Infrastructure Management: The Bottom Line on Outsourcing

Prasanto K Roy: What was your
trigger at Asian Paints for outsourcing infrastructure management? Was it cost?

Manish Choksi (Asian Paints): Cost was definitely a big factor, but
improving the speed of response to our internal customers was first priority.
Then came the issue of newer technologies. Could we keep up with everything on
our own, or could partnering let us take advantage of the new technologies as
they came up more quickly? So was a combination of all this. And we took the
cost out and put it back into improving the speed of service and trying to
absorb the new technologies, for our business was expanding quickly. That is
actually what drove us.

Kiran Bhagwanani (HCL): Business
agility is a key driver today. There is rapidly decreasing tolerance to IT
failure. And what that needs is a shift from reactive to proactive
infrastructure management. The "cost" driver has also gone through a
paradigm shift. It's not just about rupees spent on IT, because companies are
growing rapidly, but on IT density. A Gartner study says, 32% of a company's
IT budget goes in managing what you already have. Another report says 80% of the
IT tasks are really 'remote-able'. So you can use shared infrastructure,
shared tools, shared people... and by 'going remote', you can bring the cost
down in real terms-and improve your IT density. Finally, with all these large
global companies setting up shop in India, there is a shortage of skilled
manpower.

Suprakash Chaudhari (SAP): The
trend is that the customers and their end-customers have become more and more
discerning. So the need for the company to be agile, to be able to respond to
the stages, have become more imperative, more real, more 'here-and-now'.
Also, the pressures on margins and costs. Thus the trend toward trying to
optimize the portion of the spend on IT, in terms of managing the existing
infrastructure. So businesses are looking for ways to reduce that, choose a
balance of infrastructure, to innovate on new business models.

PKR: So where does the application
and the application vendor fit this puzzle?

SC: A lot of applications are provided to help companies be more
responsive to their end-customers. There is a huge demand from customers trying
to break away from the scale, scale not only in terms of the cost economy but
also in terms of quality of manpower available. Time-to-market is the key. And
finally, we are playing in the mid market area, a large and emerging market
today in India as well as a lot of Asia Pacific countries and globally, which
are using software as a service. That's a fully-outsourced model where
emerging companies believe they need to implement systems that bring best
practices into the organization. They want to compete globally, want to tie in
with the global culture of large companies. Yet there is a cost issue in terms
of implementing a real robust application, and is a huge shortage of manpower
that makes it difficult for these organizations to attract and retain that kind
of talent.

PKR: The Indian business has
been less adventurous with outsourcing. How has that changed in the past two
years?

Madan Mohan (Frost & Sullivan): I now see companies looking at
the total transaction cost--of managing internally and externally. SLAs and
other frameworks help ensure deliverables, without heavy investment. There's
an acceptance of "I can't really manage this myself, and I need to go to
experts who can do better and cheaper than we can." This is a key awareness
today in many businesses. Having said that, I don't really see Indian
organizations getting CIO-friendly yet, even if some are CTO-friendly, and many
are CXO-friendly...

"Business agility is a key driver for infrastructure outsourcing... there is rapidly decreasing tolerance to IT failure"		"Cost was a factor in deciding on infrastructure outsourcing, but speeding up response to internal customers was first priority"
-Kiran Bhagwanani, HCL Technolgies		-Manish Choksi, Asian Paints

PKR: What's causing the changing
acceptance...?

MM: Growth, competition. And there are related trends. One, many
cities have grown away from metros. There's a 34% growth rate in tier-2 and
tier-3 cities, and with that growth, they are not able to manage the scale of
operations. Another issue is the need to adopt processes in digitization, a need
blending with their security and environment requirement, allowing them to
ensure business processes. And an understanding of the need to move away from a
product-centric approach to a platform-centric approach. So they consider a
platform, they say, "Is there somebody who can handle this complexity for
me, without my having to invest in several product areas?" And the total
cost is reduced if you are not handling so many different technologies. That is
a fundamental economic change that I see driving these companies to adopt remote
infrastructure management.

PKR: This isn't true across the
board, though. Especially with the SME part of the puzzle... that has not moved
as fast.

KB: Outsourcing is also happening in SMEs, but in a different name.
They call it integrated services. If I am a mid-size business that has grown
rapidly, I don't have to bear the thought of spending time with business
consultants, process consultants, and I don't think I need to go with the
best-of-breed vendors because I don't have a specialized IT setup. So I need
an IT partner who can give me an entire solution in a box. What these businesses
are seeking, integrated services, is nothing but outsourcing in a different
form.

MM: Well, I see too much focus
from most majors, from the infrastructure layer to application layer, on tier-1
cities. Now, tier-2 and tier-3 cities are seeing a growth of 300%, but not many
majors have that kind of reach. The growth of these centers has not really been
supported with the right kind of channel management.

PKR: In some large
total-outsourcing deals, the assets are acquired by the service provider, such
as IBM with Bharti and Idea. As CIO, what's your preference?

MC: In some parts of our infrastructure, that is the model we follow
or would like to follow. For example, desktops, where technology obsolescence is
something we can pin down to the refresh rate based on the maturity of the
organization. It's a pretty good win-win. But sometimes we take a more
conservative stance. For instance when you don't know the technology curve on
that piece of infrastructure. In India we have a very utilitarian approach to
everything, including hardware. So servers and routers have a much longer life
than what one would see in a Western environment. In India, you have large
locations and small locations so you can rotate infrastructure in a manner where
you extend the life-cycle. When you do that, you win, the vendor loses, and he
will push it back to you in terms of overall cost. So in that situation, you'd
rather not get into something like that.

"In the emerging mid market area, businesses are using software as a service...a fully-outsourced model where companies believe they need to implement systems that bring best practices into the organization."		"I now see companies comparing the total transaction cost, of managing internally and externally...there's an acceptance of 'I can't really manage this myself, and I need to go to experts who can do better and cheaper than we can.'"
-Suprakash Chaudhari, SAP		-Madan Mohan (Frost & Sullivan)

PKR: India's traditional
businesses are keen to own assets... is there a growing acceptance of the
utility model then?

MC: You need to be very clear as to why infrastructure moves over.
One overriding factor that you would want to look at is to see your comfort
level with the process. Today we would be far more comfortable doing a total
infrastructure asset moving than we were five years ago.

PKR: What kind of metrics are
businesses using to measure the benefits of outsourcing? Are these clearly
defined in SLAs?

MM: There are two aspects. Our research shows that for an average
Indian company, 48% is operating expenses (opex), and 52% is capex.
Overridingly, qualitative indices have been used for the business value of IT,
rather than actual performance measures of IT. The actual measurement of IT
performance is very limited. You don't have a financial scorecard, don't
know which application is affected. So what we do is only measure it at a
customer objective level to really understand what is the perception.

SC: A lot of CIOs in the
mid-market just say that today if we are getting information that I can rely on,
that is business value enough for me. So that is the stage we are in. Probably a
few round of IT deployments and we can really develop those metrics. The sheer
speed of deployment and availability of information is in itself value enough.
For infrastructure, the measurement is much simpler because it is real, tangible
and can be measured immediately.

MC: Another key thing is that
to measure the true value of outsourcing, you would need good data on how IT has
delivered prior to outsourcing.

PKR: Is there a simple
approach to measuring the business value of outsourcing?

KB: I would say there are fundamentally two benefits, and everything
else falls under these two. First, there is a balance sheet benefit, and second,
the "end-user experience", because you are talking of more
infrastructure time, higher resolution time and things like that. So a better
end-user experience would score as the highest business benefit.