Making the decision to outsource either some or all of an internal IT function is a complex and involved procedure. It will often involve detailed research and analysis, a budget, HR review and a thorough understanding of bottom line impacts. But for all of this analytical soul searching, this is just a single question to answer: can IT outsourcing help to make the business more efficient whilst reducing cost?
IT outsourcing involves handing over responsibility for all or part of your IT function to an external IT service provider. This means that activities that would have previously been carried out internally are instead undertaken by the aforementioned provider, which provides the client with services of an agreed extent for an approved charge, fully in-line with a service-level agreement. This process may or may not result in a workforce downsizing as the need for existing IT support staff will depend on the scope of the projects to be outsourced. Many medium and large enterprises outsourcing specific IT responsibilities also maintain an in house IT team to provide other IT support services internally.
With every business seeking to become more streamlined with its overheads and maximise both productivity and efficiency, IT outsourcing is an increasingly attractive prospect. But, what are the potential benefits that it offers and how can your own firm make a case for it?

Weighing Up the Need for IT Outsourcing
Developing a business case for outsourcing any internal procedure requires a logical, detailed and impartial approach. The analysis for IT outsourcing should be led by the Board, and it is typically owned by the Finance Director.

General Outsourcing Considerations
Before even looking at the implications for IT management and IT support internally, the business case should factor in a few outsourcing basics:

- A three to seven year approach is used as standard when any aspect of a business is being considered for outsourcing
- A comparison of internal vs. external costs must be included and should reference both on going and expected adhoc costs
- A savings target as a result of outsourcing must be included. Typically, targets will be chosen from within a 10-30% threshold
- Any savings projections included in the report should be verified by the Finance team
- Internal costings should be based on current costs, not expected costs in 3 – 7 years time. Comparing current costs with costs from three years ago provides a realistic picture of annual increases throughout the life of the project

What are the business benefits of IT outsourcing?
Any business considering IT outsourcing will be familiar with at least some of the benefits it is said to offer – advantages such as massively reduced internal IT costs, access to the best vendors and simply being able to allocate IT responsibilities to trained experts capable of minimising company downtime are just a few of the most prevalent.
In practice, IT outsourcing can be said to minimise the amount of money a small, medium or large company needs to spend on its IT infrastructure. Savings are generated by eliminating the need for internal staff and resources.

Choosing to place responsibility for IT support, IT management and other IT functions with an experienced company gives certainty about IT spend and allows the peace of mind that comes from knowing that your IT is budgeted for and taken care of. Employees can concentrate on their core responsibilities and monetary resources better allocated to other areas.
A professional IT outsourcing company will offer a range of packages, allowing for complete flexibility and the freedom to work alongside an existing in-house team depending on precise requirements.

Popular IT service packages include consultancy services such as compliance checks, disaster recovery and network audits. The latter can be undertaken to establish IT outsourcing needs before a more extensive agreement for such services is agreed with the provider. This depth of knowledge is received from experts specialising in particular IT fields, giving best of breed information that may not be realistically achieved in -house.

Are there common misconceptions about IT outsourcing?
There are several common misconceptions about IT outsourcing. The most widely held belief is that the cost of such an activity is prohibitive, making it cheaper to employ a team than outsource to a secondary supplier. In reality, it is often more economical and more effective to outsource. Consider, for example, the amount of money needed for the recruitment, training, holidays and ongoing salary for one in-house IT person. To employ such a person over the course of the year, a salary of £40,000, holiday cover of £5,000, training costs of £3,000, sickness costs of £2,500, National Insurance of £5,000 and pension costs of £1000 are accrued. That is a huge £54,500 per annum for ONE member of staff. By investing in IT outsourcing from a professional supplier such as The Internet Group, there is 24 hours a day, 7 days a week, 365 days a year access to experienced support, highly skilled engineers and a fast response time. Although actual costs vary, an average saving of around £30,000 per year are achievable.

An average of 99% of incidents logged by The Internet Group outsourcing team are fixed remotely, using the correct technical tools, with effective incident management. This, combined with a First Contact Resolution time of 70%, has resulted in extremely high month-by-month scores for year satisfaction – demonstrating that in most cases, an external supplier can work more efficiently than internal teams.

Source:http://www.cisionwire.com/apple-jupp-ltd/r/making-a-case-for-it-outsourcing,e787449

Top outsourcing customers, including Amex spinoff Ameriprise and Capital One , are raising concerns over the increasing number of new engineering graduates employed by Indian and foreign tech firms in IT projects.

