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Outsourcing: Can You Live Without It?

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DQI Bureau
New Update

Business processes have gone from easily manageable to highly complex and

specialized. 

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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.

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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

PCs: 3,200



Servers: 185


Major PC brand: Compaq


Major server brand: Compaq, Sun


Number Of locations: 160


Bandwidth resources: 20 Mbps


Major Applications: Banking




IT model being used: Outsourced



Total employees: 2,700


IT employees: 73


Approximate IT budget (as percentage of turnover): 25%


Background: CN Ram holds a Bachelor of Technology
(Electronics) degree from IIT, Chennai and an MBA from IIM,

Ahmedabad



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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.

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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

PCs: 1,000 Plus



Servers: 80


Major PC brand: Compaq, Hewlett-Packard


Major server brand: Stratus, Compaq (Alpha), H-P, Sun


Number of locations: Offices in 7 cities, VSATs in 430 cities


Bandwidth resources: VSAT Network–One Full Transponder 512
kbps B/B, 37kbps I/B



Leased Line: 64 kbps for 450+ locations, 2 Mbps for 5
locations



ISDN: 10 locations


Dial up: 50+ locations






Major Applications:
  • l Trading
  • l Clearing and settlement system
  • l Listing
  • l E-broking
  • l Membership database
  • l Datawarehousing system
  • IT model being used: Mixed
  • Total employees: 300 +

IT employees: 180 (Managed by Infotech subsidiary, named

NSE.IT)



Approximate IT budget (as percentage of turnover): 33%

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.

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"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.

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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.

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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

PCs: 120



Servers
: 5



Major PC brand
: Assembled



Major server brand
: Assembled



Number of locations
: 3



Bandwidth resources
: 128 k
Major Applications: NA



IT model being used
: NA



Total employees
: 165



IT employees
: 100



Approximate IT budget (as percentage of turnover)
: 10

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

hardware from a company I would not like to name here. After hearing their

marketing spiel about the best products available, we awarded them the

contract. The problem came during maintenance of the hardware, with a

second team coming in and with limited budgets. The problem was that they

had the bonus fixed on the savings made in the budget. The team always

tried cutting corners and I kept fighting with them. It became so bad that

we even argued about the personnel. The contract said four engineers,

while only one of them had a diploma. It became very petty. And this is a

real issue.

Nitin Paranjpe (Maestros) on ‘Security’

I recently came across a portal which was, like others in the business,

facing performance problems. It was in a hurry to launch operations and in

this hurry, the database design was not done, nor was any testing. Their

idea was to succeed first and then bother about the performance. We did a

code audit for them, which was outsourced till the implementation stage.

To our shock, we found the user name and password of the ‘system

administrator’ without any encryption! If this is the kind of work being

done, paid for, accepted, then there is much more to feel horrible about.

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,

vendors have users and IT departments to think of. I think they should sit

together and define deliverables. It can become a nightmare for vendors as

it delivers something based on the IT department’s specification, while

the user will come back and say, "This is not what I had asked

for."

Jailesh Shah, CEO, Mukand Infotech

When a client is calling for a vendor, they have every right to check

vendors and the developer team and their skill sets. No one stops them,

why should good vendors get affected by bad vendors, who don’t deliver

what they promise.

Chris George, CEO, EasybuyMusic

We decided on a premier Bangalore-based Web solutions company for our

project. The marketing guys came in and made an excellent pitch with a

great solution. After a couple of months, these guys disappeared and we

had an entire batch of new people coming and working on this particular

project. As our business started scaling up, it started changing. I don’t

think the tech people kept up with it. We would have been absolutely open

to possibly sit down and discuss with them. ‘Look guys there has been a

change in features and a change in business requirements, how can be

renegotiate or possibly rework the architecture.’ This is what the

technical team said: ‘This is the original document, I am going to stick

to it and deliver that project and just to take care of maintenance.’

Currently, we have a core IT team of 10-15 people and the best part is we

do not treat them as the tech team. They are part of our business and they

sit down with the retail experts developing new applications for new

markets. The result–our attrition for the last 2 years has been nil. The

reason–these guys get treated more than just developers but rather

business people.

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