For budget-constrained IT directors,outsourcingsoftware development projects to India has been regarded as
a good way to save time and money.
Cost, however, should not be the only driver. "Most miss out on
the benefits of outsourcing because they view it as an opportunity
to cut costs in the short term, rather than as a long-term
strategic move to improve productivity," says Jon Fuller, director
at independent consultancy
Centrix.
In Fuller's experience, "Such a narrow view has led to
operational problems and threatened the viability of the company
outsourcing.
"Today's decision-making behind outsourcing has to look at
labour arbitrage, competitive advantage, increased service quality
and speed of set-up."
So how do leading chief information officers and IT directors go
about outsourcing to India?
Priority on new projects
Frederic Verger, group CIO of construction materials supplier
Saint-Gobain's says, "We particularly consider outsourcing for
well-defined projects, and avoid it for projects that require
iterative finalisation. In terms of project life-cycle, we place
the priority for outsourcing with new projects."
In Verger's experience it is more difficult to introduce
offshoring at the end of a project when maintenance is an issue,
than at the beginning of a project when there is less debate on the
impact on internal resources.
"In terms of domains, we consider outsourcing in India both for
application developments, tests or upgrades (mainly
SAP and
Java/J2EE developments) and infrastructure services (security
operational centre, remote infrastructure management, etc)," says
Verger.
There are two options: direct offshoring, where the business
works directly with an Indian provider, or indirect offshoring,
where the IT director has to deal with a European service provider
who provides services partly from offshore.
"We prefer direct offshoring to indirect offshoring, when
possible, for competitive reasons," says Verger.
How about making a selection among the growing number of
services companies offering offshore work?
Define preferred suppliers
Saint-Gobain chose to define a panel of preferred Indian
suppliers rather than having a single provider. The reason for this
approach was that in India, as in Europe, no single supplier is
perfect for delivering any type of service at any moment at the
best price.
"So, one of the criteria for setting up our shortlist is to
select providers who accept competition within the panel of
providers we have selected," says Verger.
Another criterion is that the suppliers he invites need to have
one recognised domain of excellence. "Our panel currently comprises
Cognizant,
HCL, MindTree, Satyam, and Wipro," says Verger.
When UK insurance and pensions company
Friends Provident de-mutualised in 2001, its IT manager for
resourcing, Chris Green, realised changes needed to be made to
applications, and that he would experience demand for new
projects.
Keeping up with demand
"The demand for IT resource is always greater than can be met
from in-house teams - it runs between 55% to 60% in-house. No one
has been made redundant because of our offshoring," says Green.
The company decided the best way to meet demand would be to
outsource to
Wipro.
"We selected to work with Wipro for various reasons - the cost
per resource being an obvious part of the equation. But culture and
style played key parts in the decision too we have a partnership
with Wipro rather than it just being a supplier.
Friends Provident conducts quarterly reviews and team visits to
and from India. "Over the past five years the key delivery has been
that our relationship allows flexing up and down of offshore
resource," says Green.
Friends Provident now has up to 100 Wipro staff engaged and a
further pool of up to 30 to call on.
"We operate with a mix of Wipro being reactive and proactive,
and are currently working on developing the next stage of our
relationship," says Green.
Improved service, less resources
Until recently
Burger King had never outsourced. But Burger King's CIO and
senior vice-president Raj Rawal needed to improve services with
less resources. The staff were worried. Would their jobs all
disappear?
"No one has lost their job. Looking at projects, I had the usual
consultancies in to pitch, with typical costs of £75, £85, £125 per
hour for programmers, analysts, project managers respectively. This
is not a longer-term path to follow to become profitable. I had
experience of outsourcing and invited companies to tender," says
Rawal.
MindTree won the deal, at a cost of "less than £25 per hour", a
price that Wipro indicates is typical for India today. But for how
long?
These examples show the benefit of offshoring. Experts are
seeing increased demand among CIOs to consider alternatives to
European outsourcing firms. Phil Morris, chief executive of
sourcing advisory firm Morgan Chambers, says, "In new contracts the
market has learnt the benefit of niche players to add specific
value.
Adding value
"In renewals the old 'monolithic empires' of single supply are
being dismantled in favour of value-add from a range of smaller
organisations. The advantages far exceed the increased governance
cost and complexity."
As with any contract, governance is key. "Governance has long
been ignored, under-invested in, or dismissed as 'fluffy'. The
skills and disciplines around good governance are now being
recognised as the key to sustainable relationships and the benefit
they bring," says Morris.
He believes governance should be viewed as a key step in the
maturity of both the discipline of sourcing and the way in which
businesses manage important service relationships.