BPO – part of a progressive business strategy

As we discover in an exclusive interview with Pawan Sharma, President of KPIT Infosystems Ltd., financial institutions are increasingly looking to outsourcing nit only as a means to cut costs but as a critical part of their growth strategy.

FST. How have you seen trends in the demand for IT outsourcing change over the last few years and why?

PS. In the last few years, the IT outsourcing market has stabilised its operations from the rapid growth phase of the mid-90s. Currently, the IT outsourcing companies are looking at improvising and evolving their value proposition. There is also no doubt that the offshore delivery model is quickly becoming a strategic imperative for most CIOs.

We also think that the demand for IT outsourcing is witnessing high levels of activity, both onshore and offshore. The industry is now witnessing a high degree consolidation activity in order to provide niche services.

FST. In which direction do you think it is now heading?

PS. Based on our experience of the outsourcing market in Europe, we believe the top five trends will be: an increase in the use of external sourcing advisors to help with sourcing strategy, vendor selection and negotiations; increased partnering between software providers and BPO providers to deliver outsourcing services in a shared environment; many IT companies integrating their services with business process outsourcing (BPO) offerings; expansion of outsourcing to Eastern Europe; and consolidation in the outsourcing provider market.

FST. What are the main reasons that companies choose to outsource today and what processes or functions?

PS. Most organisations have been selective outsourcers – both for IT outsourcing (ITO) and for BPO – preferring to outsource only small functions or sub-processes rather than entire processes.

The decision to buy outsourced services has shifted from the cost-oriented, tactical approach of the past few years. Buyers are now trying to build strategic frameworks and to position themselves for growth. They are not just looking to buy for this year and or for the minimum possible to continue to move on. Now, it’s more a case of how they can align their strategic goals and capabilities to grow and leverage the top line.

Some of the more traditional yet important reasons that companies choose to outsource today include:

• Improvement in business and IT processes
• Improvement in the quality of service
• Flexibility in the quantity and availability of staff
• Introduction of qualities not found internally, i.e. ITIL process experience, e-procurement, infrastructure projects, service desks, SOC’s/NOC’s
• Can reduce and control costs
• Provides a valid way of achieving required cultural change

FST. How does outsourcing IT functions help to drive company efficiency and productivity? How does it fit with overall business strategy?

PS. More than 80 percent of all companies will have considered shifting IT jobs overseas, while 40 percent of all organisations will have completed some type of pilot, or will source IT services from offshore-based service providers.

Outsourcing has long been a mainstream business tool used by organisations’ IT department primarily as a cost-cutting device. The various industry reports show how outsourcing various IT functions have been a major force in achieving companys’ overall business strategy.

In addition to the cost benefits, shunting tasks such as programming and application migration to foreign lands frees up in-house staff to work on more strategic developments.

FST. Should outsourcing mean you can forget about a particular function or process or is it still important to maintain a close relationship and communication with the outsourcer?

PS. Absolutely. It is very important to establishing trust-based sourcing relationships and, for that, regular communication is imperative.

There should be weekly/monthly and quarterly reviews, and regular interaction with the operations teams. The relationship should be a collaborative one. This is also important to avoid the typical outsourcing mistakes.

FST. Once companies have outsourced their IT or business functions, how can they keep track of and measure performance to make sure they are getting the most valuable ROI?

PS. The question of ROI in outsourcing remains elusive. Companies should focus on measuring three key groups of metrics: cost, service levels and customer service.

For all three groups of metrics, it is critical to establish a baseline before outsourcing and to set expectations properly. This will enable you to set appropriate cost targets and service levels. The costing of the baseline must include both direct and indirect costs to running a function (for example, not only the direct costs included in the HR department, but also the HR costs that are embedded within business units).

The provider should be responsible for delivering regular reports on all three aspects of cost, service levels and customer service – but the end user should also be directly involved in the assessment. As part of the governance process, end users should set up at least three levels of management of the contract. First of these is a strategic level that monitors whether the outsourcing contract is delivering on its strategic intent and takes into account strategic changes that may occur at the end-user or at the service provider (such as a merger, acquisition, change in ownership, etc.). The most senior people at both organisations should be involved at this level of management. Meetings will take place once or twice a year.

Secondly, you should have a contract management level that monitors whether the contract is delivering on scope, service levels and cost. Contract managers should be involved at this level of management. Meetings will take place once a quarter.

Lastly, there is the country level, which ensures that local issues are resolved in a timely fashion. Country managers should be involved at this level and meetings will take place weekly or monthly, depending on the stage of maturity of the contract – or on an as-needed basis.