Insourcing

Insourcing is an industry practice in which work that would otherwise have been contracted out is executed in house.

Insourcing time and again involves bringing in experts to fill temporary needs or training existing personnel to perform tasks that would otherwise have been outsourced. An example is the use of in-house engineers to write technical documents (Technical requirement documents) for applications they have designed, rather than outsourcing the task to an outside technical writing company. In this example, the in house employees might have to take technical writing courses to complete the job effectively. Other challenges of insourcing encompass the possible procurement of additional hardware or software that is scalable enough to provide an acceptable return on investment (ROI).

Insourcing can be viewed as an opposite of outsourcing. For example, a manufacturing company based in U.S.A. might start its own software development department to cater to the needs of its manufacturing plant. This is what insourcing is where jobs which might have been shifted to other country had the manufacturing company decided to get the software developed by a company based outside USA.

Are corporations considering ditching Bangalore for Boston?

A survey has found a small but increasing number of examples of businesses bringing home the information technology work they had outsourced to third-party vendors in the years bygone. However this number is small, but the trend cannot be ignored.

Some questions need to be answered before taking a vital decision to insource the task in house.

1. What are my Objectives?

A good practice is to start is to ask yourself what you intend to achieve by insourcing, Cost savings? Better service? Faster innovation? Once you’ve recognized your goals, assess your existing costs, service, quality, process efficiency, and personnel requirements against competitive market standards. Keep questioning your assumptions to make sure they’re realistic.

2. Can my in-house IT team support my future needs?

Whatever the sourcing strategy, you have to consider future requirements. Develop a future state vision statement that replicates your economic and business assumptions in order to consider what sourcing strategy will return the most benefits long-term.

3. How long will insourcing take?

There are various aspects that are unique to each sourcing agreement. At a macro level, the complexity of an insourcing project must consider in what tasks were outsourced and what percentage of the staff is still local to the client. How long it will take to see a return on insourcing is an even greyer area. Some deals reach a positive ROI from insourcing in less than 10 months, and some take ten years “There are no simple rules. It purely depends on the complexity of the project.

4. Do I have business buyer?

Nothing will destroy an insourcing project faster than aunenthusiastic reception from business leaders, Get key stakeholders involved in the discussion early. And make sure to evaluate what impact insourcing will have on major projects that are underway in order to address business users’ apprehensions.

However, Insourcing offers a brilliant opportunity to strengthen existing business with his choice of skilled resources with as much degree of management and involvement as he sees fit. It also brings in the complexities associated with it which otherwise would have been outsourced.

The ‘Do’ List for a Successful Outsourcing Deal

The ‘Do’ List for a  Successful Outsourcing Deal

Under pressure companies are looking for new targets to reduce costs, everything from legal and HR services to business processes and R&D are headed the way of the contact center-overseas. The famous saying that “Aiming after the shot usually means missing the goal altogether” holds true for any outsourcing deal. But failing to define the goal has equally devastating effects.

Defining a Good Outsourcing Deal Overall

While end-objectives differ from organization to organization and from contract to contract, there are some general procedures to follow to ensure you are achieving best advantage in outsourcing negotiations. These are the critical areas to look for:

   No Minimum obligation

Companies should not enter into offshore contracts that contain minimum volume or returns commitments. These deals are mostly labor-based and therefore no minimum commitment is necessary or apt. Companies should, however, negotiate a discount plan that influence volume discounts for increased utilization and use.

  Cessation for Convenience

This best way is important because it allows a company to terminate an offshoring agreement before the end of the agreement for any reason and without having to pay a significant termination fee. This gets rid of potential fight over the justification for terminating the contract, whether they are related to performance, cultural issues, distance or other areas that just may not be appropriate. Even if the terms of the contract are technically satisfied, e.g., compliance with service levels, a company may still not be happy with other aspects of the deal and want a way out. Of course vendors will push back on this, claiming that they need to be compensated for stranded costs,

  Length & Flexibility of contract

Assuming there is a good termination of convenience clause, a good contract will consist of an initial term of two to three years with two to four succeeding one-year extension options that the customer can exercise at his own discretion. In addition, all terms of the deal, including price remain the same.

