Archive for September, 2011

Outsourcing IT

September 30th, 2011

When it comes to the outsourcing of IT, security, multi-vendor management and measuring RoI are some of the dilemmas that CIOs face. An interactive round table discussion on Day 3 of Technology Summit 9.0 sought to debate and discuss the experiences of CIOs in this regard. Sunil R Chandiramani, Partner and National Director Advisory Services/ Business Leader, Ernst & Young moderated the discussion.

The panel began by discussing the outsourcing experiences of the panelists and how they were going about measuring the RoI on their outsourcing projects. Vikram Poovanna, Associate Director – IT, MindTree Ltd., started off mentioning that, at Mindtree, almost 50% of the IT requirements had been outsourced. “We have outsourced infrastructure, desktop management and about 15-20% of our applications.” For the overall application infrastructure, Poonave explained that he had a full-fledged team managing the SAP layer.

Sebastian Joseph, President – Technology & FM, Mudra Communications, explained that he practiced two types of outsourcing. The first being with regard to software development and testing while the second was all about end-to-end infrastructure management.

He emphasized that, it was vital that CIOs outsourced basic tasks such as infrastructure management so that they could focus their resources on critical business applications.

Tejinderpal Miglani, CIO, Indiabulls, concurred, although he added that his experience with outsourcing had been a mixed one. Miglani observed that every CIO needed to consider a couple of factors before deciding to embark on an outsourcing journey. “Firstly, you have to decide how critical IT as a function is perceived to be within your organization. Secondly, you have to analyze the type of resources and talent that you have within the organization as, if there is a lack of knowledge inside, then you have no choice but to look outside,” he explained.

Adi Jehangir Shroff, CIO & Sr. VP Corporate Human Resources, Eureka Forbes Ltd., whose outsourcing model is quite mature, said that he had a 100% outsourcing contract that was currently running in its third year and revolved around four tracks. “The tracks are business transformation where we have well-defined parameters for every vertical, defining the applications to be used in five years, infrastructure which includes all three aspects of hardware, software, services as well as application support.”

He explained that the trigger behind this evolved model was some internal brainstorming. “The important thing is to identify the current resources that you have in your team and whether they are capable of application development,” said Shroff.

When asked by a member of the audience if outsourcing IT was a good solution for a startup, Miglani of Indiabulls mentioned that, “For a greenfield business, it is possible to outsource a lot. However, every new business needs to chart out its application requirements and whether vendors in the market have the expertise that’s required to develop the same.”

The other key question that was asked was with regard to how to go about choosing an outsourcing partner. Although experiences with outsourcing partners varied, one thing was unanimously agreed upon. The first step in any outsourcing contract is that the vendor and the customer should have the same set of expectations from the outsourcing contract.

Shroff said, “When the relationship is being defined, clarity is of the utmost importance.” There were other concerns voiced by the audience like security issues and multi-vendor management.

Poovana of MindTree explained that, in matters of dealing with customer information, security was the crucial aspect to examine in an outsourcing contract. The solution, in that case, was simply to keep the control and access to information entirely in-house.

Instances of vendors being unable to scale up as required were also discussed and the panel’s take was that a little bit of give and take was a given in any outsourcing relationship and that, like in every relationship, “CIOs also have to invest in an outsourcing relationship.”


State cashes in on BPO boom

September 30th, 2011

Ahmedabad Several cities in the state are witnessing a rapid growth of Business Process Outsourcing (BPO) firms, with industry heads estimating an annual growth rate of 15 to 30 per cent since 2000.
This, they say, is mainly because of competitive office-space prices, electricity supply, security and a substantial immigration of workers from other states to make up for what is normally considered poor English proficiency among domiciles.

The trend has been there for sometime, according to heads of several firms such as Kaushal Mehta, founder and chief executive of Motif Inc, which started in 2000 with 15 employees in Ahmedabad and now employs 1,300 worldwide with operations in Costa Rica, the Philippines and an office in the US. “We are a small global company,” said Mehta.

Jaimin Shah, a former head of the Gujarat Electronics and Software Industries Association (GESIA) and whose company deals with IT infrastructure, estimates the BPO sector is growing at the rate of 15 per cent annually, and is strong in Ahmedabad, Vadodara and Surat.

“Non-voice (Knowledge Process Outsourcing) is picking up, but voice BPOs are still more or less confined to metros in India. Gujarat’s cities are usually considered safe and inexpensive, so I think quite a number of workers are coming from other states. A big boon for the industry is that office space at an average Rs 25 per sq feet is quite cheap compared to the metros,” said Shah.

Shomindra Chakravarti, VP of QX Pvt Ltd which has both voice and non-voice operations, has a similar view. “The cost of office space is cheaper in Ahmedabad compared to other metro cities of India,” he said. “Last year, we saw a 20 per cent growth in employees and with recent number of new clients coming in, we are expecting it to increase by over 40 per cent this year,” he said, adding that there were just five employees when the company was set up in 2004.

QX’s country head Rajiv Bhatia said the sorry state of the world economy could help the sector further, especially in the state, since cost-cutting would be a common feature and Gujarat’s cities are still competitive in that area due to various factors.

