Outsourcing gets into high gear
Soutiman Das Gupta finds that many organisations have
plans to outsource their IT infrastructure services this year. The services
range from desktop and server management to application hosting and managed
Senior Manager, Information Technology, Sony Entertainment Television (SET)
India Private Limited.
Outsourcing IT infrastructure management services is not a
new trend for Indian organisations. In the past, Indian companies have outsourced
requirements for maintaining LANs, ensuring WAN connectivity and managing servers.
However, with the growing acceptance of the practice, they are now looking to
outsource their entire IT infrastructure needs. The rising popularity of outsourcing
can be seen from the big-ticket deals of last year. Bharti Telecom signed a
record $750 million contract for ten years with IBM wherein the latter would
manage Bharti's entire IT infrastructure. This included the task of managing
the companys billing operations, besides applications such as CRM and
data warehousing. In addition, Big Blue will also provide disaster recovery
(DR) services for Bharti. The agreement follows two other major outsourcing
dealsHewlett-Packard Services with Bank of India, and Dabur with Accenture.
Clearly, outsourcing deals are not piecemeal anymore.
Cost not the only factor
Indian organisations are not looking at outsourcing as merely a cost-saving
option, but also as an important driver of growth. For example, Bharti's deal
with IBM gives the company the speed to roll out services much faster. Says
R Madanagopal, general manager, IT, Bharti Infotel (a subsidiary of Bharti Televentures),
"With this deal, we can expand our services to a number of new cities in
India, and subscribe to new STM and E3 links faster. This will let us replicate
business data to our DR centres in real-time".
Similarly, LG Electronics India and SRL Ranbaxy plan to outsource their printing
requirements to third-party service providers. Many organisations which Network
Magazine spoke to said that they had plans to outsource their business continuity
(BC) and DR services to third-party vendors.
The need to outsource is partly driven by government regulations. For instance,
SEBI guidelines mandate that all Indian financial institutions should have DR
measures in place to protect investor assets and ensure BC in the event of a
disaster at one or more locations. Many Indian organisations that do not have
the budget to replicate hardware, software and qualified manpower at a secondary
site find the outsourcing option very attractive; it gives them the ability
to scale up infrastructure without making massive upfront investments.
"In the coming year, we believe that services related to forming security
policies and evaluating technology roadmaps are going to be at the top of the
pyramid, followed by infrastructure support and services," says G Radhakrishnan
Pillai, head, IT, SRL Ranbaxy. Most of the CIOs Network Magazine spoke to believe
that as enterprise IT infrastructure becomes increasingly complex, organisations
will, without exception, require the services of external specialists to ensure
The case for outsourcing
While the biggest driver of outsourcing is obviously cost, there is also the
need for a company to focus on its core competencies and take the help of outside
specialists for non-core processes.
"Outsourcing provides definite cost savings in terms of resource management
and lower manpower costs. We can focus on providing new infrastructure solutions
to enable various processes of our core media business. This frees us from wasting
management time on the daily maintenance requirements of the existing IT setup,"
explains Aneeta Pankaj, senior manager, information technology, Sony Entertainment
Adds S R Balasubramanian, vice president, information systems, Hero Honda Motors,
"We want to outsource routine tasks so that we can concentrate on our core
As India is a huge country, there is demand for third parties that can manage
IT infrastructure anywhere in the country. Explains Madanagopal, "Most
Indian organisations have good prospects in terms of revenue and geographical
spread. This gives rise to the need for more back-end operations, BC and DR
infrastructure. These services are likely to be outsourced this year."
Chief Technology Officer, OM Kotak Mahindra Life Insurance
With the rise in outsourcing options, service providers have
been innovating to provide new value-added services. Most vendors currently
offer a range of services such as server management, managed security and storage,
web hosting, application hosting, auditing services, connectivity solutions,
vendor relationship management, facilities management and onsite support. However,
the success of these offerings depends on the experiences of companies which
have done outsourcing.
Says Nihar Rao, chief technology officer of OM Kotak Mahindra Life Insurance,
"Total IT outsourcing among large enterprises is likely to follow a wait-and-watch
approach. The future of outsourcing will be based on the success stories of
2004." The pay-per-use model is perhaps the defining concept in outsourcing.
Indian enterprises now have the option of pay-per-use, pay-per-month (or year),
or pay a lease amount for a particular period and then own the equipment.
"Perhaps the greatest innovation in the outsourcing concept is the restructuring
of the service model to make it more flexible and allow greater retention of
control by the customer. This a la carte approach differs from the rigid all-or-nothing
approach of the early nineties where customers were bound to fixed offerings,"
says Sharad Sanghi, managing director & CEO, Netmagic Solutions.
With rising confidence about outsourcing, the concept is spreading to newer
territories such as analytics. Banks like ICICI, HDFC, IDBI, UTI, Citibank and
ABN Amro have outsourced their predictive analytical needs for customer acquisition
and retention. Third-party vendors such as Fractal Analysis run data mining
tools on the customer records of their client banks, and make forecasts that
aid financial institutions reduce customer attrition, improve productivity,
and increase profits.
Says Ramakrishna Reddy, vice-president, Fractal Analysis, "In the coming
year, apart from banks, we will see companies in insurance, manufacturing and
retail look for outsourced services from an analytics provider."
Vice President, Information Systems, Hero Honda Motors
CIOs are also putting pressure on vendors to ensure that the
outsourcing relationship provides them the benefits they expect. For this reason
it is important to identify only those segments that can benefit substantially
Says Nihar Rao, "We will separate areas that are routine from those that
require specialised technical and other skills. Areas where a reasonable career
path is not likely to be available will also be outsourced." CIOs like
Arindam Bose of LG plan to go with the best outsourcing vendor which will enable
the organisation to benefit from the best practices of the vendor. The company
plans to keep performing its core business functions such as R&D, manufacturing,
sales, support and planning, and outsource its process management needs in the
Says Pillai of SRL Ranbaxy, "Being a medium-sized company, we have to be
conservative in spending. The healthcare service industry has specific needs
like short turnaround time, adherence to regulations, and of course deadlines."
ITS Here to stay
Outsourcing looks set to grow as most organisations that
have tried it are satisfied with the value they have received. Analysts believe
that, having experimented with piecemeal outsourcing deals, more Indian organisations
will start going the Bharti way by outsourcing their entire IT infrastructure.
Clearly, Indian corporates are realising that IT outsourcing is not just a cost
saver but also a business growth enabler.
OVER THE YEAR
- Existing cost based model will change to an
- More enterprises will outsource their entire
- Huge growth for outsourced managed security
and DR services