Business processes have gone from easily manageable to highly complex and
specialized.Â
And while enterprises still don’t want to relinquish control over their
core competencies, outsourcing is becoming an attractive and viable option for
many functions. Of course, with outsourcing rapidly gaining in popularity,
teething problems have already begun to make themselves felt and enterprises are
wondering how to tackle issues like mindset, security aspects... Also, that
burning question–Just how much outsourcing is enough?
At the third ‘DATAQUEST CIO Panel Discussion’ in Mumbai, CIOs from five
leading enterprises in varying fields of business–petroleum, banking, IT
consultancy and the stock market–were invited to thrash out those sensitive
business, security and pecuniary issues that determine outsourcing deals. The
participants (from left): KC Shashidhar (Nabard), Dr Nitin Paranjape (Maestros),
Harsh Kumar (Hindustan Petroleum Corporation), Prasanto K Roy (chief editor,
Dataquest), Satish Naralkar (National Stock Exchange) and CN Ram (HDFC Bank).
Present in the audience were industry and enterprise representatives from
companies like Active 8 Technology, Aptech, Cyquator, JK Technosoft, Philips
India, Mukand Infotech and Marico Industries, interacting with the panelists,
outlining problems and practices in their organizations. The conclusion–Don’t
rush to outsourcing simply because others are doing so. If you have not done the
homework on your needs and requirements, outsourcing may turn out to be a
high-priced deal, one that hurts more than it helps. If the planning is right,
though, you could be on the gravy train.
OUTSOURCING: Mindset
CN Ram (HDFC Bank): One of the most important aspects of outsourcing
is accepting that somebody can do it better than you can. If that does not
exist, no amount of pushing can help. I think the fundamental trigger for
outsourcing has to come from within the organization, which recognizes that
somebody else has better competence and capability.
"Outsourcing doesn't have any disadvantages, except that you have to be well-equipped to manage vendors and the concept itself" | ||
CN Ram Head (IT), HDFC Bank |
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KC Shashidar (Nabard): Historically, especially in the public sector
and the government, we have been averse to outsourcing. We stay within our four
walls and even entry into the building itself is generally prevented, and if
allowed, it is with a plethora of security measures.
"First you outsource the software, then comes hardware, compatibility being a problem... next is security, where will this chain ever stop?" |
KC Shashidhar GM (Department of IT), NABARD |
Our mindset was not ready to welcome outsourcing and the right mindset is
very important for outsourcing. While outsourcing is happening even today, there
are still many issues to be resolved. For a public servant, the cases of failure
also weigh as decisions are essentially in the public domain and can be
questioned and debated.
Satish Naralkar (National Stock Exchange): We were lucky. To begin
with, we did not have any IT in-house and the scale of IT we wanted to go in for
could not be done without outsourcing. However, we realized that with such a
massive and continuously-growing IT deployment, outsourcing would mean dealing
with a consortium; due to this, managing all the vendors could become an issue.
Issues like how to ensure service quality with all these people meant that we
had to develop a mix model rather depend cent per cent on outsourcers.
"What is not your core competence needs to be outsourced. Companies need to understand and do that, so that their energies are utilized on the real job" | ||
Satish Naralkar chief executive officer, NSE.IT |
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Harsh Kumar (HPCL): I have worked in the I was in Railways, then
Konkan Railways and now HPCL. In Railways we did not outsource anything. I mean
till a year back we couldn’t outsource anything be it software development or
hardware maintenance. We just did not believe in outsourcing. It took sometime
to explain the advantages of outsourcing. So while the first two waves of
Railways’ computerization program was done in-house , also due to lack of
people outside, the third round is being outsourced.
"If we do it in-house, the risk is high. We are talking new tech here and can’t train in-house people constantly. The better option–outsource" |
Harsh Kumar Advisor (IT), Hindustan Petroleum |
THE REQUIREMENT: What to outsource, and why?
HDFC: As an organization we believe in outsourcing anything, which is
not our core competency, IT or non-IT activities. I guess this is our motherhood
statement. Apart from issues like getting and retaining people, one of the major
reasons for our outsourcing is that the activity is not our core competence.
Also, we find it very difficult to keep skill-sets alive by consistent inputs of
training. Another reason is that as a growing organization, we may find it
increasingly difficult to find new skill-sets within the organization. So we
have to look at outsiders with a capacity to grow and scale up as warranted to
our needs.