   Currency Options

Considering the various currency implication, including hedging, banding, and reviewing average exchange rates, companies shouldn’t mechanically proceed with a decision to pay for their deal in dollars. While offshore vendors will gladly walk their customers into that option as it usually favours the outsourcer’s financial interest, companies should take a close look at which currency payment structure option makes the most financial sense for its particular risk profile, fiscal approach, and treasury policy. A good deal will safeguard the integrity of the deal and take into account the international implications of payment

  Key Resources

Companies should make sure that as many resources (from the vendor) as reasonably fall into the category chosen as “Key Personnel.” Companies’ rights with respect to Key Personnel include provisions that allow them to interview vendor resources for their projects, cite displeasure with performance and terminate resources if necessary, limit the vendor to replace those resources at their own discretion.

  Intellectual Property Rights

A best practice for protecting intellectual property, such as when software is being developed, is to build in clear provisions imposing the company’s ownership of the software, averting the outsourcer from using the software again for other purposes, or selling it to competitors. The proper disclaimers and provisions, which differ from country to country, should be included.

    SLAs

A good contract has service level agreements (SLAs) that link directly to the outsourcer’s performance levels and moreover are decisive on those areas that create positive business impact for the company. Meaningful SLAs are firmly tied to business outcomes.

      Benchmarking

Staying cut-throat with the market is important and should be done each year to ensure fair and practical pricing. This practice keeps the outsourced vendor on the same page with the market. If the two parties are at opposite ends of the spectrum, then a third-party may come in and pick one or the other’s proposal-forcing both sides to implement integrity as they realize that the other party’s estimate may be chosen.

      Productivity enhancements

This item is particularly critical in offshore activities because they are more labour-based, with the true value provided by the outsourcer being one of improved technology, process and methodology. The customer should bargain for annual, minimum cost decreases that will require the outsourcer to drive productivity in order to preserve its margins.

In other words, to bag the best deal: Pick a target, choose an ideal weapon, locate the sights, steady your aim,but don’t rush the shot. In this economy, one shot may be all you’ve got.

 

 

Mitigating Risks in Outsourcing

The high level paybacks of outsourcing IT services are often well-known within the IT industry. Even so, many clients do not fully understand “why” and “how” an outsourcing agreement can provide these potential benefits. Those who do understand the benefits may not understand the risks that must be managed in order to realize those benefits. Understanding theprobable risks will allow you to make a better informed sourcing decision.Even though the benefits of outsourcing are fairly well-known, it is worth summarizing them for reference.

Reduced Cost

Companies that provide IT outsourcing services function in a highly competitive marketplace. This market pressure, coupled with the scale of capabilities, abundance of lower-cost (but highly skilled) labor and investments in productivity tools and processes, means a provider can more than likely deliver services at a much lower price than you can do on your own. Additionally, you will improve your ability to achieve year-over year savings, as annual reductions are often documented in an outsourcing agreement.

 Improved Quality

Outsourcing vendors are motivated to improve the quality of your operations. Outsourcing providers have invested billions of dollars to build the tools and processes they use to deliver IT services to clients, and they use these investments to differentiate their ability to provide high quality services at comparatively lower costs. The cost models typically used by providers will assume some annual reduction in resources (and therefore costs) based on the quality improvements they assume they can make. Moreover, a market-based outsourcing contract will drive adherence to well-defined service levels, some of which are expected to improve over time. As the famous saying goes,“what gets measured gets managed.”

Ability to Redeploy Resources

Gradually this is becoming one of the more important factors influencing sourcing decisions. The challenge many IT departments face is how to free up some of their most knowledgeable people to workon initiatives that will truly add value to the business. Some of these people become

“superstars” over time, and are continually pulled into operational issues which reduce their ability to drive strategic change. Without a significant event like a new outsourcing agreement, it can be hard to overcome the organizational inactivity that keeps these people locked into their current role. As quality improvements are made and the provider becomes skilled at addressing operational issues, these people can be redeployed into higher value planning, engineering or development work, and you get the added benefit that they are still in the organization “just in case” their skills are needed.

 Improved Delivery Capability

Procuring managed services from an outsourcing provider, if done well and if structured by a market-based agreement, encourages a higher level of performance related to services, service levels, innovation and process maturity. Creating and negotiating an outsourcing contract requires you to spend time articulating the specific services to be performed and how those services will be measured. Integrating your processes with those of another company requires a higher level of process discipline

Risks

The probable risks of outsourcing are not nearly as well-understood as the potential benefits. An important observation is that many times clients develop risk mitigation strategies that are almost solely based on technical risk. Understandably, there are concerns and issues that need to be worked through in every outsourcing relationship. Issues such as connectivity, knowledge transfer, dearth of certain skills, migrating environments, etc… are important and need to be addressed.

