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Issue of October 2004 

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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 strategy.

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

Managing change

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 solution provider.
  • 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 every quarter.

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.

Outsourcing evolves

“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 Michele Caminos.

“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

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 service performance.
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 downtime.

*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 (Courtesy: Netmagic Solutions).


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