Outsourcing is no more a fashionable word—it’s a reality. Only the degree varies. While part outsourcing—some call it out-tasking—has already been there for some time, total outsourcing is also beginning to happen now.

In out-tasking, while jobs like installation and maintenance are given out, the infrastructure continues to be owned by the company. Take the example of State Bank of Mysore (SBM). "We are already outsourcing," Sitarama Murthy, managing director, SBM, says. He explains the approach that his bank is taking, "Our model is that we would own the infrastructure but it would be managed by others. For example, TCS would take care of the core banking software. Datacraft would take care of the networking requirements, and so on."

Has outsourcing arrived in India? Yes, say industry watchers. Tisco, one of the largest steel producers in the country, is being cited as the case for complete outsourcing. The project is understood to be worth Rs 220 crore and the partner is IBM Global services. The details of the project and its scope are yet to become available. Nonetheless, vendors point it out as the first truly big outsourcing deal. It is also understood that IBM Global has contracted ABB as well.

Dabur, Merrill Lynch, and Pidilite Industries are some of the companies that have started doing outsourcing in parts. They’re likely to grow the encompassment gradually.

The Driving Forces
"Although facility management services (FMS) can be dated back to as early as 1994, it has remained an extension of annual maintenance contracts (AMCs) along with some managed services in India," Ponnanna Uthappa, country manager (services), Allied Digital, opines. Nonetheless, things are changing, albeit slowly. Increasingly, companies are recognizing that technology is central to their businesses. This is primarily because the customer is setting his own rules for when and how to do business. The Internet and related technologies have caused the balance of power to shift toward the consumer. This means that the business models would be develop around the technology platform, with productivity and profitability being the prime concerns. This platform has to be interactive.

Companies already seem to be realizing the benefits of outsourcing. Murthy says, "I’ve seen a two-dimensional change. One, there are several competent service providers and vendors with good product offerings. Further, the jobs and investments have become specialized. This means that today we are at a stage where maturity has set in and we can focus on our core business offering more products and services." Ajith Vellat, director (IT), MetLife India, is equally open to the idea, "We are looking at as much outsourcing as possible, as today we have Web/browser-based applications. The concern would always be on how financially attractive the process would be."

What are the enablers for outsourcing? "The biggest enabler would be the availability," Sanjay Jotshi, Nortel Networks, opines. He says, "The logic in outsourcing is that the process can be done better and in a cheaper way. It’s all about managing costs and complexity." With IT and communications becoming the main hub for running a business, desktops to servers to networks to applications need to be managed. Mukund Seetharaman, consultant-outsourcing, professional services, Wipro Infotech, dwells further on the aspect, "The key drivers are cost takeouts and optimization. Cost takeouts can be both at qualitative and quantitative levels. There has to be a faster time to benefit. Optimization is important, as it will accrue benefits in terms of managing costs on IT administration. It offers the advantage of a pay-by-use model."

Clearly, both vendors and enterprises feel that outsourcing is not just about controlling costs, but also about productivity. Several years ago, networking deals were treated as cost-cutting exercises, but not anymore. An advanced networking platform is now being seen as an investment for bettering revenues. It is a key strategic decision. Corporates are realizing that improved connectivity with suppliers and across business units and addressing the demand for flexibility and information exchange is the core issue.

Murthy points out to another challenge—that of human resource. "Is it necessary to have a full-time engineer/team for maintenance or for ensuring uptime? One will need to justify the investment protection in having that. Moreover, engineers prefer a technology company, and not a user organization. So retaining or finding a replacement is not easy."

Another concern is the downtime and managing technology obsolescence. With applications and technologies changing at a rapid pace and networks becoming more powerful and complex, managing the services and infrastructure is becoming a different ballgame altogether. C Ram Mohan, chief operating officer, Vinciti Networks, says, "It is not the operating systems or the databases themselves that cause the problem that results in downtime. It is the end user’s interaction with them that can cause a system failure." This means that there is a big challenge in not only upgrading the existing network platforms, but also in having enough skills internally to run the legacy platform as well as create a new network-centric platform.

Furthermore, MS Sidhu, managing director, Apara Enterprise Solutions, points out, "In today’s environment, the infrastructure needs to be managed proactively, not in a reactive manner." Proactive management can not only fix problems before they become catastrophic, but also enables upgrades on time and in a modular way.

Vendors and Their Models
"At the outset, outsourcing is a good option. But is there enough that we can achieve by outsourcing? Are there players who can drive things that we aim at?" asks a CIO in a textile-manufacturing outfit. Other concerns for the CIO are privacy and security. There is also a lot of internal resistance and pressure of justifying the return on investment on him.