Absence of Communication

The importance of a detailed and managed communications plan cannot be over-emphasized. This is about ensuring your retained employees, your non-retained employees, your employees who are transferring to the provider, your executives, your stakeholders, your leadership team and yes even your potential new provider are being told what they need to know when they need to know it. Without a structured communications plan and process that explains what is happening and why, there will be voids that will be filled with misinformation and a reluctance to change. This can lead to unplanned employee turnover, missed transition plans, and a lack of understanding and buy-in from the consumers of IT services. Actively pursue ways to keep your provider informed (even during the contract negotiation phase), not just from a transition perspective but also to keep them fully apprised of the activities and objectives of the business. This will allow them to better understand your requirements and to deliver the best solution possible.

Your lack of ability to Change Behavior

The IT leadership team in place today quite probably became successful through their ability to manage specific technology and people. However, a significantly different set of skills is required to successfully manage an outsourcing relationship. Leaders must learn to handle expectations and outcomes and let the outsourcing provider manage how that work gets done. This is done by managing relationships, governance processes, status reporting, issue tracking, prioritizing, service level management, and process discipline. Unfortunately it can be difficult for some people to move from one paradigm to another. If these types of leaders cannot change but remain in a position to direct the provider, they become a source of friction in the relationship and can keep you from receiving the maximum value from your outsourcing provider. Make sure your leaders have the right skills to manage an outsourcing relationship, or substitute them with ones who do.

Loss of Business Knowledge

It was somewhat normal for companies to outsource practically all of their services to a provider, often time only leaving a CIO and a couple of executives in place to manage the relationship. Unfortunately, companies understood that they had outsourced too much, and by doing so had lost much of their “tribal knowledge” so they struggled to stay aligned to the business. The good news is that arrangement is rarely used anymore, and companies now realize they must retain a  sufficient level of strategic resources to manage the outsourcing relationship, manage the relationships with the business, maintain overall accountability for delivery, and to set overall direction and priorities. Also, as you develop your transition plans you must address how knowledge will be transferred to the provider. In some cases it is primarily done through the transfer of certain subject matter experts to the provider, while in many cases it is really dependent on the system documentation and training sessions used to share knowledge with the provider. As you develop transition plans and design your retained organization, ensure that you fully comprehend the need to build and retain key business knowledge.

Unclear Expectations

There are hardly ever cases where an outsourcing provider does not and cannot provide the services they committed to in the outsourcing contract. However, there is always a minor risk that something was not thoroughly understood and documented during the negotiation phase, and that for some reason cannot be effectively supported in the new agreement. What can you do? As they say, the best form of defence is a good offense, and there are several means you can design into the outsourcing contract to protect yourself in these cases. For example, make sure to require a assurance to follow a defined set of industry standards (e.g., ITIL, CMMi) so that services are more easily transferrable to other providers if required. Make sure the agreement is flexible enough to allow for some change in scope without cessation penalties. Define a strong, market-based service level contract that defines remedies and penalties, and define and put into practice a governance process that ensures delivery and relationship issues are quickly escalated to the right executive levels for resolution. From a vendor management perspective, you may also want to consider a multi-vendor strategy that maintains some competitive tension while also providing you with a “hot backup” provider in the event that certain services are not being delivered as expected.

  Business Case not achieved

At the end of the day, the goal of an outsourcing relationship is to achieve the defined sourcing objectives while meeting the business case upon which the decision was made. Oftentimes, the focus after agreement is signed is only on the technical portion of the transition of services, and it becomes almost impossible as the months go by to track performance back to the business case. Even when the business case is tracked and managed, it is found that the original business case was inaccurate or inadequate, and therefore the actual costs are higher than expected while the corresponding overall savings are less than expected. The best way to mitigate this situation is to ensure the business case is thorough, comprehends all expected investments, savings, and new charges, and is developed with a level of detail that can survive inspection from the CFO and board.

It should include assumed ramp up of services, ramp down of retained organization expenses, one-time costs for transition, legal fees, advisory fees and the like, retaining of certain resources, appropriate contingencies, expected changes due to growth and scope changes, COLA impacts, and so on. The business case should be updated periodically and reported against the baseline business case to identify any significant variances.

Conclusion

While benefits of outsourcing IT services are fairly well-known, many clients do not fully understand the risks that must be managed in order to achieve these benefits. Prior to finalizing a decision to outsource, make sure to think about how you will communicate with key stakeholders, change the behaviors of your leadership team to manage an outsourcing relationship, retain the required level of business knowledge, clarify and thoroughly document expectations, and develop and manage a solid business case. By doing so, you will make a improved informed sourcing decision and will be better prepared to understand the benefits that an outsourcing relationship can offer.

