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Issue of October 2004 
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Outsourcing in India

How India Outsources

Many Indian organizations have benefited from outsourcing. Here's a look at some of them, and the ways in which they get value from their service providers. by Soutiman Das Gupta

Many small businesses would prefer to outsource their IT needs rather than employ an IT Manager, suggests SR Balasubramanian, Vice President — Information Systems, Hero Honda Motors Limited. "All companies beyond a certain size would want to outsource services in one way or another," he says.

A number of enterprises in India have outsourced their IT infrastructure and service needs, and derived strategic benefits from the relationship. Here are the highlights of the outsourcing relationships in a few Indian organizations that have realized strategic business benefits from outsourcing their IT management and operations needs.

Business transformation at Bharti Tele-Ventures

In March 2004, Bharti Tele-Ventures created history of sorts when it signed an IT outsourcing deal that was one of the largest in Asia. The engagement, for a period of ten years, was valued at $750 million.

Why outsource?

For IT infrastructure and management, Bharti entered into a business transformation agreement with IBM. For network infrastructure, the company entered into an outsourcing engagement with Nokia and Siemens across various circles.

Outsourcing highlights

The alliance with IBM encompasses three main agreements over a 10-year period:

1) The outsourcing solution provider will architect, transform, manage and maintain the comprehensive IT infrastructure and applications of Bharti Tele-Ventures.

2) Bharti & IBM will jointly develop and market IT and telecom solutions and services for the Indian market.

3) Bharti will be the preferred supplier of telecommunication services to IBM.

However, Bharti will continue to own the IT assets and will have the final say in strategic and architectural control.

The relationship with Nokia and Siemens covers network management, maintenance, quality assurance and capacity expansion of the AirTel networks. In this case, the entire process and the ownership of the network would remain with Bharti as well.

Business transformation

The business transformation will involve outsourcing Bharti Tele-Ventures' hardware, software and IT services requirements to IBM. This includes all customer-facing IT applications, which include billing, CRM and data warehousing.

IBM will service Bharti Tele-Ventures' internal-facing applications such as intranet, e-mail and online collaboration. On the infrastructure front, IBM will consolidate Bharti Tele-Ventures' data centres and IT helpdesks, and enhance its disaster recovery capabilities.

Delivery model and payment

IBM will deploy an open standard-based framework, a Service Provider Delivery Environment (SPDE) that will provide Bharti Tele-Ventures the flexibility to introduce the latest in voice, data and content-based services to customers. This IT architecture will allow Bharti to adapt to rapid changes in technology, as well as provide a greater level of freedom and flexibility to enhance customer experience.

The agreement specifies that payments made to IBM India will be linked to the percentage of revenues generated by Bharti Tele-Ventures and predefined service-level agreements. The percentage-linked revenue payment is modelled to decrease with an increase in Bharti Tele-Ventures' revenues.

The benefits of the deal

The outsourcing engagement is calculated to add a large amount of value to the company, its customers, employees and shareholders.

Advantage for customers: Brings innovative products and services. A number of applications such as billing, CRM and data warehousing are more streamlined.

Advantage for employees: Optimized use of technology resources. Internal-facing applications such as intranet, email and online collaboration can see enhanced performance levels.

Advantage for shareholders: The strategic alliance provides predictable IT spends, and additional revenue streams to further enhance shareholder value.

Hyatt services gets its IT needs serviced
Harcharan Singh, Director, Information Systems

Hyatt Services India Pvt. Ltd has given out a three-year contract to a service provider to outsource network monitoring services. It also outsources its helpdesk services.

The contract is negotiable every year if the prices in the industries go down. Since technology changes rapidly, the service provider has to upgrade and buy back the existing hardware as per the depreciation cost agreed in the SLA. This clause protects the company from technology obsolescence. The service provider offers a single point of contact.

The service provider sends downtime reports every month, which are compared with Hyatt Services' downtime reports.

A very strong SLA that promises 99.5 per cent uptime is backed by a penalty clause for non-performance.

Outsourcing for entertainment

The reason why Sony Entertainment Television (SET) India Private Limited is successful in business is that it takes entertainment seriously. To provide business benefits to the organization, the IT team decided to outsource a number of IT management and operations needs.

Why outsource?

The company felt several needs to outsource. Some of them are given below:

  • The IT team would not have to go through the rigors and the costs of spares and inventory management. Since a new version of software and hardware would be out very often, it would never be cost-effective to manage in-house.
  • The in-house team was in constant search to create innovative solutions and services for the business. In such an environment, there was not much motivation to manage regular hardware and software support services in-house.
  • The company wanted single-window support for hardware and software solutions, which would be possible from a capable service provider.
  • The company wanted to capitalize on the varied experiences that the service provider had in their deals with different companies.

Outsourcing at the company

SET India Private Limited has annual maintenance contracts (AMCs) for hardware maintenance and management for its LAN and WAN, and has co-located its servers. Router management and database administration activities are also outsourced. The company does not need to employ a database administrator.

Activities such as server management and network monitoring are performed in-house. This is because these services comes at additional cost, and are not too time and labour-intensive to manage. It also helps to control the support budget.

The outsourcing service provider provides expert advice and help when resources are short. This applies to data recovery, breakdowns during non-AMC hours and extra manpower.

Accountability

Although there are no penalty clauses in the SLA, SET India Private Limited does not allow downtime for more than five hours for each workstation and other hardware. But when downtime does occur, the accountability is shared by the solution provider and the IT department. This acts as a reverse support to the vendor, because the company will do all it can to ensure that its users do not suffer.

The benefits of the deal

The outsourcing engagement has enabled definite cost-saving in terms of resource management and manpower. The IT team can focus more on providing new infrastructure solutions to enable various requirements of the core media business, rather than get caught up with the daily maintenance requirements of the existing setup.

Outsourced videoconferencing helps product launch
Cadila, a large pharmaceutical company, used VSNL's Multipoint Videoconferencing services for the launch of its new pharmaceutical product across eight Indian cities. A team of doctors and the sales team were present at all the videoconferencing locations, and an interactive product detailing was performed with the help of the service.
 
     
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