So the key question is: are enough outsourcing partners available?
The market for outsourcing is emerging. And several players are there to address the outsourcing needs of enterprises. There are players of all sizes and forms to address the outsourcing requirements. One has end-to-end outsourcing partners like HCL Comnet, HP, IBM, Wipro, Datacraft, and Allied Digital to managed service providers like Bangalore Labs and Vinciti Networks. IBM undoubtedly is the leader in this sphere. But others like Wipro and HCL Comnet are not far behind. The models are different for each of these vendors. For example, HCL Comnet, IBM and Wipro would not only offer strong process, business, and technology consulting, but also have their own infrastructure and resources.

Allied Digital, on the other hand, comes up with partners to address the outsourcing needs. The company offers help desk management, asset management, desktop and peripheral management, server management, OS/Application management, NMS/NOC, business continuity and disaster recovery management, managed services, installation and maintenance, and IT and consultancy services, apart from a host of other micro-level offerings.

What does a smaller company like Allied Digital do if it has to own the infrastructure? Allied is tackling the issue by entering into a partnership with Rent Works, an Australian firm, which operates out of Mumbai. And Rent Works, on its part, uses unique model that’s quite interesting too—it buys out the existing infrastructure in an enterprise and leases that to the enterprise again. "One of the biggest reason for enterprises wanting to own the infrastructure is that of depreciation. Financial heads are comfortable having the IT infrastructure for claiming depreciation," Ponnanna says.

Then there are others like the Bangalore-based Bangalore Labs and Vinciti Networks who are managed service providers. Says Ram Mohan of Vinciti Networks, "We offer cost-effective and trusted solutions in the areas of network management, network security and IT infrastructure management." Vinciti provides these services, both onsite and remote, to mid-size companies. It can address the entire life cycle of the network infrastructure and applications. Bangalore Labs not only offers consultancy services on infrastructure design and integration, security, performance, enterprise management automation, and disaster recovery, but also manages the entire IT management for the enterprise.

The traditional systems and network integrators are also gearing up to offer these services in conjunction with data center vendors like Satyam. Also, storage solution players like Apara Enterprise are also moving up the value chain. In the last three to four quarters, Apara has added networking arena to its portfolio and offers managed security and data services. It has plans to move up to managing applications too. Then there is HP, which is doing a solid job, silently. The new HP has a very strong team to address all channels of outsourcing—from infrastructure outsourcing to management to network management to data center management to systems management, inclusive of owning and remote services.

Honoring Those SLAs
There is enough number of companies specializing in this sphere. However, says, Uday Birje, country manager, Enterasys Networks, "Reliability, security, and comfort are the key things. Many companies are still to prove themselves on these aspects." What has to be worked out is that in the event of the customer network performance falling below agreed-upon deliverables, operators will apply credits for applicable service charges for the affected sites. The companies going for such services need to set individualized performance metrics, based on specific customer network designs (dependent on hardware, dial-backup, configuration, and transport service designs). Here again there is a concern expressed by enterprises. What happens if a SLA is not respected? The contracts and adherence are not so easily enforced in the courts. Vendors, however, were assuring. "We are here to stay and not to spoil our reputation. We will deliver on the SLAs," was a representative remark.

Another factor concerning the enterprises looking at outsourcing is when to go for outsourcing? PP Subramanian, country manager (India liaison office), Hitachi Data Systems, "Partial outsourcing has been in practice for sometime now.

Infrastructure (IT infrastructure) management over a period of time has been bogged by changing environments, business dynamics, disasters, newer applications and cost of management. All these have made the decision of outsourcing easier. But how much, when, to whom and for how much are the issues that rise. It’s the classical ‘make or buy’ decision making process that any corporate goes through all the time. Remote management is still a fashionable term, but soon, when the connectivity is seamless, the real benefits of outsourcing infrastructure management will show. So if a US corporate outsources infrastructure to another US specialist company, the cost of the most important line item—the manpower—will not be very different. But if it were to be done remotely out of India, the savings can be quite substantial. If infrastructure management, including equipment were to be outsourced, that would be possible largely only in new start-ups, since they do not have a inheritance of IT equipment."

And how does one protect the investments already made in the technology platform? Subramanian suggests the approach to be undertaken, "What can be outsourced immediately is only manpower. Subsequently, there’ll be new infrastructure investments, whether applications like a financial ERP or data warehousing, mining. Later, maybe the entire IT Infrastructure." Also, with a few large global companies existing and several others forming partners to address this market, there is an opportunity for enterprises to bargain and command. Enterprises here will need to be clear if they are looking for assistance to manage communications complexity or to save money or to generate more revenues. That will decide the level of outsourcing for them.

Ch. Srinivas Rao