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Outsourcing IT: It Takes Three to Tango

July 24th, 2014

The quandary has been with us for a long time: IT leaders wrestle with where, how, and even why to outsource services. There are no silver bullets; those who look to outsourcing as a cure-all are shortsighted, and those who offer it as the solution to all known problems are selling magic beans.Outsourcing37

Recent statistics indicate conflicting data on IT outsourcing. A January article in CIO Magazine quoted KPMG research showing that 20 – 30% of typically outsourced IT services are predicted to come back in-house. In another recent study, Whitelane Research reported that 42% of the 1,300 organizations polled will “outsource more IT” in 2014. Only 10% said they will “outsource less IT.”

These seemingly mixed messages highlight the myriad reasons for outsourcing — and also underscore the lack of proper analysis that goes into the decision. To me, a company’s decision to bring outsourced functions back in-house could mean the organization did a poor job of thinking it through — and probably failed to compare apples to apples.

Determining whether to outsource, what functions to outsource, and the specifics of the outsourcing deal itself are not for the feint of heart. And while there are a handful of situations where outsourcing can, in fact, reduce costs, the primary benefits for outsourcing are more strategic. By outsourcing correctly, companies can:

• Free up internal resources for more critical, knowledge-related tasks
• Boost capacity
• Acquire certain technical resources that have been otherwise difficult to procure
• Add knowledge workers that have been missing from the current IT staff
• Clean up some “messy” areas in IT
• Bring in specific, hard-to-find expertise

Having sat at both sides of the table as an outsourcer and as head of an in-house IT organization, I firmly believe that the best agreements involve selectively outsourcing specific, targeted services — and not the large, multi-service deals of the past.

So, once a company knows why it wants to outsource, it must then choose what functions to turn over, and how to pick the right partner on the right terms.
What to Outsource The often-overlooked first step is to identify areas where outsourcing can help the organization meet its strategic objectives. Selective outsourcing is similar to the way we manage our personal lives. Some of us outsource oil changes, lawn care, or healthcare. Most of us don’t fill our own cavities, but we brush our own teeth. But unlike personal outsourcing, the options in IT are less clearly defined — and the potential costs are too great to simply trust one’s gut.

Enter the independent advisor — a neutral, third-party expert who can help assess the needs, define objectives, and analyze the options.
How to Outsource

For larger outsourcing initiatives, I can’t recommend an outside advisor enough. For starters, vendors are a bad source for objective information when it comes to the day-to-day management of the deal. That’s because they’re in business to sell outsourcing services. So, providers will always underestimate — or even fail to disclose altogether — the amount of oversight required. At the same time, they will minimize accountability. And issues like exception processing and “gap” management are of little or no concern. In other words, the outsourcer will act in its own best interest — leaving the client responsible for reading the fine print.
Case in point: An IT vendor presented a proposal that promised a 17% reduction in IT costs — representing a savings to the client of $17 million. Upon further review, an independent agent analyzed the company’s current costs and service levels, comparing them to the proposed agreement. After factoring for exceptions, maintenance fees, and other hidden costs, the advising firm revealed that the outsourcing deal would have cost the company 10% more. What looked like a $17 million savings would actually have cost the organization an additional $10 million.

Buyer Beware
I’ve seen many situations where hiring a specialist would have resulted in a better financial deal, a smoother startup, and a healthier relationship. In my experience, companies looking to outsource can be somewhat naive about what it really takes to manage the arrangement. Typically, internal organizations are overly optimistic — so they can lose sight of functionality that might fall through the cracks between the two parties. Managing billing and service discrepancies will always take more time and effort than expected. And even after the deal is done, simply negotiating the inevitable ups and downs of the relationship can be confusing and tedious. These issues can easily diminish (or even wipe out) some of the benefits of outsourcing. But if they’re anticipated and acknowledged, they can be factored into the bigger picture.