 

Best practice in an Outsourcing contract for buyer protection in provider’s M&A

As the outsourcing vendor landscape continues to shift through mergers and acquisitions, how can buyers build their contracts to protect what they envisage in the relationship despite a change in provider ownership?

On one level, the service description in the contract or SOW or in a procedures manual documents the agreed approach. If there’s something that’s meaningful, the contract needs to call that out. There needs to be enough firmness and clarity in the contract requirements so that the acquiring provider can’t suggest it doesn’t have those obligations.

On another level, there should be a change-of-control provision in the contract and language that requires notice and consent or some other mechanism that enables the customer to maintain control over who will be performing their outsourced functions.

This is an area where people often think: A non-assignment provision or some other provision needs to be put to remove the ability to assign the contract. People don’t always think through what that really means. Unless it’s a major part of the deal, someone needs to be aware of the fact that even if a customer rejects an assignment, it won’t really stop the transaction from occurring. So the customer needs to think through how it will handle the outsourcing contract, assuming the acquisition occurs. Some issues to think through include:

• What are the intellectual property challenges?
• How quickly can the customer move to another provider, and what will it need in the meantime? If the scope of work is for sophisticated services, what will happen if the customer has to pull off a separation on a timetable it doesn’t like?
• What if the people working with the original vendor leave? How does that impact knowledge retention? And does the customer have agreement provisions relating to review of new personnel?

The positives of outsourcing can be the negatives in that, if the customer does it effectively and to a great extent of achievement, it no longer has internal resources to bring the work back in house. The people also are not available to ask them for advice on how to fashion the organization to deal with the new impact. A best practice is to make sure the relationship is a win-win arrangement. Although that term gets over-used; but in situations where the provider benefits, the buyer is not in as big a performance risk.

The performance assurances are the performance commitments, regardless of whether there’s been an acquisition or who’s actually performing the services. Many buyers include a cessation provision in the agreement so that, if there’s a change of management with regard to the service provider (whether it’s an acquisition or a merger), it gives the customer an chance to say: “Wait a minute, that’s not what we agreed upon. This is not who we desire to deal with.” Customers should make sure they have adequate flexibility in the contract to allow themselves to get out of that type of situation or at least enough control to make sure their work is getting done as expected or agreed upon

 

Providers are cautious about signing an agreement, they don’t want to be in a position where the customer has enough rights to potentially hold up a merger or acquisition because the provider can’t assign the contract or the acquirer doesn’t want to assume the risk of a major customer exercising their termination right.

Whether the customer has to pay a termination fee to exercise its exit rights in the event of a change of control is often the subject of a fair amount of negotiation. If I’m the customer, I might take the stand that there should be no cessation fee for a change of control-triggered termination because the provider, by choosing to sell itself to or be acquired by a company I may not want to do deal with, in effect put me in a spot where I feel forced to end contract

As an aside, this is also an example of where, in some instances, it helps to have a shorter contract term. It’s one thing for the customer to have to deal with their provider merging or being acquired for only another year or so before the contract comes up for renewal. But it’s an entirely different situation when the customer is facing the longer portion of a five year contract before they can move the business to another provider. 

 The up-front homework in this case is: what’s really happening to the data; where is it going; if we need it back how do we get it; and if there’s an analysis, who else can get it? Buyers need to do their homework and ask questions in advance. Just because the contract is simple doesn’t mean that it works the correct way for the buyer’s needs. Like many things in the legal area, it may become evident only after there are problems because people were not aware that their data would be available (or not available) in certain situation.

 

Negotiating an Outsourcing Contract

Negotiating an outsourcing contract involves much more than just achieving the pricing you desire.  As you go through the process, you will go through the normal “give and take” discussions as you work with your potential provider(s). However, it is important that you do not focus solely on pricing. While reducing cost is typically the primary value proposition for outsourcing, you also want an outsourcing contract that allows you to realize your immediate and long-term objective, and value for money.  To meet those objectives, pay careful attention to the five aspects noted below.  These areas of the contract, if not carefully organized, can bring down value of your business and decrease the prospect of having a successful and sustainable outsourcing contract.

