Infrastructure Strategies '06
Outsourcing non-core areas
Companies are outsourcing, but they are sceptical when it
comes to outsourcing areas other than desktop and network management. Megha
Banduni examines the rationale of this strategy
outsourcing is happening, it's taking place at a rather basic level. Most companies
have already initiated outsourcing activity or are planning to do so in the
near term due to obvious benefits such as getting the focus back on the core
business, cost control and speedy delivery. Though India is the back office
of the world, for Indian companies the concept of outsourcing complete processes
is yet to materialise.
According to the IS survey, most companies are planning to
invest in desktop (71 percent), network (70 percent) and application development
(55 percent). If we compare the investments with last year, 55 percent of the
119 respondents said their extent of desktop outsourcing has increased while
35 percent said it has remained the same. In networking, 53 percent of respondents
have outsourced to a greater extent.
- Before deciding what areas to outsource, one
should evaluate the criticality of that particular application/process,
the benefits that can be derived after outsourcing, and the budget.
- Outsourcing of your IT applications can enable
you to focus on core business activities while at the same time ensuring
that you have skilled and qualified professionals to manage your IT
- Before deciding on a third-party, one should
consider factors such as cost, service support, technical competence,
and the reputation of the vendor.
- Keep in mind that whatever application/process
is outsourced, you must have strategic control; everything should not
be left to the vendor/partner.
- The decision-making power should be given as
per the need of the organisation. But the business heads as well as
top management should be involved when taking the decision to outsource.
Reasons for outsourcing
The IS survey shows that among the factors driving outsourcing, the desire to
reduce cost (57 percent) is a primary factor followed by the need to focus on
core competencies (49 percent) and the desire to speed-up delivery (46 percent).
Some of the other reasons are access to new technologies, resource constraints
and reduction in IT staff.
With growing competition and fast-changing technology dynamics, companies prefer
to outsource IT functions to stay ahead of the technology curve. In this way
they can benefit from the latest technologies without spending time procuring,
maintaining and upgrading them. The other advantages are that outsourcing enables
them to focus on their core business activity, as well as ensure that they have
skilled and qualified professionals to manage their infrastructure.
P A Kalyansundar,
General Manager, IT
Bank of India
Bank of India, with over 2,600 branches across
the nation, and a network of 21 branches at key financial centres across
ten countries, strongly felt the need to outsource its core banking operation
to HP. IT-enabled transformation based around core banking and data warehousing,
and competitive pressure from private sector banks and multinationals
compelled us to outsource our core banking process.
Only the technology part is outsourced at our bank, whereas
operations and control remain in our hands. We wanted to concentrate on
our core competencies without bothering about technology. Thus, the bank
evaluated the option of choosing an IT partner to manage all its infrastructure
and application requirements, including an IT transformation around core
Our primary requirement was to have a flexible, scalable
and innovative technology infrastructure that would provide us the business
agility to respond to changing market dynamics. We also wanted to substantially
improve existing customer service levels, and acquire enhanced ability
to attract new customers.
On the process
An organisation should be very clear about its objectives,
crucial areas, and what areas should be outsourced and why. We followed
the global tendering process and decided to choose the company that was
most responsive to us.
Outsourcing has resulted in the CBS roll-out taking place
in 550 branches in a record time of 475 days. HP our partner has provided
us with consulting and integration, customer support and managed services,
business intelligence, business continuity and availability, disaster
recovery, network management and systems management solutions.
Our outsourcing partner also manages the servers, desktops,
network devices, Web servers, mainframe MIPS, storage and servers that
run the CBS. As part of the overall project, HP will implement and manage
a data warehousing and document imaging solution, and provide integrated
channel management including tele-banking, Internet banking and ATM.
The contract also envisions building and managing a data
centre, disaster recovery site, help-desk and call centre. HP will manage
the IT infrastructure and networks across 750 branches of the bank, supply
and maintain technology products including servers, desktops and peripherals
across the branches, and provide asset refresh and obsolescence protection
for IT assets.
CIO, Yes Bank
On outsourcing being restricted to network and desktops
Indian companies have automated their operations
very recently. They are still coming to terms with the huge deployment
of systems and IT teams, and hence outsourcing is still restricted to
very basic requirements of hardware.
It is only when they realise their core competencies
that they will look at outsourcing the way Yes Bank or SBI does.