While hardware maintenance is amongst the easiest to outsource, facilities
management and customer care help-desk service have to be given more thought.
Other outsourcing agreements include tele-banking and putting cash into the
automated teller machines. All our software requirements are outsourced. Apart
from IT, there is significant outsourcing in terms of our operations, in terms
of data entry there is significant outsourcing.
NSE: At the National Stock Exchange, we follow a mixed model. For
instance, we require about 300 IT professionals on a day-to-day basis of which
we have a dedicated team of 200 people in-house and the balance outsourced. I
think that what is not of your core competence needs to be outsourced and one
can utilize his time and energy into the main business. We were worried if the
outsourcer would be capable enough to run and drive our business and deliver
exacting service levels and because of the niche area we are in, we did not have
many options for outsourcing. Also our work is continuous in nature and more
importantly, we would like to have control over the same and hence we have
followed the mix model.
The IT implementation at NSE is not gone from the project to maintenance mode
due to the continuous developments like adding new features or new business.
HPCL: In Konkan Railways, we were clear about outsourcing–to remain
lean and not to do IT in-house. We outsourced everything from hardware
maintenance to software development. Coming to HPCL, here also we have a lean
team to maintain legacy applications. Anything new is being outsourced. It is
very important that culture and acceptability is there in the organization. In
terms of in-house/outsourced risk debate, I think that if we do it in-house, the
risk element is very high. We are talking about new technologies and cannot
train in-house people constantly. The better option–outsource. Today one sees
a change in the Railways and Hindustan Petroleum with a lot of outsourcing
contracts happening.
Nitin Paranjape (Maestro): I don’t think the size of organization is
the primary determinant whether outsourcing is thought of as default or not. In
general, if you have a big IT team, you don’t outsource, while if it’s a
thin or lean IT team you outsource. But the equation is not always so simple. In
some niche areas, where you don’t have the skill set in-house and as part of
building the skill set, it could be part of your strategy to outsource up-front,
learn in the process and then stop outsourcing as soon as you have built the
internal skills.
Conversely, you may have already built expertise in something, which earlier
was a critical area because it was a new technology. Now there are enough
vendors in the market offering similar skill sets and it is a routine thing for
you. Then you want to outsource. So it is also the technology adoption cycle
which decides that.
OBSTACLES: What to be wary about?
HPCL: One particular problem we face in the public sector for
outsourcing is procedure. Even if a vendor comes with a solution for a
particular problem of mine, I cannot give him a single tender award of the
contract. We will have to call for an open limited tender or find two-three
other vendors doing similar things and ask them to compete.
Maestro: While outsourcing is usually done at a strategic level for a
long-term thing, individual instances of outsourcing are done in a short-term
manner. So even if an outsourcer is delivering something to you, the long-term
view of that is usually not known. For example, if an application is developed
on a short-term basis, how many enterprises actually think about who will work
on the second version?
"We should stop looking at outsourcing and in-house operations as separate. What matters is that the required value be delivered, on time" | ||
Dr Nitin Paranjape chairman & managing director Maestros Consultancy |
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Nabard: An interesting issue is the vendor’s demarcation between a
marketing and development team. Essentially the marketing guys will start
negotiation, will tell the outsourcing success stories. So what happens is the
goals are, in some cases, set up essentially with some marketing people with the
help of maybe one or two technical people. Once the project is cleared then
comes in the development team. There are cases in our own experience where the
development team coming in say that these cannot be real goals as they cannot be
done and need to revise it.
Access a firm’s financials without password! |
Harsh Kumar (HPCL) on ‘Dilemma of marketing and development’ When I was with Konkan Railways, we purchased a large volume of Nitin Paranjpe (Maestros) on ‘Security’ I recently came across a portal which was, like others in the business, |
Another related problem with the development team is missing out certain
ground realities. A good example is the distinction between client and customer,
especially in big organizations like ours. The client or the interface from the
vendor point of view could be the IT team but they need to remember that the IT
department has taken a decision on behalf of some user department–the
customers. And it’s these customers who need to be taken care of and determine
whether the software or whatever application is being run can be successful or
not.
Maestro: There is no functionality of auditing what has been done. As
long as the specs are working, no dialogues are coming and there are messages,
things are accepted. Also, apparent documentation and other statutory
requirements are seen as good enough so that nobody will object. But there is
much beyond that. We have to find whether it was the best way of coding or was
it was generic enough or whether it was manageable in-house or by another
outsourced vendor.