GESIA president and head of SAI Infosystems Ltd Sunil Kakkad attributes the boon here to adverse factors in other states. “The metros have stretched infrastructure now. Office space is costly, commuting time is long, manpower is expensive, and I think girls feel uneasy to work late nights because of safety concerns. That way, Gujarat is one of the safest states. Also, the infrastructure cost is low but its quality is good,” Kakkad said.

He added that Vadodara is another boom town for BPOs for two factors that are not as present in Ahmedabad — a large number of students and the mindset of people there to work in companies rather than start their own business.


IT stocks relief rally looks overdone

September 30th, 2011

Information technology (IT) stocks have done well in the past two weeks, climbing by about 11% from their lows in mid-September compared with a mere 1.5% rise in the benchmark Nifty of the National Stock Exchange. The European markets have done well during this period on the hope that governments will work towards tackling the region’s debt woes.

It’s natural that IT stocks should rally on such hopes. After all, they had fallen more than 30% between January and mid-September, higher than the 20% decline in the broader markets, due to concerns that the debt crisis in Europe would result in a slowdown in the global IT demand.
Regardless of what current stock prices convey, it’s too early to say these concerns are behind us. Having said that, it does look like the current macroeconomic situation will not affect the immediate September quarter results, if the performance of Accenture Plc is any indication.

The US-based technology firm, which competes with Indian IT services firms in some areas, reported strong results for the quarter ended August. Accenture follows a September-August fiscal year. Revenue grew by 14% year-on-year in local currency terms in the fourth quarter, not much lower than the 15% growth it managed in the rest of the year.

More importantly, it reported new order bookings of $8.4 billion (over Rs. 41,000 crore today), the highest in three quarters. Outsourcing bookings accounted for about 51% of the total bookings and were the highest in over seven years.

The management commentary was also positive, “Clients continue to invest in replacing their core systems and initiating more cost-reduction projects and in improving operational effectiveness… The challenges of globalization, increased regulation and the need for operational efficiency are even more prevalent today than they were a few months ago… Our clients continue to take steps to adjust to this new environment and this continues to drive demand for our services.”

Not surprisingly, IT stocks outperformed the markets on Thursday. But things seem a bit overdone now, at least in a few counters. Infosys Ltd, for instance, has risen by 16% from its low in mid-September. This gives the impression that the industry is out of the woods, while that’s clearly not the case. And it doesn’t make sense to get excited about Accenture’s quarterly results.

There’s weren’t many concerns about the near-term growth prospects. And while some of Accenture’s work overlaps with that of Indian vendors, the correlation in demand isn’t that high, given the high proportion of consulting work Accenture does.

IT stocks had underperformed the markets earlier because of concerns that demand may get affected in the second half of the year and in the next fiscal year. These concerns haven’t disappeared. Even Accenture’s guidance for the next fiscal year builds in some caution for the second half.

Investors need to keep these factors in mind before getting carried away with the recent rise in IT stocks.


Eton to build more BPO space amid shortage in industry

September 30th, 2011

Eton Properties Philippines Inc. is stepping up the construction of five to seven business process outsourcing office buildings to take advantage of an industry shortage that is seen to last until the end of next year.

In an informal briefing, Eton president Danilo Ignacio said the firm is currently completing designs for two new BPO buildings in Eton Centris in Quezon City as prospective tenants jostle to secure more space for expansion.

Ignacio said BPO 3 and BPO 4 comes after the first building, 13-storey One Cyberpod Centris, has been fully leased out to some of the most successful Business Process Outsourcing (BPO) companies.

Tenants include Wipro Technologies, Genpact Services LLC, Unisys Philippines Limited, Integrim BPO Solutions, and Pascual Laboratories among others.

The entire 18,063 sqm office space in Two Cyberpod Centris, the second building set for completion by year-end, has been fully leased to a Fortune 500 company.

He said BPO 1 is fully leased out to several tenants while they have already negotiated with several prospective tenants who want to lease space in BPO 3.

“We have not signed up any of them yet but some are willing to advance payments just to secure the lease,” Ignacio said adding that rates have also gone up to around P500 per sqm from about P250 to P300 three years ago.

The 3rd and 4th Cyberpod Centris buildings are at the design stage and are scheduled to be completed by end of 2012. “Given the strong demand for office space, the buildings are expected to be pre-leased even before turnover,” said Ignacio.

Ignacio said BPO 3 and BPO 4 will be bigger buildings with each having 20 storeys and one basement each. Total area will be 42,000 sqm while gross leasable space amounts to 34,000 sqm per building.

“We can add more buildings if demand remains strong. Maybe 3 to 5 more before the end of next year,” he said noting that the masterplan for Eton Centris has space for 7 BPO buildings.

He added that, “if the market for office space continues to be strong, we are considering some adjustments in the Eton Centris masterplan to accommodate future demand for office space. There is a marked increase in demand for office space in the northern part of Metro Manila, given the outsourcing industry’s thrust to tap the manpower pool in the area.”

Ignacio said there is currently a shortage of office space since property firms had stopped building new office towers in 2008 even though demand did not slow down and continues to be at 300,000 sqm a year.

