Moving beyond outsourcing
Outsourcing has become an integral part of business success, whether it is
done by foreign companies which look at India as a viable destination due to
price factors, or Indian companies which increasingly outsource non-core processes.
The biggest example is ATM outsourcing by banks.
With companies increasingly looking at such alternatives, analysts are worried
about compulsive outsourcing. Gartner warns against such a tendency, and advises
organisations to begin a more disciplined approach to multi-sourcingthe
process of outsourcing and managing business processes among multiple vendors
to achieve business growth and agility.
Building a successful sourcing operation requires a new approach that goes beyond
the traditional view of outsourcing. Companies really need to adopt a
new approach, something Gartner calls multi-sourcing, if they are to continue
to realise the benefits of outsourcing in future, said Linda Cohen, Vice-president,
Gartner. Cohen has co-written Gartners new book, Multisourcing: Moving
Beyond Outsourcing to Achieve Growth and Agility with fellow Gartner sourcing
expert Allie Young.
Though Gartner is worried about such trends, organisations feel that sufficient
precautions are taken before finalising outsourcing deals. Take the case of
Yes Bank, which has outsourced all its IT requirements. The banks IT infrastructure
is managed by Wipro and the data centre is situated at Reliances Dhirubhai
Ambani Knowledge City facility.
Explains Aditya Menon, CIO, Yes Bank, The organisation which takes up
the contract has to be geared up with the requisite service levels. Similarly,
when we are looking at outsourcing, we need to evaluate what needs to be outsourced
as well as the integration issues involved.
According to the book released by Gartner, multi-sourcing is an innovative discipline
that takes organisations beyond quick-fix cost-cutting to enable capability-building,
global expansion, increased agility and profitability, and competitive advantage.
As such, multi-sourcing requires a new mindset and frameworks for communicating,
interacting, and overseeing service relationships both inside and outside the
Though Gartner is talking of multi-sourcing now, India has been familiar with
the practice. Mala Vazirani, Director, Marketing, Transasia Bio-Medicals, is
of the view that the sourcing strategy is to be viewed as one of the building
blocks of the business strategy, and failure to recognise its significance will
amount to planning for evident failure.
In the Indian context, multi-sourcing is not new. Networking and collaborating
between enterprises to build a competitive edge, though unstructured, has been
the hallmark of the economic growth of our company, remarks Vazirani.
The need for outsourcing or multi-sourcing arises from the fact that organisations
like to provide value-added features to their customers, but at the same time
wish to concentrate on their core business. Explaining the need for outsourcing
Menon says, Its not that we do not have an IT team. We have, but
at the same time we are not looking at having an army of IT personnel. From
the IT perspective what matters to us is the value-addition that it allows us
to do. Above all, it also allows economies of scale. He believes that
outsourcing, if used effectively, allows organisations to innovate.
The book says that sourcing of services is primarily a procurement exercise
where the best price wins. But though price is a criterion it is certainly not
the main concern. According to Vazirani, Pricing can be a decisive factor
only when product offerings or services are at par or better than customer expectations.
In this context, the term customer expectations is not to be viewed in isolated
reference to the core product. It has to be considered as a packaged delivery
model along with other attributes like features, quality, response speed, innovativeness
and the technological superiority of the product or service.
Central to a successful multi-sourcing approach is the creation of a strategy
that is tightly linked to the overall business strategy and constantly monitored
by an effective enterprise-wide governance system. Companies need new
approaches to sourcing strategy, sourcing governance, sourcing management, service-provider
selection and service measurement, says Cohen.