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Piecemeal IT outsourcing
IT services outsourcing among medium businesses is declining.
Vinutha V says that few businesses are opting for total outsourcing now—most
just farm out pieces
 India’s
medium businesses are growing faster than their large counterparts. Although
IT service outsourcing brings value in terms of managing and saving on IT infrastructure,
few medium businesses are going the whole hog in this respect. Blame it on the
lack of awareness and decision-making by top management. Only 2 percent of organisations
are expected to start outsourcing IT services this fiscal.
Companies have been quite conservative when it comes to IT
outsourcing. In the last two years, the number of organisations going in for
outsourcing for the first time has come down drastically.
10 percent of them have actually stopped outsourcing. According
to R K Kanthi, Group Head, Enterprise Systems, 3i Infotech, “This would
have happened primarily due to the lack of understanding of the benefits that
can be derived from outsourcing. Some companies follow the trend without fully
realising their needs, which ultimately leads to losses and then they stop outsourcing.”
Bits and pieces
- In the last two years, the number of new organisations
outsourcing IT has come down drastically.
This is probably because most mid-sized organisations that want to outsource
have already done so.
- Price, service and support coupled with technical
competence are the three most important parameters while
selecting an outsourcing partner.
- Functional IT heads along with the CIO or
CEO are in charge.
- A few companies have discontinued outsourcing.
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Partial outsourcing has taken centre-stage with IT, BPO, manufacturing
and BFSI showing the way. Overall, 75 percent of organisations that outsource
do so partially. Notes Kanthi, “Total outsourcing of IT activities will
probably become popular when users learn to focus completely on their core competencies
and gain clarity on which IT activities can be outsourced.” This is starting
to happen in the chemical and pharmaceutical verticals as these companies find
data management cumbersome. According to industry observers, these verticals
are looking at hosted services such as server management and data security.
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Total outsourcing of IT activities will probably become
popular when users learn to focus completely on their core competencies
and gain clarity on which IT activities can be outsourced
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A few companies are experimenting with outsourcing. Says Mahesh
Khara, IT administrator of Mahaan Foods in Delhi, “We implemented an accounting
solution in 1992, with which we have been able to manage data. Hardware maintenance,
including network maintenance, LAN and WAN, has been completely outsourced.
We are also outsourcing printing activities on an experimental basis. If this
turns out to be a feasible option, we may go in for it on a permanent basis.”
Ruling out the possibility of opting for total outsourcing, Khara explains,
“Outsourcing works well in countries such as the US, where cost and quality
are a major concern. For Indian companies, fully outsourcing IT services will
be expensive.”
What is going out
 Of
the respondents outsourcing partially, 44 percent have farmed out PC management.
This has been most evident in the BFSI, chemical, pharma, services and manufacturing/engineering
verticals. Application development and annual maintenance contracts have an
equal mindshare of 36 percent. Network communication services, helpdesk and
IT security services account for 23, 21 and 19 percent respectively. Bangalore-based
SRS Travels, a transportation services firm, has 70 employees who take care
of data management including processing and billing purchase orders. Its General
Manager, M H P Achar, says, “We outsource only hardware maintenance and
have successfully managed 90 lakh transactions of our 70 customers every month.”
Application development or custom development is prevalent among chemical and
pharma companies as they require customised services. Business process outsourcing,
data centre management, printing, content management and disaster recovery are
also outsourced, though less frequently.
Outsourcing security
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Being unable to keep pace with changing technology,
and needing to comply with regulations regarding data security, users
are left with no choice but to outsource IT security services
Karthik Sahani
director, Sales
McAfee India
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Concern about data violations by internal or external intruders
is prompting companies to outsource IT security. Verticals such as chemical,
pharma, manufacturing /engineering services, and auto and auto components are
the most bullish about this concept.
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The speed of information access is only going to increase
while talent shortages will continue. Meeting the salary expectations
of scarce IT employees is going to be difficult for medium businesses.