1) Statement of Work – A Statement of Work (SOW), describes in great detail the services to be performed by the provider and also clarifies certain client responsibilities.  A few wrong check-marks in the responsibility column or a one or two of missing tasks can expressively change the extent of service the provider is to deliver and will result in misaligned expectations from the start of the contract

2) Service Levels – Service levels work in unification with the SOW to scope the services that the provider will deliver.  They describe HOW MUCH and TO WHAT EXTENT the services described in the SOW are delivered.  It is important that the service levels reveal what you need even as you are discussing price.  Importantly, you should understand that the costs go up exponentially as you get closer to a 100% performance target. Additionally, there are important service level terms that should be included to allow the freedom to modify and tweak service levels and to re-allocate service level credits as your business needs change.

3) Termination Language – It can be hard to focus on termination language and termination charges at the beginning of an outsourcing relationship. Termination language is equivalent to a prenuptial contract – it is there “just in case” things do not work out as originally intended.   As the final negotiations occur, you may be tempted to give a bit on the termination language in order to get to the price point you want.  Depending on your starting point, some “give” might be acceptable but you first need to understand the ramifications if you need or want to get out of the contract (or pieces of the contract) in the future.  Once the contract is signed, it can be especially difficult and costly to get out of it if the termination language is favorable to the provider.

4) Future Pricing – There are a number of factors to consider regarding future pricing.  On the whole, you should expect your IT costs to go down over time due to improvements in hardware and software functionality and pricing, labor arbitrage, automation, and so forth.  Because each situation is different, there are no easy “rules of thumb” to apply, but pay close attention to these specific areas:

Year-over-Year Pricing – You should expect the unit pricing for most towers (possibly excluding applications due to its labor-centric nature) to go down each year, with the provider accepting the risk of continuously improving and streamlining its operations to achieve lower price points each year.

5) Delivery Locations – In return for hitting your price point, a provider may want to include the freedom to deliver from whatever location they see fit.  There are many risks associated with movement of work from one team to another, much less from one country to another.  Because of the potential impact to your business, you want to make certain that you have some sort of approval authority prior to the movement of support functions.  The provider may counter that they are accepting the risk because they are signing up for service levels.  However, the potential business impact to you is much greater than their risk of incurring service level credits for missing a couple of metrics.

 

In summary, these five potential areas need to be managed closely through the negotiation process.  Due to the variations and complexity inherent in each deal you should strongly consider the use of an outside outsourcing advisor to help.  Because they understand your perspective as well as the providers’ point of view, they are ideally positioned to help manage through these items (as well as the many other items that will arise) and develop an outsourcing contract that works well for both you and the provider.

Why Outsourcing Fails

One of the critical issues that keep onchasingbuyers and providers of outsourcing is how to ease the risk of failure. Outsourcing is much more complex today—an increasing number of companies are uncovering three key reasons to outsource:

The skills or projects that are outsourced cannot be executed in-house for a many reasons, including cost, the deficiency of appropriate talent/expertise and time factors. The outsourced job requires quality procedures that cannot be achieved in-house, it also requires more management overhead.

Outsourcing will fail big time if the purpose for which it is done are not well thought off. But despite having the right reasons, outsourcing fails due to a number of vital factors. Let us analyze some of the reasons why an outsourcing engagement fails

No strategic purpose. There must be a clear objective for outsourcing. While cost reduction is a valid goal, it should not be the only one. Saving definitely affects the bottom line of the company,but it should not be the key reason. When cost saving becomes the key objective, the outsourcer is often driven to select the cheapest provider regardless of capability or resource sand often end up in compromising the quality and more importantly the objective behind which the job is outsourcedhence  only when strategic objectives are satisfied that outsourcing finds success.

Blurred requirements/expectations.  When a company outsources, for e.g. code development, it must be clear about the process, technology, talent, SLAs, timelines, testing, outcomes, ownership, IP etc. For example, once a programming requirement is frozen, the outsourcer should be very clearbecause if he he not clear then the development team will work on unclear requirements and might result in a product which is totally different from the requirement specified.

Poor transition. Requirements and processes are often moved thousands of miles away from where they were originated. Bridging the distance means the transition process should be rugged and accurate. Agreeing on the terminology, identifying the processes and capturing the metrics make the difference. The role of quality in transitioning cannot be underestimated. However, tools to manage transition (for all types of outsourcing needs, not just IT) are becoming better as outsourcing grows. Ensure that your provider uses updated tools and quality standards that are suited for your industry.

Rapidly changing needs of the buyer. When the buyer’s needs change, the provider is sometimes unable to change as quickly. A provider who is not nimble and flexible and does not understand your business environment can lead to failure.

