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Issue of December 2005 

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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-sourcing—the 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 Gartner’s 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 bank’s IT infrastructure is managed by Wipro and the data centre is situated at Reliance’s 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 organisation.

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, “It’s 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.

Shivani Shinde

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