Monday, November 3, 2003		Guest Speak

Enhancing business through outsourcing
Sudhir Gera

WHAT is outsourcing? Simply put, outsourcing is the strategic use of outside resources to perform activities traditionally handled by internal staff and resources. Gartner Group defines it as a contractual relationship with an outside vendor to assume responsibility of one or more IT functions, usually characterised by the transfer of assets (facilities, staff, hardware).

Globally, customers are shaping the dynamics of the continuously evolving business environment. Traditionally, cost reduction was the overwhelming motivation for contracting functions. However, today outsourcing is no longer viewed as just a cost cutting measure or the refuge of a technically deficient enterprise. It has been embraced today by most as a flexible and versatile option to enhance business.

Competition has forced many organisations to take a close look at their resource deployment. Outsourcing helps the company in freeing existing resources so that the company can concentrate on core competencies. Even today, cost reduction still tops many priority lists, but the ideas of "strategic value" and "total cost of ownership (TCO)" have also grown to rival it.

Advantage India

Several Indian companies, many of them start-ups, are involved in the development of cutting edge technologies and are well on their way to become global information technology leaders. The success has, however, been witnessed only by those small and mid-sized companies who are sticking to a ‘niche.’ The focus for such players should be on timely delivery of quality products and services. The stress can also be on the customised services and the inherent strength in the core technology of a particular field.

Looking at the Indian outsourcing success so far, various reasons can be attributed to this success. These are

1) Distinct cost advantage.

2) The availability of a large pool of highly skilled and motivated English speaking professionals.

3) Adherence to quality processes.

4) Time advantage including 24/7 concept and being ahead of the US and European time zones.

The skills available in India are not restricted to just software coders, but go beyond that. The ability to bring in world class expertise/skills in finance, engineering, processes etc. clubbed with a large intelligent resource base explain why the Indian companies are moving ahead of most of the countries in this field.

Companies with edge

Given today’s scenario, the mid-sized BPO companies are at present uniquely positioned in the Indian outsourcing market. They are in a position to deliver what customers demand to the last detail with the resource of high-grade professionals – both engineering and software, working with them. The infrastructure is state-of-the-art and a reasonable size, of the kind that will infuse confidence to a prospective customer to outsource some functions. The mid-sized companies also have the flexibility of a small BPO that allows them to make minor amendments with the shift in the business focus of the clients, as most of the contracts signed do have room for changes and are not watertight. This gives them some advantage over the companies that have standard corporate guidance across all customers as can be expected in most large companies.

Another key point that cannot be overlooked while discussing the growing BPO market opportunity for the mid-sized companies is globally it’s the mid-tier companies that are increasingly looking at outsourcing. Big consulting firms are largely focused on the biggest firms.

Deliver the promise?

Today, the issue is not whether the company needs outsourcing but on how to leverage the outsourcing advantage and maximising the benefits therein. In the last few years, customers have become more and more demanding. They are asking for more flexible contracts, performance penalties, and performance audits.

There are a couple of key areas that need to be kept in mind by both sides, especially by the small and mid-sized outsourcing organisations.

First, it is important to outline the business requirements and deliverables by the customer. Constant monitoring of these deliverables is important. The biggest disappointment is often the perceived cost savings. Most corporate expect that costs would go down by 40-50 per cent, which rarely happens. The variable costs of resources often goes down over a period of time and since this is not reflected in the contract, the buyer often ends up feeling cheated. An issue like key projects being subcontracted by the vendor is also a point of contention.

The second point that needs to be kept in mind is that some organisation’s business objectives keep changing and it is difficult to factor these at the time of signing the contract. Building flexible amendments into the contract is perhaps the most logical solution. For an outsourcing project to be successful, it is important that performance is evaluated regularly and timelines adhered to.

Bright future

The number of outsourced business functions has grown at a rapid rate. Companies now demand outsourcing firms be held responsible for the outcome of the project given to them. This means enforcing performance and value linked pricing contracts with flexible negotiation points. More and more mid-sized companies, especially in the US getting into outsourcing and looking out for suitable partners who are not too large for them. This means that the future of outsourcing is promising for the medium-sized Indian companies who can take advantage of this trend due to their capabilities and flexibility to match the client’s needs.