Poor communication. It is extremely difficult to control teams that are spread out. But it is even more difficult to keep tabs on a team that is not under your direct supervision and is located perhaps miles away and follows completely different works culture, standards, etc. from your own. Communicating crisply and clearly and sharing all business-related data is essential to keep the relationship in good state and thereby improve the outcomes of outsourcing. Buyers often feel that “communication” is a task for the provider. The provider often follows a mandated reporting schedule—which could be a weekly presentation of performance metrics or reviews of development and views this as “adequate communication.” When this happens, misalignment and failures are expected

People factors. The provider often has difficulty in sourcing and retaining talent. This means that either the provider will not have the team required to deliver the task or the constant churn will create teams that have no sense of loyalty or purpose. Such teams will not serve the purpose.

By no means is the above list of reasons complete, but paying attention to these is a vital starting point. Preventing failure depends on sensitive / proactive team managers who are both competent and determined to find business success in outsourcing. The principal reason for outsourcing failure is the lack of will in top management.

Outsourcing Myths!!

 

Myth 1: IT Outsourcing impedes productivity

There is a crucial opinion that when a consumer choose for IT Outsourcing, the overall efficiency of the matter might go down just because of various restrictions in terms of culture, length, communication and time that exist.

Reality 1: Productivity is enhanced when IT Outsourcing is opted for

Exceptional language and communication capabilities and superior information possessed by the employees of IT Outsourcing organizations make sure that the efficiency sees a rise in spite of time and cultural obstacles. Also, most companies providing IT Outsourcing function take in to account the client’s time zone thus guaranteeing uninterrupted service. In most cases, an onsite venture supervisor is appointed by the IT Outsourcing seller to carry out coordination with the onsite consumer administrators and offshore staff customers.

Myth 2: Global Companies choose for IT Outsourcing to lower expenses

The expenses of an organization see a significant reduction when off shoring of IT activities are completed. This is the only reason for consumers to opt for IT Outsourcing.

Reality 2: Simplifying the way IT activities are carried out

Usually, clients look for specialized experts to produce a technical piece or software after the specifications is freezed. Recruiting in house staff and training them is time-consuming and needs specialized interest that the organization people cannot spare. Also getting the right people for the right job is difficult and is quite a headache. So, the consumers outsource this kind of growth pursuits to the companies who give their ideas a credible and possible solution in form of computer application/software

Myth 3: It is about cheap labor

More often than not, organizations associate the expression ‘cheap labor’ to IT Outsourcing.

Truth 3: It is about High quality, innovative and skilled labor

The primary aim of IT Outsourcing is to reveal a modestly priced provider, who specializes in offering high quality output, has predefined methodologies and exhibits innovation in the subject of IT. Inexpensive labor is just a benefit, not the only deciding factor.

Myth four: IT Outsourcing can be accomplished with every little thing

This is genuinely not possible. Even so, some worldwide customers and software companies try to make it happen.

Reality 4: Study, Analyze, Choose on IT Outsourcing regions

The organization needs understand business requirements to realize consumer needs extensively and complete feasibility study. The company needs to check if it is strategically ready to outsource and whether outsourcing will meet its business requirements and help the business grow without affecting the bottom line of the company.

Myth 5: Task cuts, work cuts, Job cuts!

IT Outsourcing is viewed as the primary offender at the rear of numerous jobless natives. However there are many surveys, reports and researches show that it is not so.

Reality 5: Financial expansion

It is about gaining greatest output, with bare minimum input for the country’s economic system when IT Outsourcing is carried out. Consequently a constant economical progress is seen top to much more work opportunities for the natives

 

 

Outsourcing Destinations

 

The global economy is going through severe instability from the past few decades. In addition, due to the global economic crisis, many under pressure companies are forced to consider low-cost alternatives to survive. Globalization, high competition, and a challenging economic environment are forcing companies to re-examine their business models and strategy to improve performance. All these factors have led to the introduction of outsourcing and spreading worldwide. Specifically, in Information Technology industry, the term “outsourcing” has become a buzzword in the global IT business world. Entrepreneurs think that companies can reduce the cost significantly, stay at the forefront of competition, and augment profits by Information Technology outsourcing

India has always been the hot destination for outsourcing, but off late it has been facing tough competition from other emerging destinations like Philippines, China, Mexico, Ireland and Canada.

Following table shows the comparative analysis of these countries based on different factors.