Buy Now or Pay Later
Bottom line, it pays to hire a third party to help design the right outsourcing plan, analyze options, and negotiate a fair deal. Quite simply, the price of finding the right relationship can pale in comparison to the potential cost of getting it wrong. An expert can level the playing field and weed out potentially bad deals. With the skills, data, and insights of an outsourcing “agent,” your organization can become a smarter, better-informed consumer of IT services — and achieve its goals more efficiently.


Wipro likely to beat Nasscom’s growth estimates this fiscal, say analysts

July 23rd, 2014

Despite a tepid guidance for the first quarter of this year, fuelled by multi-million dollar deals in the past few months, Wipro is expected to beat Nasscom’s 13-15 per cent growth estimates for the 2015 fiscal.Outsourcing36

Analysts believe that on the back of a strong deal momentum, the company which has been growing at a lower rate than peers like TCS, Cognizant and HCL Tech is expected to bounce back this fiscal year.

In a research note, Espirito Santo Securities said that the strong deal wins in the recent quarters should drive 3-5 per cent quarterly growth guidance for the second quarter of 2015 fiscal. In the last couple of quarters, Wipro has bagged three multi-million dollar deals from companies like Citigroup for $500 million, a $400 million from Takeda Pharmaceuticals and $1.1-billion deal from ATCO.

In 2013-14, Wipro’s revenues grew 16 per cent over the previous fiscal at ₹43,755 crore, while net profit rose 17.5 per cent to ₹7,797 crore. However, this lags behind peers like TCS, which posted a 29.9 per cent growth, followed by Cognizant, which posted a 17 per cent growth in the last fiscal.

Wipro is expected to announce its first quarter results on July 24 and is in the silent period. However, in the last quarter, CEO TK Kurien had told Business Line that the way Wipro is exiting the 2014 fiscal and coupled with its strong deal pipeline, points to growth ahead.

This momentum also indicates that the turnaround strategy pursued by Kurien is on track.

Others agree. “Initiatives taken to improve internal process and an increased focus on automation, instead of depending on people additions have been successful,” said AK Prabhakar, an IT analyst.

Espirito Santo Securities also believed that win rates for large deals have improved by 50 per cent over the past two years and this is visible in higher large deal wins and improving revenues growth.

Further, these deal wins come in geographies such as US and Europe, which contributed about 79 per cent of Wipro’s overall revenues in the last fiscal year.

Sanchit Vir Gogia of Greyhound Research believes that large contracts helps Wipro get access to more high-profile deals at a time when outsourcing demand looks stronger when compared to previous years.


Arise Virtual Solutions Shrinks Application Recovery Times to Minutes with Actifio Sky for Branch Office Data Management

July 23rd, 2014

Actifio®, the copy data virtualization company, today announced that Arise Virtual Solutions Inc., the leading global provider of virtual, work-at-home business process outsourcing (BPO) and crowdsourcing solutions, has deployed Actifio Sky™ to ensure data accessibility, and business resiliency acrossOutsourcing35 their distributed organization’s many locations. An existing customer of Actifio’s CDS solution within its main datacenter, Arise recently implemented Actifio Sky at several branch office data centers including Miramar, Florida and Edinburgh, Scotland for data consolidation and protection.

After replacing multiple local backup products in its offices with Actifio Sky, Arise is now able to fully restore application services for branch office data centers in less than 90 minutes. Actifio Sky captures Microsoft SQL Server, Oracle, SharePoint and other data in several virtual machines, deduplicates and backs up the data and efficiently replicates it back to the Actifio CDS system in the central Arise datacenter.

“Arise Virtual Solutions’ core innovation is in our scalable virtual workforce platform, and that drives the value we deliver to our customers,” said Arise CIO Martin Ingram. “To remain productive for our clients, we need IT services that are highly resilient and efficient, no matter where the IT infrastructure and data are located. Actifio Sky lets us extend our core Actifio capabilities to manage and protect the critical data for our customers across multiple locations from one central repository. This has helped significantly reduce our administration time, letting our team focus more of its time on service delivery and development.”