This leaves them with only one choice, which is to outsource
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Comments Karthik Sahani, director, sales, McAfee India, “In
BPO, clients demand world-class security. Internet banking, real-time gross
settlement (RTGS) and ATM services are growing rapidly in the banking sector.
In the telecom sector, technology changes rapidly. In the next 24 months, there
will be 3G rollouts. In such a scenario, being unable to keep pace with changing
technology and the need for compliance in data security, users are left with
no choice but to outsource IT security services.” Another vertical that
can benefit from outsourcing IT security is chemical and pharma. As there are
a large numbers of offices and agents involved in this industry vertical, it
becomes necessary to protect interactions at numerous locations.
Business process and data centres are priority
outsourcing areas for medium organisations, followed by printing and content
management.
Technical competence
The rationale for outsourcing IT services is simple. It helps users focus on
their core competencies while handing over IT-related activities to specialists.
76 percent of companies that outsourced or plan to outsource IT services say
that they do so due to service and support issues. Verticals such as services,
BFSI and FMCG outsource based on this line of thinking.
Finding talent is a challenge. Companies need access to technical competence,
and 71 of them rank this as a significant factor in deciding to outsource. Maintenance
of formulation and patent-related information in chemicals and pharmaceuticals,
or customer information in BFSI, requires sophisticated technology. Naturally,
these two verticals lay great emphasis on technical competence. Says Kanthi,
“PSUs are venturing into new areas, competing with MNCs and becoming more
organised. This encourages them to select vendors based on technical competence.”
Vendors also have a role in promoting the concept of IT service
outsourcing. In this context, understanding a customer’s business strategy
is critical for signing up a medium business. Price and experience are other
factors although there are a few users who believe that it is easier to take
care of IT in-house rather than to outsource.
The decision-makers
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If some companies have stopped outsourcing, it is primarily
because of the lack of understanding of the benefits that can be derived
from it
R K Kanthi
group head, Enterprise Systems 3i Infotech
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Unlike in small businesses, medium businesses are realising
the importance of having a dedicated department and head for IT. Functional
IT heads along with the CIO or CEO make IT outsourcing decisions. Of the respondents
who have invested in outsourcing in the past or are planning to invest, functional
IT heads influence the decision in 44 percent of these organisations, CIOs have
a say in 35 percent, and CEOs in 33 percent.
According to industry experts, in certain verticals such as telecom and FMCG,
the outsourcing of IT activities is low. In FMCG, the base system of data maintenance
by the users themselves is disorganised, making it tough for vendors to understand
a company’s IT strategy. In telecom, the data sizes for billing, confirmation,
maintenance of SMS servers and communication are vast. Another pitfall for medium
businesses is forecasting growth, which hinders their negotiations.
Drivers for outsourcing IT services
- Only 2 percent of organisations will commence
the outsourcing of IT services in 2005-06.
- Medium businesses plan to widen the scope
of outsourcing in the areas of IT security services, business processes,
printing, content management and PC management.
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BFSI, one of the early adopters of IT, is looking to increase
its outsourcing. Auto and auto component makers need to align their supply chains
with the MNCs to whom they supply parts. Companies with multiple locations find
outsourcing invaluable. Eyeglobal Technologies, a banking-BPO outfit with consulting
services, has outsourced testing and auditing services. Notes T K Bhaskar, CEO
of the company, “It has been a comfortable experience for us as we do not
have to conduct these activities in-house. Additionally we gain access to fresh
perspectives and credibility. In future, we are looking to outsource reporting
as it is a low-risk activity.” Adds Sharad Heda, COO of Microland, “This
segment will always be in a ramp-up mode, and hence IT services outsourcing
helps align business strategy.” Since vendors generate substantial revenue
from medium businesses, services are being offered at competitive prices. It
is also notable that users are awakening to the fact that they will be in touch
with the right technology and partners by outsourcing.
Based on the survey report and inputs from industry experts, some key points
emerge. Nobody can deny that the speed of information access is only going to
increase while talent shortages will continue. Meeting the salary expectations
of IT employees is going to be difficult for medium businesses. This leaves
them with only one choice—to outsource.
vinutha@expresscomputeronline.com
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