Factors	India	Philippines	China	Russia	Canada	Ireland
Government Support	High	Medium	Low	Low	Medium	High
Skilled labour	High	Medium	Low	Low	Medium	Low
Infrastructure	Medium	High	Medium	Low	High	Low
Education System	High	Medium	High	High	High	High
Cost Advantage	High	High	High	High	Low	Low
Quality	High	Medium	Low	Low	High	High
Cultural Compatibility	Medium	Low	Low	Low	High	High
English Proficiency	High	Medium	Low	Low	High	High

Survey Conducted by Forbes Nov 2012

Every destination has its own advantages and disadvantages. Companies choose the location based on their need outsourcing strategy and suitability considering these advantages and disadvantages in mind.

China:

Advantages:

• Low manpower costs. Labour is available at much lower cost than in India
• Extremely low cost real estate and power this can be very attracting to MNC which are looking to cut cost due to economic instability
• Substantial increase in English speaking population. Government also taking proactive steps to improve the skill sets.
• High Telecom density and PC penetration higher than in India

Disadvantages:

• Lack of Quality china has a image worldwide of producing cheap low quality goods ,that image of theirs is having an impact on the outsourcing services
• Even though china is taking steps to improve its English speaking proficiency , it is still very less as compared to India
• Also the business processes in China are quite immature as compared to other countries like India

Philippines:

Advantages:

• Well developed IT skill set 2^nd only to India, Many Indian companies have also setup their offshore center in Philippines
• High English speaking population. Probably the reason many MNCs are setting up their offshore BPO centers
• Low labor cost
• Infrastructure and telecom are seeing an improving trend over the past decade

Disadvantage

• Low on quality, probably the biggest disadvantage it has over India and the reason why some top companies hesitate to outsource the work to Philippines
• Low graduate turnout, this  also has its impact on the quality of the work, also the education system is not as robust as in India
• Political instability is also the reason why Philippines in lagging behind India.
• Companies don’t prefer to invest n a country where the political scenario is unstable as it may result in to frequent elections and frequent policy changes

Ireland:

Advantages:

• High English speaking population
• It has a advantage of location. Ireland holds the edge on time difference factor
• Better infrastructure as compared to other Asian countries
• Its culture is quite similar to that of the western countries hence cultural compatibility is much higher

Disadvantages:

• The labor cost is much higher than the Asian countries
• Also the availability of the labour is a matter of concern

With the economy sailing in the winds of fears and qualms, challenges are thrown on all major industries including the rapidly growing outsourcing industry. To be equipped for the upcoming challenges of 2013 is definitely a pressing business need for both the outsourcers and the service providers.

Top Challenges For CIOs in 2013

Many  services such as mobility, BYOD and big data, to name a few, are influencing enterprise technology in today’s global market. For CIOs too, life in 2013 is going to get very exciting. Indian CIOs across industries are stimulating up for the IT challenges they anticipate to face in 2013. But to ensure spurt with the ongoing developments, a clear knowledge of what lies ahead is very important.

We will keep it simple. Here’s what you will need in order to sail through 2013:

 

1. Increased Security

As the world quickly transforms from mobile to cloud-based IT services, security-related encounters will rise simultaneously. This fundamentally means that mobile as well as cloud platforms will be athuge risk to handle this year.

Mismanaged use of mobile devices inside the corporate network has already been a huge headache. Analysts across the world have projected that the New Year will bear fruit for CIOs who will quickly lay down mobile strategies.

But as these mismanaged devices begin to pick up data over the cloud, CIOs will have to begin looking at the vital security cracks that will come their way. When technologies like mobility and cloud come together, fresher opportunities are generated. 2013’s biggest challenge will be information security for these newer opportunities, and looking for solution compatibility across platforms

2. A Dependable Vendor

With all that’s coming your way, a vital partnership with your most significant vendors should come in handy in such circumstances, self-induced vendor lock-ins can also turn up beneficial. At the moment, support for mobility is a big reason for concern. We are now looking at asking our vendor for an improved performance to help the situation. And our long-standing vendor relationship will make sure that  we will not be deprived of  this service. CIOs who have not been in continuous dialogue with their strategic service providers have many reasons to concern.

3. Face Budget Cuts

The average IT budget for Indian enterprises in 2012 was around INR 20 cr. But the unpleasant truth is that budget cuts are imminent, and they’re coming bad. A study says 30% of Indian CIOs have said that the economic slowdown is the top concern impacting their organizations in 2013. Many enterprises will see minor increase in their IT budgets, and therefore, it’s obvious that most CIOs will look at budget cuts again. Precisely when these cuts happen will, of course, hang on on the industry type and its performance through the entire year. But what will be common across all industries is that this time CIOs can’t get away with the customary budget cuts.