Office space is currently the company’s strongest contributor of recurring income as it continues to develop its property portfolio.


Healthcare BPO moves up the value ladder

September 30th, 2011

The local healthcare business process outsourcing sector is steadily going up the value chain, going beyond medical transcription, and is now ready to provide jobs to 86,000 nurses from now to end-2016.

According to Healthcare Information Management Outsourcing Association of the Philippines president Myla Reyes, many local BPO firms were already providing high-value services such as clinical coding, disease management, utilization reviews, revenue cycle management, and pharmaceutical benefits management.

“We’re doing some of these already. A lot of the locators are coming here because of the talent pool,” Ms. Reyes said in an interview.

While the majority of the healthcare BPO services provided in-country was still medical transcription, Reyes said BPO players were now offering more high-value services than before.

The healthcare segment, she said, was poised to become another shining star in the BPO sector.

“We’re now just a small part of the BPO industry, but if we do things right, we have the potential to grow to as big as the call center industry,” Reyes said.

She said that as of end-2010, the healthcare BPO sector provided 14,000 jobs, all for frontliners such as medical transcriptionists and agents who answer patient queries over the phone. Revenues reached $94 million.

With the healthcare BPO sector now in expansion and consolidation mode, Reyes said it had the capacity to absorb at least 86,000 jobs over the next five years, for an industry total of 100,000 employees by end-2016.

By the end of this year, the number of employees in the healthcare BPO sector should reach about 28,000, she said.
In terms of revenue, Reyes said the industry was targeting to corner 6-8 percent of the $3 billion to $4 billion potential market, from United States-based clients alone, within five years.

Reforms in the US healthcare sector opened doors of opportunity for BPO service providers in the country, she said, as more companies in the US were expected to outsource work to third-party service providers.

The Philippines had the potential to corner a large chunk of this market someday because of its highly skilled, English-speaking, and caring workforce, she said.


Phl IT-BPO industry posts more gains this year

September 30th, 2011

The local information technology and business process outsourcing (IT-BPO) industry remained a powerhouse for the country’s services sector as it gained more than US$657 million in the second quarter of 2011.

The Bangko Sentral ng Pilipinas (BSP) said the figure was more than double the US$324 million net receipts registered in the same quarter last year.

The Business Processing Association of the Philippines (BPAP) said the gains from BPO-related transactions contributed to the impressive performance of the services sector, which are mostly computer and information services.

It posted a 10.3 percent growth rate, while miscellaneous business, professional, and technical services grew by 25.1 percent.

The BSP also noted that the second quarter balance of payments (BOP) also sustained a surplus at US$9 billion for the period January–August 2011, exceeding the forecast for the entire year.

BSP added that the BOP surplus of US$2.719 billion in August was the highest in eight months. In 2010, the BOP surplus reached a record US$14.4 billion.

“The impact of IT-BPO industry in the services sector is a positive sign that we’re moving in the right direction. Industry stakeholders are committed to ensuring the strong performance of the sector,” said Raymond Lacdao, industry affairs executive director of BPAP.

Lacdao said the industry will continue to contribute on the acceleration of the country’s economic growths, which translates to more business opportunities, employment and development.

BPAP recently expressed that a stronger IT-BPO collaboration in the government is a must in order to achieve the US$25 billion goal‎ revenues by 2016.

The global IT-BPO industry leaders and stakeholders will discuss the future of the industry on its upcoming Annual International Outsourcing Summit here this October 11 and 12.


Outsourcing Will Continue To Grow Despite Economic Slowdown

September 30th, 2011

There is good news and there is bad news. The bad news is that the threat of another economic recession is looming large. The good news is that there is a way to beat it – by outsourcing.

Outsourcing may just be the panacea to beat the evils of the global economic meltdown. And that is why the outsourcing industry will continue to grow despite the recession.

So, how will outsourcing help an organization to not get negatively impacted by the storms of recession?

1. The advantage of cost savings will be the biggest draw. One of the main reasons why companies outsource their business functions is to avail the benefits of cost savings – lowered operational costs, employee maintenance cost, and a host of other overhead expenses and no payment of taxes in the country of residence.

2. Outsourcing to a remote staffing company like has the added advantage of having a dedicated, full-time employee work for the organization. Contracting with freelancers may not be the best thing during an economic meltdown as there is always an element of risk involved. However, working with a virtual employee, who operates out of the controlled office environment of a service provider, can prove to be a huge asset in economically trying times.

3. Work does get hampered if it is outsourced. Often forced lay-offs mean a significant slowdown of an ongoing project. When work is outsourced to a vendor thousands of miles away and at a fraction of what it would cost back in the home country, such concerns about the timeline become irrelevant. This is because the outsourcing vendor’s employee will do the job they have been assigned to do and, recession or no recession, your work will be completed and delivered.

4. There is no pressure or compulsion to lay off people. By already having achieved substantial savings because of outsourcing, finances have not been as depleted as they could have been otherwise.

Recession may be looming large but if companies continue to outsource, there is every chance that they will beat this economic slowdown as well.


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