIOS can mitigate any potential pitfalls by choosing their service provider
with diligence. Perhaps the best barometer of a provider's credibility is customer
references and testimonials. Strong selection criteria can be applied to short-list
and select a service provider to fulfil the business requirements. No one said
it had to be a leap of faith, says Sharad Sanghi, Managing Director &
CEO, Netmagic Solution Pvt. Ltd.
Life after outsourcing
So your outsourcing deal has been struck. No, it's not time to relax yet. The
CIO should use a strategy to monitor the performance of the outsourcing solution
provider to ensure that there is no lapse in service delivery standards. It's
important to take a close look at the Service Level Agreement (SLA) at the time
of sign-up to avoid difficulties later.
Hero Honda Motors outsources its helpdesk services, and has created special
SLAs to manage the relationship. The service provider reports to Hero Honda's
Manager - Infrastructure.
Workflow software has been developed to log all incoming calls and the system
generates performance reports that help measure performance in accordance with
the SLAs. The SLA has penalty clauses which can be enforced if needed. Apart
from these, CIO Balasubramanian holds review meetings with the solution provider
SET India uses regular call sheets, encourages feedback to the concerned account
managers and makes analyses of the user complaints/ response time from the vendor's
willingness to support, especially during critical breakdowns. The company uses
a quarterly term of payment based on the performance of the vendor.
Hyatt Services India Pvt. Ltd has outsourced network monitoring and helpdesk
services to an external service provider. Harcharan Singh, Director of Information
Systems, regularly reviews the service provider's performance. He insists on
monthly uptime reports and crosschecks them with reports maintained at his end.
The performance levels are matched with the SLA clauses and the service provider
is penalized (as per the SLA) if necessary.
The CIO should create a model to strengthen the relationship with the
service provider to ensure that key business objectives are communicated and
relevant actions taken. It is also necessary to build a strong governance structure
to ensure interaction at various levels in both organizations, and a mechanism
for review and timely course-correction at various levels, says Sanjay
Raina, Country Manager - Strategic Outsourcing, IBM India.
Although Indian organizations are confident and keen to offer outsourcing
services to the world, they are hesitant and unwilling to outsource their own
business. There are many instances of IT and IT-enabled organizations that use
the services of a data centre in the US, explains Sanjay Srivastava, Head
- Products, Tata Indicom, Enterprise Business Unit. However, Indian customers
have evolved in terms of the degree of outsourcing, he adds.
Indian organizations have evolved in the aspect of 'keeping the data in India',
because service providers like MSPs and ISPs have all evolved world-class infrastructure.
Most of them adhere to international standards such as BS 7799 and CMM. There
are also a number of auditing agencies that will certify the service provider
fit to provide services till a certain grade or level.
Says Raina, The next reshaping of outsourcing is underway: blending outsourcing,
out-tasking and project services. In the past, we have seen the outsourcing
market morph from a cost-saving vehicle to a source of transformation for our
clients. Once again the outsourcing market is reshaping itself and moving to
yet another level of maturity.
Outsourcing in the long run
Organizations that outsource in the long run may sometimes
want to bring back management responsibilities in-house. They find that
the most compelling reasons like cost savings and efficiencies have been achieved.
So they believe that they can bring the services back in-house, manage it themselves,
enhance them, transform them, and finally mature them, explains Gartner's
The challenge is that these organizations need to upskill and meet new
business demands. So when the performance is benchmarked, the companies see
they can do better than the service providers. But it really depends on the
organization and the nature of the business, she adds.
Will technology negate outsourcing?
Developments like rapid fall in hardware prices, remote management, web-based
software, blade servers and autonomic (self-healing) computing are some developments
that may affect the need to outsource - and perhaps do away with the need altogether,
but Balasubramanian doesn't seem to think so. He believes these factors may
not negate outsourcing but only change the type of services being assigned.
Activities such as hosting servers at data centres, server management, hiring
server space, and the ASP mode of delivery will remain.
Soutiman Das Gupta can be reached at firstname.lastname@example.org
SLA-ted to perform
A Service Level Agreement (SLA) can be the most
effective insurance against inadequate quality of service from the service
provider, and is the proverbial Aspirin for CIOs who outsource. But before
you sign the dotted line at the end of an outsourcing contract it's important
to consider what's written in the SLAs.
General factors such as time taken to attend to calls, speedy resolution
of complaints and proper escalation of problems should be specified. There
should also be a mechanism to receive authentic records and analyses of
Aneeta Pankaj, Senior Manager, Information Technology of Sony Entertainment
Television (SET) India Private Limited lists a few aspects to consider
in an SLA.
*The timings, work hours and availability of
service should exactly match your unique needs.
*There must be an option to provide equivalent replacements to reduce
*There can be hidden cost of spares, data recovery, printer parts or other
accessories, which may increase the overall cost of the relationship.
*Penalty clauses for not adhering to the agreed response times should
be monitored strictly.
*Payment terms should be purely on the performance on a quarterly or half-yearly
basis. It's best not to make advance payments or regular scheduled payments.
*There should be clear escalation charts and regular follow-up meetings
between the CIO and seniors in the service provider organization.
*The internal procedures of the vendor should have been framed in such
a way that they don't come in the way of response to a service problem.
You can download a sample SLA agreement from http://www.networkmagazineindia.com/200410/sla.zip
(Courtesy: Netmagic Solutions).