That means the stress to do more with less is back. However, CIOs are facing the challenge undeterred.it is believed that this will only encourage the growth of innovative strategies. Looking at the flat growth of IT investments, 2013 will be another year of budget cuts and reducing AMC costs.

4. Preparation to Outsource

According to the “State of the CIO Survey”, about 33 percent of Indian CIOs plan to outsource 50 percent or more of their IT services in 2013. Many CIOs who want to gain access to world-class technologies or services are outsourcing their internal resources to make way. The main challenge this year will be to establish a reliable, secure network in small towns to support their expansion plans.

However, not all CIOs are excited about outsourcing some are looking at some serious internal resource changes.  Few CIOs believe in scrapping outsourcing and hiring back IT employees at lesser payout to reduce costs.

5. Skilled Resources

For couple of years in a row, a survey states that inadequate internal skill sets has been one of the top challengesthat CIOs face. As per the survey, about 46 percent of Indian organizations are expecting their headcount to increase.

CIOs are always being pressured to perform well with lesser staff and the increase in demand is only for resources with profound technical expertise. Today, IT revenues are being analyzed more closely. And so, they strive to keep their key resources with them. Also, enterprises are strongly focusing on rapidly acquiring quality IT resources with knowledge and expertise, for both in-house as well as outsourced engagements.

 

BYOD

Bring Your Own Device (BYOD) Refers to employees taking their own personal device to work, whether laptop, smartphone or tablet, in order to interface to the corporate network.

Some important objectives why organizations promote BYOD.
1. Reduce Company’s Mobile Spending
This is a very common objective and there’s a robust relationship between the importance of this objective to the enterprise, and how the company handles things like involvement, stipends, and/or expense-back for its BYOD users. Companies with reduced mobility spending as their primary objective typically do not provide any stipends, or expense-back options for their BYOD users. Instead, they capitalize on user obsession for devices like the iPhone and the iPad and say, “If you want to use your personal iPhone for work, you can but the Company isn’t going to pay any of your costs if you do.” Survey data finds that company employees are willing to pay device and service plan costs if they can use their own devices and guess what, it works!
2. Satisfy User Demands for Device Choice
This is also a common objective that is sometimes, but not always, linked to the “reduce mobile spending” objective. In many cases, companies focused primarily on satisfying user demands for device choice will narrowly target their existing base of “company-owned” device users. Those users are demanding support for the iPhones, Android smartphones, and iPads that they already use in their personal lives and companies increasingly recognize that trying to equip these users with the “latest and greatest” out of their own IT budgets just doesn’t work very well.As a result, many of these companies have enabled formal BYOD programs, but often structure around a “manager approval” model to govern and limit program participation. This allows these companies to target their existing mobile user base and satisfy demands for device choice within that base, but not open up BYOD participation more broadly across the company.
3. Boost Overall Productivity and Worker Mobility
Companies whose principal objective is to boost efficiency and worker mobility are sometimes, but not always, also looking to reduce expenses. And they rarely seek to limit program participation. On the contrary, they recognize the inherent value in a more mobile, linked, and dynamic workforce and are often willing to increase mobility expenses to achieve that objective.
BYOD Challenges
There are two key challenges:
1. Data security of organization’s data:
Since the appliance is not owned by the organizations, there is restricted access or no access that an organization may have on device. What are the security element that employee is willing to implement and how much responsive of the security he or she is- is a major worry. To overcome this challenge, many technological and non-technological measures are being taken. One of them is ‘Sand Boxing’ or ‘Sand Box approach’. With this approach, there are mobile applications which can divide the mobile device in two different parts, virtually. One for private / personal use and other for office related use. Official data can be encrypted and is separate from personal data and application. Company data can be cleaned out without affecting private data. Some other mobile device management application like one built by Citrix- never host data on mobile device. These application work by creating separate secure corporate storeroom. Also, they will never impact the private data. So, there are solutions on hand which can achieve the requirement without affecting your private data and data on your mobile device. But, these are comparatively new products are not matured enough and are not so commonly used.
2. Employee’s responsiveness and resistance:
Employee should be verse with the technology and its functionality. He should be certain that he can use the device for his personal use without any disruption. If organization is asking employee to follow security policy like password policy and all, in order to protect the whole gadget, then resistance can come up from employee. Organizations can come up with other productive offers like- cost sharing of Internet bill, purchase assistance, etc, then BYOD can be endorsed to significant level.
Overall, the thought is very good, and solutions for the challenges are also on hand. Only thing that is required is user understanding and their belief in organization and the technology. BYOD is the lively trend and looking at its benefit, it must be accepted by all.