People familiar with the discussions said customers, especially in the banking and financial services sector, are worried that a high proportion of freshers may affect quality in what they call critical back-office functions.

Already, customers such as Capital One-the Virginia bank that outsources to some of the top tech firms based in India and overseas-are demanding more scrutiny on the ratio of freshers working on critical projects.

A person familiar with TCS’ engagement with Ameriprise said the outsourcing firm had to pay a penalty of around $2 million towards errors in updating a brokerage system at the financial firm last year. “TCS did not use ‘liability insurance’ to pay up this fine to avoid getting this documented and instead had to reduce cost of different contracts,” the person added.

For the over $100-billion US IT outsourcing market, these concerns are an early warning signal as rivals TCS, Infosys, IBM , HP and others push to maintain profitability by increasing the proportion of fresh graduates at lower salaries in locations such as India.

Customers such as Amex, Citibank and JPMorgan are demanding more with less, or the same IT budget, forcing firms to seek ways of sustaining their profit margins through the use of freshers at lower salaries.

Ameriprise spokespersons Benjamin Pratt and Stacy Housman did not responded to an email query sent by ET last week.

A questionnaire sent on May 12 to the TCS office was not answered till Wednesday. When contacted initially on May 12, the TCS spokes-man had said he would get back on the query in a day, but did not re-spond later.

A US-based analyst who consults customers on working with vendors such as TCS says, “We are aware of certain big players having to pay fines based on poor quality, and these are actual costs. It’s (the labour-based model) going to catch up with them.” Ameriprise and Amex together are one of the top customers for out-sourcing and offshoring globally.

TCS, Infosys and Cognizant derive nearly $100 million every year from these two customers. For long, outsourcing firms have been perfecting a model wherein they hire thousands of freshers every year, accounting for nearly 95% of overall recruitment. These fresh hires, after up to six months of training, are pushed into the system to ensure that offshoring remains cost effective despite a 10-15% wage inflation every year.

Growing concerns at large outsourcing customers about the profile of workers assigned to their projects is an early warning for all tech firms following the so-called ‘pyramid model’, which is based on a high pro-portion of fresh engineering graduates recruited from campuses and managed by a few middle to senior-level managers at the top.

At least three top executives at five of the biggest tech firms said while most customers are only interested in the output and not necessarily the profile of the staff, some have started becoming more watchful. “You can’t single out only the Indian companies,” said the CEO of one of the top Indian tech firms.

“I don’t think it’s such a big problem, we have been increasing the training period before they are put on live projects, and while these complaints are rare, many multinationals are now increasing the proportion of freshers in India.” The average age of new joiners is 22 years.

During the year ended March this year, India’s $60-billion outsourcing sector hired some 1,92, 208 fresh graduates. This year’s target is about 2,21,039. Experts say the challenge is to impart knowledge of the business and not only technology.

“The ability to make new people productive early in their career is one challenge… Software development and BPO services are increasingly dependent on knowing the business, and are going to be judged more on outcomes,” says Rodney Nelsestuen, senior research director at Tower Group, US. These concerns are mostly about projects that are not traditional code writing and maintenance of existing IT systems, especially for banking customers.

“BFSI companies are competing on operational excellence since more operations which were previously viewed as backroom functions are now viewed as being fundamentally important to customer experi-ence. Any delay or mistake is now showing up in the inability to de-liver real-time business at high levels of quality and that is translating into lost revenue and dissatisfied customers,” Nelsestuen, who advises some of the top banks in the US on outsourcing, said.

“The Indian out-sourcing community, regardless of what segment, must quickly un-derstand that they are now being closely examined for performance at levels not seen before, and which may actually not yet be in their contracts,” he added.

Large outsourcing customers are also realising that for short-term, critical projects, niche suppliers are able to bring better resources than their bigger peers. Smaller outsourcing firms such as MindTree and Syntel are already taking advantage of these instances. “Both MindTree and Syntel are growing their revenues from Amex against TCS and Infosys,” said an offshoring consultant who is aware of outsourcing decisions at Amex.

Source:http://economictimes.indiatimes.com/tech/ites/quality-concerns-loom-top-outsourcing-customers-amex-citibank-and-jpmorgan-fret-over-freshers-in-it-projects/articleshow/8428117.cms