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 theres 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).
|Sending it out
Outsourcing is gaining ground
among Indian enterprises and is driven by the need to gain access to special
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.
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
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
- 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
- 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.
H Srikrishnan, Executive Director,
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.
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 its 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 companys 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 vendors understanding of a companys 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 doesnt seem to be important for
many (18 percent), and few (6 percent) depend on a consultants recommendation
while deciding to outsource.
- 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 email@example.com