In our case, the main reason for outsourcing was the
need to have systems up and running in the shortest time-span. For instance,
our core banking solution from i-flex was up in three months. This was
possible only because we outsourced our IT requirements.
On cost as a major criterion
Cost is not an important element. However, if the company
is concerned about economies of scale then they should go in for an in-house
team rather than outsourcing.
Cutting down cost was a concern for us too, but more
than that we were looking at the competitive advantage that an outsourcing
partner allows us. For instance, if I need to go in for certification
of ITIL or any other compliance-related issue, my IT team would need a
maturity level of at least two to three years. But if I have outsourced
my partner would have the maturity of process and I need not look into
Nevertheless, the most important criterion for selecting
an outsourcing partner or vendor is the cultural fit. We do not consider
them as vendors but as our partners, and it is very important that they
have the same ethos as we have. The partner needs to understand our business
requirements as well as he understands his.
On people involved in decision-making
I personally feel that the CEO and CFO need to be involved
in such a decision. It also depends on what drives the organisation to
outsource. If it is cost then the CFO needs to be involved; if technology
and processes are the criteria then the CIO needs to take the lead. However,
if the decision is based more on strategic advantages and to add value,
then the CEO needs to take an active role. At Yes Bank it was the pro-active
role taken by our CEO in outsourcing.
I have seen many global outsourcing deals going wrong,
and one of the crucial reasons is the feeling of loss of control among
the banks. You just have to be in strategic control of the entire workings.
Though a company might outsource all its functionalities, it needs to
be the one in control, and not the vendor/partner.
Most companies plan outsourcing
of their desktops only, followed by network and application development
According to the survey, there has been an upsurge in planned
outsourcing activity for desktops. Indeed, most companies plan outsourcing of
their desktops only, followed by network and application developmentand
they still dont want to outsource critical IT functions.
71 percent are planning to go in for desktop outsourcing in the current fiscal,
while 70 percent are planning to outsource their network. The services sector
is the highest investor in outsourcing, whether at desktop, network or application
level. All the respondents from the services sector are planning to outsource
their network, 80 percent their desktops, and an equal percentage application
Outsourcing among Indian enterprises is yet to move away
from the traditional hardware-related issues. There are few companies which
are going in for process outsourcing.
|Desktop, Network and Application Development
are the three major areas where large enterprises are planning to outsource
in the current fiscal.
The desire to reduce cost, focus on core competencies,
and speed up delivery emerge as the main factors driving the outsourcing
strategy of large enterprises.
Technical competence, service & support, and
price are the three most important evaluation parameters for selecting
an outsourcing vendor.
The right fit
Choosing the correct vendor for outsourcing is critical.
The survey shows that factors affecting the choice essentially revolve around
technical competence (79 percent), service & support (73 percent) and price
Though price is a key factor while making the outsourcing
decision, companies are willing to overlook it when comes to performance and
support from the third-party.
Generally, the relation between
a company and third-party is that of client and vendor, but when it comes
to outsourcing companies feel that the relationship between the two should
be like partners
Some of the important elements for deciding on a vendor are
the vendors understanding of the companys strategy and needs, past
experience with the vendor, the vendors reputation and specialisation,
global coverage, and a consultants recommendation.
Generally, the relation between a company and third-party
is that of client and vendor, but when it comes to outsourcing companies feel
that the relationship between the two should be like partners.
competence seems to be very important for chemical/pharma (89 percent) companies
while deciding on the vendor, followed by service and support (70 percent).
Similarly, price seems to rule among the manufacturing (84 percent) and services
verticals, and support is important for manufacturing (89 percent).
The decision-making power regarding outsourcing remains with the CIO (61 percent)
followed by the CEO (41 percent) and CFO (30 percent). Ideally, the CIO and
CEO should work together on deciding an outsourcing vendor because it is not
just an IT decision but a business decision as well.
Decision-making also depends on what drives the organisation to outsourcecost,
technology or something else. Based on the purpose the authority is sanctioned
to the concerned person. Among the Government/PSU (73 percent) lot, the CEO
takes the outsourcing decisions, whereas among the BFSI (68 percent) the CIO
is relied on more.
Having tasted the benefits of IT outsourcing, the government sector is expected
to get into it further. BFSI and FMCG are the verticals that are planning to