OUTSOURCING: The Great IT Rush

Ashish Kapoor, CIO of a medium-sized auto ancillary

 unit, spent about Rs 5.5 crore and nine months to implement a customized

ERP solution in his company. However, before he could take pride in his

deployment, he heard that his competition was already a step further and was

moving on to e-CRM. Confounded at the technological pace, he and his company

took the decision to outsource all new technology implementation.

Seems that Kapoor’s company is not the only one bitten by

the outsourcing bug. Even big enterprises like Ballarpur Industries (BILT) with

a sizable IT staff decided to simply outsource all the IT needs to IBM.

Play-it-safe seems to be the catchword. Rather than building

up an expertise in IT, not their core competency, enterprises are opting to

outsource IT requirements, hardware or software. This helps them to take care of

any technological refurbishment that takes place from time to time, enabling

them to remain concurrent and at par with technological trends.

The opportunity

The trend, likely to yet to take off in a big way in the

country, is a big opportunity for Indian services companies. An IDC report says

the worldwide outsourcing spending will increase from $116 billion in 1999 to

$177 billion by 2004, at a CAGR of 9%. With the Internet challenging

conventional business models, companies are trying to restructure themselves

around e-business and compete in the Internet economy. IDC estimates that

outsourcing spending will increase worldwide as companies struggle with the

restructuring and keep up to meeting competitive demands. The US will continue

to account for almost 50% of spending worldwide, with its outsourcing spending

increasing from $56 billion in 1999 to $87 billion in 2004.

High quality and low costs puts India in a favorable position making it an obvious choice as against China or Malaysia	Positioned very high on the people and vendor sophistication matrix, India has a clear edge over the competition

The pressures of internal resource shortage, growing

importance and complexity of IT, the aggressive cost-control focus and the

emerging attitude of "exceeding in core-competency areas" are forcing

businesses to look at outsourcing their non-strategic yet critical requirements.

EDS, for instance, manages about 7,000 ATMs in the US, which are

cross-leveraged, and customers of different banks can withdraw cash from the

same machine.

The dissipation of technical resource by not being utilized

appropriately can be clipped by utilizing the outsourcing opportunity. Tanmoy

Chakrabarty, VP, business development, EDS India, says, "Company leaders

have terrible scars of abandoned IT projects and the tremendous attrition as far

as the IT resources are concerned." Moreover, as Anil Menon, director,

marketing, Citirix Systems points out, "The constant change of technology

and the underlying digital divide make it difficult for an organization to have

long-term IT plans."

Undoubtedly, the consideration of outsourcing as a strategic

option is not a fixed decision. It’s in fact, a continuous process that seeks

to adopt the best option to meet current business conditions and objectives,

with its key objective being to drive down costs.

"Outsourcing is becoming important as the company can

save huge costs on recruiting and training manpower," says Vineet Nayyar,

president, HCL Comnet Systems and Services. The astronomical sums spent on

education and training of the employees can also be reduced drastically by

outsourcing. Let someone else manage your headache, is the core idea. By

outsourcing, you ensure constant development, integration, implementation and

management of IT on an ongoing basis, hence the need to train employees is also

reduced.

Why India?

Many

Western countries have turned to India to outsource their IT requirements. In

the past, software companies from India have provided high-quality software

solutions to Fortune 500 companies such as Morgan Stanley, AT&T, GE, Sony,

Citibank, GM, Boeing, Coca-Cola, and Pepsi.

India has a vast pool of skilled manpower, making it a

much-preferred hub for outsourcing cross-border IT and IT-enabled services.

Also, typically skilled manpower costs in India are significantly lesser than in

any of the developed nations. India has been steadily building up a large and

capable software services industry, which has earned export revenues of Rs

13,100 crores in H1, 2000—01, according to Nasscom. IT-enabled services is

becoming a big market in India. Companies like Daksh.com offer a range of

Web-enabled customer care services including e-mail response, real-time chat,

knowledge management, e-CRM architecture and other value-added services to

global companies like Amazon.com and Bigfoot.com.

Given this strong value proposition in terms of skilled labor, long-term

economics and a high position on the learning curve, India could build a

$17-billion IT-enabled industry by 2008, says the Nasscom—McKinsey report.

By nailing down issues, both client and vendor can better

understand outsour—cing needs and objectives. That helps minimize surprises

down the road and, significantly, lets both sides set realistic expectations for

success. Typical errors include installing rigid performance requirements,

setting cost structures that prevent the outsourcer from making a profit, and

placing operational constraints on the outsourcer’s improvement efforts. As

Menon points out, "If the outsourcing contract fails, the user should be

able to shift from one vendor to another. This is where the contractual

assurances that an vendor makes to its customers should specify acceptable

levels of service, availability, security and performance."

It is ironical that Western countries are utilizing the

opportunity that India provides for IT outsourcing, while Indian industries are

lacking in initiative as well as interest to utilize it. "We have all the

right ingredients to be the future back-office to the world with a large English

population, a big pool of skilled technical manpower, a large content market,

and creative people," says Menon. "This supplemented by stable data

centers can really take our market to great heights–both within India and

abroad."

With a much improved infrastructure being put in place by

various players like Spectranet, Reliance and the increasing awareness of

outsourcing as a key competitive edge, a boom time for outsourcing providers

could just be around the corner. DQ