Outsourcing

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 security

Aneeta Pankaj 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 company’s 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 deals—Hewlett-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 smooth operations.

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 Television.

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 business issues."

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."

Outsourcing innovations

Nihar Rao 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.

Outsourcing analytics

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."

Outsourcing strategies

SR Balasubramanian 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 from outsourcing.

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 current year.

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."

IT’S 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.

soutimand@networkmagazineindia.com