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Recently published IBM research report says that companies, which outsource IT services, are outperforming their peers in financial performance. It warns that, companies that dont outsource IT may lag behind in key business metrics. The report just confirms what outsourcing experts have written over and over again, that, IT outsourcing is good for business. And offshore outsourcing with its substantial cost advantage can only be better.
This is especially true in todays offshore outsourcing scenario, where most leading offshore companies are business conglomerates themselves with the capacity to deliver services that exceed expectations. This especially rings true when offshore outsourcing to India. Indian offshore outsourcing companies are a class apart and they constantly strive to maintain and improve their standards. They have strong domain knowledge, global exposure and brand equity worldwide in the software services sector. They also have strong value proposition - low development cost, highly skilled manpower and competitive billing. Even smaller firms in India strive to maintain a certain standard within their limits.
Outsourcing as a business strategy
It is a fact that, even though business managers are always looking for innovative ways to deliver shareholder value and bolster investor confidence, they often stop short of outsourcing. However, now IT outsourcing is as good a strategy as implementing new management practices or re-vitalising business processes. But most people are rather wary of making of outsourcing a business strategy, and offshore outsourcing is even more out of bounds.
However, by accepting shared resources and losing some control, a company can access better technologies and lower operational costs through offshore outsourcing.
Some basic advantages of offshore outsourcing:
Cut costs: An average software development or web development company opts offshore outsourcing to cut costs and increase savings. It allows them to concentrate on their core competencies. Offshore outsourcing can save costs in more ways than one. You get to cut costs, both directly and indirectly, on various areas like human resources, infrastructure setup and maintenance, management etc. depending on what you outsource and how much.
Access to latest technologies: Access to changing technologies is a major advantage of IT outsourcing. As technology vendors keep updating their systems and services, the technological advantage is passed on to their clients. Value added hi-technology aided service is now part of the package in all good outsourcing deals.
Readymade service: Minneapolis CIO Karl Kaiser says of outsourcing IT, "The information technology assets and the associated support functions in my mind are a utility. Its like you come to the office and switch on the lights. The light comes on, but that doesnt mean you need to own the power plant". His view is especially true in the case of ordinary companies struggling to manage huge IT infrastructure that is not core to their business but which they cant do without.
Where to start
Most CEOs find it tough to decide just what all functions to outsource. The best-starting point for organisations that already view IT as a service are easily measurable chunks of the environment, such as storage. Storage is easier to transform into a service and therefore its easier to outsource than other aspects of the infrastructure. There are complexities, but atleast storage does not require application updates and operating system patches and so on"
While some recommend starting with functions such as help desk, operations or network management, others suggest treading carefully considering the complexities of each chunk. Outsourcing part of a process can be effective too, like outsourcing the payroll even while maintaining other HR functions in-house. However, it is always considered best to decide depending on the complexities of each companys business - area of operation, kind of business, other associated factors etc.
The cost factor
Once a company decides to outsource, it should have a good idea of what a specific application costs to deliver, in terms of reliability, availability and performance. Then, it can structure Service Level Agreements (SLA) appropriately and make an informed decision about whether outsourcing makes economic sense.
John Pierce, Global solutions architect for outsourcer Patni Computer Systems says, "If you cant measure it, you cant outsource it. The first question I ask when people are considering outsourcing is, "Do you have a charge-back system?" If they say no, I think "Oh boy, this is a disaster waiting to happen" because that means that, they have no idea what this is costing them. How can an outsourcer be expected to control costs if he doesnt even know what they are?"
In Pierces experience, a company often has to commit to a six-to-nine-month- engagement to determine costs, service levels and baselines before it gets to the outsourcing stage. He says that, only when those aspects are understood should enterprises lock into long-term outsourcing contracts.
In short, offshore outsourcing is good business strategy, but it has to be done properly.
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