Announced in May, Actifio Sky is a new generation offering built on the company’s Virtual Data Pipeline™ technology that extends the power of copy data virtualization from the data center to edge of the enterprise and into the cloud. Actifio Sky offers a new level of deployment flexibility and range, enabling seamless data management wherever the enterprise data is located to improve data protection, governance and analytics. Today, Sky is offered first for Remote / Branch Offices (ROBOs) and for cloud deployments for businesses looking to shift enterprise workloads into the cloud. Together with Actifio’s CDS data center appliance, Actifio Sky eliminates barriers to data mobility between the edge to the core, enabling transformational data management velocity and scale across the enterprise.

“Actifio Sky demonstrates the strength of our underlying technology and brings it to a new audience of customers who want to tap the power of copy data virtualization in whatever form is most useful – whether that’s a fully-integrated hardware system, a virtual appliance or a cloud-based service that’s available on demand and accessible through any device,” said Actifio founder and CEO Ash Ashutosh. “This vision is becoming reality through companies like Arise who are deploying Actifio flexibly to meet their business needs.”


TCS continues to outpace Infosys, revenue gap widens to Rs 33,313 cr

July 23rd, 2014

India’s largest IT services exporter, Tata Consultancy Services (TCS), has been outperforming its peers consistently and the gap with its rivals is continuing to widen. For instance, in FY10, the revenue difference between TCS and Infosys was Rs 7,559 crore, but by the end of FY14 it stood at Rs 33,313 crore. Similarly, the difference in net profit between the two firms in FY10 was Rs 782 crore but at the end of FY14, it has reached to Rs 8,516 crore.Outsourcing31

Though TCS always enjoyed a higher revenue base but it was Infosys which reported superior operating profit margins (OPM) setting a benchmark for the Indian IT industry. Even this index seems to be undergoing a change. From the second quarter of FY13, TCS has started to report higher margins. At the end of FY14, TCS reported an OPM of 29.1% while it was 25% for Infosys. TCS also has over 3 lakh employees now, which is roughly double that of Infosys which has 1.6 lakh employees on its rolls.

TCS has started FY15 also on a very strong note by recording a 5.5% sequential revenue growth in US dollar terms for the first quarter with volumes growing at 5.7%. Infosys on the other hand grew its revenues only by 2% in the first quarter, with volumes growing by 2.9%. TCS has already stated that it would beat the industry growth guidance of 13-15% in US dollar for the fiscal as projected by Nasscom, while Infosys has retained its revenue guidance at 7-9%.

Pradeep Mukherji, president, Avasant, an IT outsourcing advisory firm, told FE, “TCS is one of the most robust companies in terms of their depth in leadership, range of offerings and the extent of geographic reach. Their DNA is completely different.”

TCS’ revenue is more evenly spread out across the globe with North America dominating the pie at 53%. Most of its peers derive 60% of their revenues from the North American market. It generated 2.3% of its revenue from Latin America, having centres in places such as Brazil, Uruguay, Chile, Colombia, Peru and Argentina. The IT major has also made similar strides into a region like Africa.

Industry observers say that TCS chief executive office N Chandrasekaran who took over this role in October, 2009 has instilled a new dynamism to the company. “Chandrasekaran has certainly brought in new level aggression to TCS which we had not seen earlier,” said a senior industry executive, who did not want to be identified.

TCS is a cut above the rest in employee retention too despite its employee base crossing over 300,000 with people representing 118 nationalities. At the end of first quarter this fiscal, the attrition rate at TCS was 12% while it was 19.5% in the case of Infosys. Sanchit Vir Gogia, chief analyst & CEO, Greyhound Research, said, “Employee retention and their happiness is very important to an IT company as it has a direct bearing on customer satisfaction. Here, TCS has performed really well.”
The number of $100 million clients in TCS’ kitty stood at 24 for FY14 while it was 13 for Infosys and 10 for Wipro. TCS has also morphed into a company that takes decisions in double quick time. “It is also giving certain amount of operational freedom to various units while this has not been the case with many of its rivals,” said a senior industry observer.

