CIOs Embrace Hybrid Outsourcing

he IT managed services market in India is expected to reach $3.8 bn in 2013 from $1.6 bn in 2009 growing at a CAGR of 22.8%, higher than the growth rate of overall IT services market, highlights the Indian Managed IT Services Market report from Springboard Research. The research further noted that although managed infrastructure services dominated the market in 2010, the highest growth will be recorded by managed application services with a CAGR of 26.2% from 2009 to 2013.

Interestingly, the research says that that the managed services model has rapidly and significantly begun to encroach upon traditional strategic outsourcing engagements.

After years of rapid growth ended with recession, it also brought changes in the outsourcing rules with new rules being written. It is for both the service providers and buyers to understand these to make the global sourcing a lever for business value and adding up definite deliverable and RoI. It means that there has been a fundamental transformation in the way services are handled, says Sharat Airani, chief of IT (systems and security), Forbes Marshall. The managed services outsourcing model provides convenience to the CIOs without the stress of losing control over their IT.

Managed Services versus Staff Augmentation

With the adoption of new technologies and devices demanding 24x7 access, most CIOs agree that it makes sense to go for managed services outsourcing in order to ensure maximum value, offering easy access, and skill access from your service provider. A key value of the managed services (outsourcing) model with execution commitments secured, the IT organization can reduce in size and focus on the strategic management of IT, says Airani.

However Rajiv Sehgal, CIO & SVP, Aviva Life Insurance isnt too sure. There is no clearly defined rule or preference. The strategy to outsource and staff augmentation defines the right mix and it varies from organization to organization. As a thumb rule 80:20 mix of outsource, the staff approach will be a win-win for the organization and sourcing agency. Any imbalance will have a long term impact on the organization, says Sehgal.

Wise words indeed from Sehgal as Rajeev Seoni, CIO, Ernst & Young thinks on similar lines and doesnt take sides instead relying on the need of the hour. For the low skilled roles like desktop support and helpdesk, these can be easily managed by the field engineers unlike someone into server management which is a more sensitive and a complex activity. Incidentally network security, hosting, data center operations, and security are all managed internally, Seoni adds.

Related Issues

One needs to understand that outsourcing is not just about cost reduction but is about increasing an enterprises long-term competitiveness.

In the initial phase, the most important concern is the adherence to the SLAs and most issues arise around service levels. The vendors flexibility to manage and address the adhoc requirements crops up as a challenge resulting in commercial impact. The best means to address this is to define the right kind of scope of service and SLA, says Sehgal.

Agreed that the SLAs form the foundation of satisfaction surveys but over a period of time as the managed service partner becomes your partner in the long run, this relationship becomes critical, says Seoni.

While the SLAs do play an important role in the way day-to-day service is delivered, there is no evidence to suggest that penalty payment mechanisms affect the quality of the service.

Attrition at the service providers end is the key issue. Having outsourced the low skilled work, attrition at the service providers end is a concern. Once the service is running successfully, the CIOs are left wanting attention from the providers top management side, says Seoni.

Continuing with a single vendor has its share of challenges since there is a little scope of negotiation even if the service rates go up. Over a period of time if one remains with a single vendor approach, the services cost can be increased by the vendor with a little scope to negotiate, says Sehgal.

Undergoing a Change

Managed services outsourcing has come a long way from being managed in-house to being outsourced to either single or multiple vendors to its present day modelthe hybrid model. Under this model, BAU activities can be fully outsourced while strategic initiatives and business critical activities are managed in-house, says Sehgal.

Airani goes on to add that most people are struggling to manage the transition from fixed price to managed services, which implies contracting for services instead of contracting for bodies. From staff augmentation to managed services, the focus is on SLAs and not resourcesfocus is on performance. When this happens, people are no longer managing the resources on a project, instead are focusing on the outcome, he adds.