These kind of minimal quality checks are simply not done in the outsourced
world. So there is a complete quality consciousness lacking from both sides and
we are very tolerant to imperfections and we find it more convenient and time
consuming to do it so probably. Practically, we have accepted imperfections as a
part of the game and that I think is what needs to be improved to a large
extent.
OUTSOURCING AND SECURITY
HDFC: I guess the customer expectation determines to a large extent
the kind of deployment, hardware, software and resources within the
organization. Luckily for us, we are in the traditional kind of industry–finance
and banking–and in terms of IT this industry is quite evolved. Most of the
software vendors normally have a certain level of security associated with their
product. We just had to choose one and run with it. There is a lot of
audibility, there is a lot of functional richness, in terms of security, which
is already part of the package, and we did not have to go over board with it.
However, security became a concern when we started looking at channels like the
Internet. We had really our intestines being examined, by outsiders. So we did
the typical thing of working with our partners, and finding out what is the best
way of isolating the host through appropriate use of middle ware and security so
that the end customer never reaches in to the host system for any of the data
directly.
NSE: Security is very critical, more so for an institution like us,
where transactions of crores of rupees are done everyday. Anyone handling the
same information can become a millionaire overnight as the information is so
valuable. Rather than evaluating whether to do it in-house or outsource, its
imperative to have processes, methods and practices very well defined. The idea
is not to take a chance, even with an in-house person.
DISADVANTAGES: Can it fail?
HDFC: No, I don’t think outsourcing has any major disadvantages. Of
course, a disadvantage is that if you aren’t equipped to manage vendors and
the outsourcing concept, then you run into some problems.
NSE: One has to be a little careful while selecting the technology and
the outsourced partner. Coming from the niche areas and with not many fall back
options, we have faced the uncertainties of unstable vendors. For instance, a
certain technology changed hands because of takeovers and mergers, and that
original company and their relationship with the Indian company has been totally
wiped out and since they had no other interest as they had no other business, we
were left in the lurch.
Nabard: An important point to be considered is the leading of one
thing to another. For example, first you outsource the software part. Soon the
vendor comes and says that the hardware is not enough to support the software
developed, therefore change the hardware. Then comes security followed by
training. Therefore, I think a very holistic view of the entire development
project, or whatever you may call is outsourced must be made clear at the outgo
itself.
ACCOUNTABILITY
Maestro: It’s important to stop looking at outsourcing or in-house
operations as separate. What matters and is important is the required value
expected to be delivered, whether done in-house or outside, and should be
delivered irrespective of the modalities. I would look at an outsourced party or
in-house team like any other IT tool. If you are doing something in VB, it is a
tool being used to generate some business benefit by making an application. Have
a similar outlook when using the services of the outsourced party, like so many
others, to generate a particular benefit or to satisfy certain business needs.
One of the frequent problems faced is that neither the enterprise nor the
vendor is really clear about what the deliverables should be. This especially
because during the course of deployment itself, things can change either
intentionally or unintentionally. Another aspect of accountability is beyond the
project basis and from a long time frame. Very often what is outsourced, the
effect and the quality of it is not audited after some time. For example, if an
application is developed the enterprise needs to know how much of that
application is being utilized, what has been the feedback from the users, the
kind of usage problems. This is not done and hence accountability needs to have
a long-term view also. So outsourcing should be functionality-driven, not based
on the size of the company or the IT team.
A Dataquest report
‘Use Core Knowledge for Business Gains, Outsource the Rest’
‘Use Core Knowledge for Business Gains, Outsource the Rest’ |
Confine yourself to core competencies and outsource the rest. Have the basic technology knowledge and keep consultants in your organization, you will be able to manage most of your shows. So you can have your critical requirement kept to about 10-20 people in IT in the core competence department and outsource whether it is a small job or a large job. At the initial project planning and designing itself, you must specify who are the people who will be conducting the project. There should be a steering committee meeting doing regular audits and not at the end of the time limit, but from the start of the project itself! Siddharth Hosangady, Apar Infotech While the CIO is usually faced with marketing and development dilemmas, Jailesh Shah, CEO, Mukand Infotech When a client is calling for a vendor, they have every right to check Chris George, CEO, EasybuyMusic We decided on a premier Bangalore-based Web solutions company for our |