TCS, Infosys, Wipro and HCL Technologies together account for close to 40% of India’s IT services revenues, but the degree of separation between the four have started to tell a story of its own. TCS ended FY14 with a revenue growth of 16.2% in US dollar terms while it was 11.5% for Infosys and 6.4% for Wipro.

Partha Iyengar, vice-president and analyst at research firm Gartner said, “It has already started, you cannot talk about Indian services companies as one unit anymore. You have to talk about individual companies and talk about their fortunes in terms of how is it is evolving and how successful or not they are. You will see increasing separation between the companies.”


Google has to face US privacy suit over new user data policy

July 23rd, 2014

A California court has allowed a privacy class action suit against Google to continue, though only in part.
After evaluating each claim of each sub-class in the suit, Magistrate Judge Paul S. Grewal has allowed two claims of the “Android Application Disclosure Subclass,” which includes all persons and entities in the U.S. that acquired an Android-powered device between Aug. 19, 2004 and the present, and downloaded at least one Android application through the Android Market or Google Play.

On March 1, 2012, Google introduced a single, unified policy that allows the company to comingle user data across accounts and disclose it to third-parties for advertising purposes.

This move triggered the class action lawsuit in March, 2012 in the U.S. District Court for the Northern District of California, San Jose division, which argued that by switching to the less-restrictive privacy policy without user consent, Google violated both its prior policies and consumers’ privacy rights, according to court records.

The Android Application Disclosure Subclass claimed Google’s disclosures to third parties caused increased battery and bandwidth consumption as well as invasions of their statutory and common law privacy rights.

The suit was filed over two years ago and since then the court twice dismissed the plaintiffs’ claims. Google moved for a third dismissal.

The claims allowed by the judge includes a breach of contract claim that Google breached terms of the contract by disclosing user data to third parties following every download or purchase of an app, resulting in damages in the form of resource consumption. The second claim is under California’s Unfair Competition Law.

Claims by persons and entities in the U.S. that acquired an Android-powered device between May 1, 2010 and Feb. 29, 2012 and switched to a non-Android device on or after March 1, 2012 were dismissed.

Google could not be immediately reached for comment.


Phoenixville schools may outsource some IT positions

July 23rd, 2014

The Phoenixville Area School District is considering outsourcing some of its IT help to a firm in Virginia.Outsourcing33

Phoenixville Executive Director of Operations Stan Johnson said nothing is set in stone, but the disrict put out a request for proposal earlier this year that yielded several offers. The district is now discussing with Richmond, Va.-based DominionTek what services it would want and under what terms.

“What we’re looking at is what’s the best way to provide the technicians’ service with high-quality technicians, with faster service (and) with a minimum of backlog tickets,” said Johnson.

Effectively, Johnson said they hope to free up some IT personnel on the ground in Phoenixville to handle hardware problems while the outsourced positions would work on network problems like simple computer lock-outs from afar.

The goal is to reduce the time it takes for a service “ticket” to be processed to under 24 hours, he said, as well as lower the need for “return visits” and extra tickets for the same problem.

Opponents of the move say going with DominionTek would eliminate “four members of our school community,” according to a flyer circulating on the internet.

With the district negotiating with both DominionTek and the union representing the IT workers in Phoenixville, the number of positions which might be outsourced and what it will cost in total remains very fluid, according to Johnson.

Currently, the union representing the technical workers, the Phoenixville Educational Support Personnel Association (nicknamed Big PESPA since two organizations with the same name exist), does not have a president and could not be reached for comment as of posting.

The flyer warned that outsourcing is risky.

“A good deal at first becomes a long-term nightmare when renegotiated several years from now,” said the flyer, which was not signed.

It’s not clear if the flyer was put out by the IT workers’ union or not.

