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Issue of June 2005 
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Outsourcing

Third parties to the rescue

More companies have invested in outsourcing this fiscal than in 2004-2005, and the trend will continue. Indian enterprises have realised that there’s substantial business value which can be obtained by getting help from third-party specialists. by Soutiman Das Gupta

For most large enterprises, cost is not necessarily the primary factor. Access to experienced and qualified personnel with special expertise and skill sets is

Living in a country that has the reputation of being the 'back office of the world,' CIOs of Indian enterprises are no strangers to the benefits of outsourcing. Its business benefits have had a positive impact on Indian business to the extent that 7 percent more companies have started outsourcing this fiscal (according to the Infrastructure Strategies 2005 survey).

Driving outsourcing

Executive Summary
Sending it out

Outsourcing is gaining ground among Indian enterprises and is driven by the need to gain access to special expertise.

Power pill

More companies will invest in outsourcing this fiscal; companies in industry verticals such as telecom, oil/power and services already outsource their IT services needs.

Driven by the desire to reduce costs and gain access to special expertise, most companies have turned to third parties. Some CIOs, however, feel that the desire to reduce costs is not the compelling reason to outsource.

According to H Srikrishnan, Executive Director, Yes Bank, “Access to competent and capable resources is the primary need. Reduction in costs will come as a consequence of focussing on this aspect.”

Anil Garg,
VP - IT and New Media, Sony Entertainment Television (India)

“For most large enterprises, cost is not necessarily the primary factor. Access to experienced and qualified personnel with special expertise and skill sets is. This is especially true for our kind of business, where few outsourcing service providers have the kind of domain knowledge that we need,” explains Anil Garg, VP - IT and New Media, Sony Entertainment Television (India) (SETIPL).

Origins of outsourcing

38 percent of the companies that outsource began to do so more than five years ago. 50 percent of BPO companies and 42 percent of manufacturing companies began to send out work at that time. Outsourcing among telcos began only two years ago.

Among the organisations that have invested in outsourcing in the past, 94 percent outsource IT services.

All companies in the telecom, oil/power and services sectors outsource their IT requirements. The IS 2005 survey reports that of the companies that are resorting to third-party support, only 19 percent believe in total outsourcing, while majority outsource partially.

Cases in point

Research snapshots
  • The biggest drivers of outsourcing are increased business benefits and access to specialised expertise.
  • 38 percent of the companies that outsource began to do so more than five years ago.
  • All companies in the telecom, oil/power and services verticals outsource their IT requirements.
  • 29 percent of government/PSUs do not outsource IT services.
  • Only 6 percent depend on a consultant's recommendation to select the outsourcing vendor.

Yes Bank completely outsources its IT requirements to Wipro Infotech, which takes care of the bank's server, storage and information security infrastructure, and deploys and manages the same. Wipro manages and hosts the Flexcube Core Banking System and the CashTech cash management application.

Wipro also manages the day-to-day maintenance of databases and operations for these applications. However, the application control (aspects such as enhancements to the system and product innovation) is managed in-house. Wipro is also responsible for the design and implementation of the network infrastructure, and its monitoring and management. As per the SLA, Wipro manages staffing, but the bank screens staff deployed for these activities.

SETIPL outsources PC management, systems development, facility management, and the development of Websites. It has outsourced the development of the 'Indian Idol' Website to an external agency.

Planned outsourcing

H Srikrishnan, Executive Director,
Yes Bank

In FY 2005-06, the areas that companies want to outsource the most are PC management (59 percent) and network communications (44 percent). See graph: Planned areas of outsourcing in FY 205-2006.

However, all companies in telecom and govt/PSU want to outsource application development or management activities. All telcos and 79 percent of pharmaceutical/ chemical and BPO companies want to outsource PC management. Process management and disaster recovery are activities that are expected to head the outsourcing agenda this fiscal.

Among companies in BFSI, the activity to be outsourced the most is help-desk management. Comments Srikrishnan, “A centralised help-desk will provide customers access to their information, and internally help an organisation monitor downtime and standardise service levels across geographies. A problem faced in a particular location will not be replicated in another one.”

The decision-maker

A centralised help-desk will provide customers access to their information, and internally help an organisation monitor downtime and standardise service levels across geographies

59 percent of companies that outsource IT services have their CIOs calling the shots on outsourcing. In 35 percent of the cases, the CEO takes the final decision.

Companies such as SETIPL involve their business heads in outsourcing decisions on a case-by-case basis. Here, the functional heads guide and set the parameters for system performance. So it’s important to see that they are OK with a function being outsourced.

Selecting the partner

All companies in the telecom, oil/power and services sectors outsource their IT requirements. The IS 2005 survey reports that of the companies that are resorting to third-party support, only 19 percent believe in total outsourcing, while the majority outsource partially

The responsibility of selecting the appropriate outsourcing service provider is as important as managing a company’s core activity.

The IS survey reports that technical competence along with service and support capabilities were the evaluation parameters (both 73 percent) that organisations used when selecting an outsourcing partner. See graph: Evaluation parameters for selecting outsourcing vendor.

At 48 percent, price was a laggard among evaluation parameters. Only 41 percent rely on a vendor’s understanding of a company’s strategy and needs.

88 percent of pharmaceutical/chemical companies and 80 percent of companies in the services vertical rely on technical competence levels of the partner, and 92 percent of FMCG/retail organisations look for acceptable service levels when choosing an outsourcing partner. 62 percent of companies in the auto and auto component vertical look at price as the most important parameter for selecting an outsourcing service provider.

Geographical location doesn’t seem to be important for many (18 percent), and few (6 percent) depend on a consultant’s recommendation while deciding to outsource.

NM recommends
  • Outsourcing is a business decision that should be taken with the involvement of functional heads.
  • Companies should consider outsourcing more IT-related activities.
  • Companies should give more importance to the vendor's ability to understand its strategy needs, when selecting the outsourcing partner.

Soutiman Das Gupta can be reached at soutimand@networkmagazineindia.com

 
     
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