Additionally, the flyer alleges that DominionTek’s employees are not held to as high of qualifications as current district staff. It also says that the company has a high rate of employee turnover.

Five different companies made up the pool of responders to the request for proposal from which DominionTek was ultimately chosen.

“As it turns out, DominionTek’s proposal would result in some economic savings for the district,” Johnson said. “We had a two-part goal: improve service and lower costs. We believe it will certainly lower costs and the amount it will lower costs is somewhat fluid.

Although the exact total of DominionTek’s proposal wasn’t immediately available and the dollar figure could change depending on negotiations, the flyer protesting DominionTek said IT personnel “plans to make a proposal that is $30,000 less than DominionTek’s offer in the first year alone.”

“It comes in $20,000 less than DominionTek for the additional two years,” of the contract, the flyer continued.

What exactly that plan would entail is unclear.

The flyer called for a show of support for the IT department at Monday night’s school board meeting. The audience was largely empty and the school board did not discuss DominionTek in the regular meeting, nor a personnel committee meeting that preceded it.

Negotiations are ongoing with the IT workers’ union, but any change is not expected for the 2014-15 school year or its budget. Anything which might occur is scheduled for the 2015-16 school year, barring some sort of “impasse,” Johnson said.

In such an event, a state fact-finder would likely get involved and tell the district and union whether or not outsourcing can be done or to what degree it could be implemented.

As things stand now, Johnson said nothing is set in stone.

“The technology world is changing very rapidly,” Johnson said. “What we believe the outsourcers provides us is the ability to provide people with upgraded technical skill on a regular basis. That’s how they make their money: to provide good technological service. That’s what the private sector is doing and that’s what we believe we should at least look at. We’re not sure we want to go that way.”


Outsourcing industry still largely voice-based

July 23rd, 2014

CONTACT centers providing voice-based services remained a mainstay of the business process outsourcing (BPO) industry in 2012, comprising bulk and posting the fastest growth in the sector, according to a recent report of the Philippine Statistics Authority (PSA)-National Statistics Office.Outsourcing32
“Preliminary results” of the 2012 Census of Philippine Business and Industry for BPO uploaded on the PSA Web site last July 15 showed call centers totaling 404 in 2012, making up nearly half (49.8%) of 818 establishments in the sector that year.

This segment also had the biggest industry share in terms of workers (364,454 as of Nov. 15 last year, or 83.5% of a cumulative 436,500 in that period) and income (P249.873 billion, or 73.8% of a total of P338.179 billion).

In terms of number of establishments, call centers were followed by computer programming activities (243 establishments or 30%), data processing (51 or 6.3%), “other information technology (IT) and computer service activities” (31 or 3.8%) and medical transcription (26 or 3.2%).

The top five segments were followed by Web site and application hosting services as well as motion picture, video and television post-production activities (both with 11 establishments each); software publishing (10); motion picture, video and television program activities (eight); and “other publishing activities” (three).

Call centers also grew the fastest in terms of workers (68.86% to 364,454 as of Nov. 15 last year from 215,831 in the same period in 2010) and income (107.16% to P249.873 billion from P120.621 billion).

In terms of workforce growth, call centers were followed by motion picture, video and TV post-production (67.93% to 1,288 from 767), computer programming activities (60.20% to 33,084 from 20,652), software publishing (31.68% to 1,696 from 1,288), Web site and application hosting (23.48% to 936 from 758), data processing (12.73% to 25,693 from 22,791), and medical transcription services (6.58% to 2,639 from 2,476).

Workforce declines were recorded in motion picture, video and TV program activities (which fell 45.81% to 1,053 from 1,943); “other IT and computer service activities” (which dropped 14.81% to 3,198 from 3,754); and “other publishing activities” (which dipped 6.99% to 213 from 229).

In terms of income growth, placing second was computer programming (89.22% to P54.994 billion from P29.056 billion), followed by “other IT and computer service activities” as well as Web site and application hosting.


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