Especially in an environment that continues to deliver bad economic news, how can a company with tight budgets and stretched resources keep “success” and “profitability” in their vocabulary? Take, for example, a midsized optical equipment manufacturer. Since 2002, they have grown quickly, and currently bring in several hundred million dollars in revenue. But with rapid growth comes a lag in IT. Their internal IT systems couldn’t keep pace.
The company was running on a lightweight ERP and CRM solution, and the IT staff was reduced to firefighting individual business unit issues on the most basic business applications. When the new CIO joined, he deemed that the company needed a business intelligence framework, but he was severely hindered by a low-and what some would call ridiculous-budget.
After running fast and hard for so many years, the only way to secure the expert resources to do the work in time and at a reasonable cost was to team up with an outsourcing partner.
By executing the project offshore, the new CIO stayed within budget (at a rate of $25 per hour), implemented an open-source BI solution to which he wouldn’t otherwise have had access, and maybe most importantly, over-delivered on his project goal by getting the BI application accessible on mobile devices.
Leveling the IT playing field
Four or five years ago, it would have been impossible for a company of this size to work with outsourcers on this project. Why? Until recently, most outsourcers focused on big-bang projects for Fortune 500 or even Global 2000 companies-such as SAP implementations or mainframe maintenance projects that required “bodies” to write and maintain legacy technologies. Even if they had the expertise, the price was too high. While small independents might have been able to do part of the job for the right price, they weren’t able to scale to the complexity required.
All that has changed. Today, a new breed of companies has emerged to democratize IT outsourcing, bringing more value to companies of all sizes with competitive pricing and skills-based expertise for projects such as building e-commerce sites, using mobile applications to lure customers, and integrating open-source tools into tech support.
From the Elite to the Masses
From the elite to the masses
We’ve seen several examples over the years of products and services which evolved from the elite to the masses: from the production-boosting assembly line of Fords to the Dell distribution model that put a computer in every home.
IT outsourcing was once the playground of Fortune 500 companies; high-ticket consulting jobs and large-scale projects were dominated by Wipro Technologies, Tata Consultancy Services and Infosys Technologies. As has happened in most other industries, we have hit an inflection point with IT outsourcing where the majority of the market can get access to the same services to which, until recently, only an elite minority once had access.
For companies such as the optical manufacturer discussed earlier, the game-changer was the proliferation of technology, infrastructure and applications. With the world getting flatter, there’s been an increase in the availability of expertise around innovative technologies. For example, open source has evolved over time to compete on functionality offered with the added cost advantage. Web 2.0 has changed the way information is shared. Web services have enabled easy interoperability between systems. And mobile applications have opened up new avenues for collaboration like location-based services leveraging the capabilities of smart phones.
All of these have enabled buyers to explore new horizons. The global software delivery model, coupled with the branding of India as a means of accessing the global labor pool, has resulted in mid-sized companies getting their IT needs fulfilled at a remarkably low cost.
To Outsource or Not to Outsource
To outsource or not to outsource
By now you know you don’t have to be a Fortune 500 company to leverage outsourcing. It’s time to get into the game. But as the IT buyer, how do you know when it makes sense to outsource and what projects should be kept at home? While there are no hard and fast rules, the following guidelines will help you make an informed decision that fits your business needs and may even make you look like a hero.
Guideline No. 1: Determine which parts of your IT project can be outsourced
Not all project components can be taken offshore all of the time. Projects that require very sound understanding of the business process-such as implementing a software for a manufacturing unit-are better done close to the business itself. For instance, activities that involve interaction with the business stakeholders such as functional design or setting up of the production environment cannot be outsourced. A well-managed process combines the advantage of both on-site and offshore development.
Guideline No. 2: Decide on your vendor
This is not a one-size-fits-all industry, and outsourcing vendors should be carefully evaluated per project. To select an outsourcer who’s right for you, make sure the partner:
1. Has expertise in similar projects
If you need a few dozen people to maintain your mainframe applications or ERP systems, go with one of the “Big 5” outsourcers who have deep benches and specific legacy application skills in-house. On the other hand, if you are looking at enterprise or Web 2.0 integration initiatives, you will benefit greatly from partnering with an outsourcing company whose DNA is the Web and these new technologies.
Additionally, find out what the customer base of the vendor looks like. If they have several VC-backed startups, they are probably working on breakthrough technologies (since such customers tend to be on the forefront of innovation). On the other hand, if the customer base trends towards Fortune 500 companies, the outsourcer probably has more skills in staff augmentation and mature rather than cutting-edge technologies.
2. Passes the peer recommendation test
Since companies may end up working with several IT partners for different projects, be sure to network and get recommendations from your associates. And remember: the IT outsourcer will likely provide you with references only for projects that went well, so third-party due diligence goes a long way.
3. Agrees on budgets in advance, including specifics on what is or is not included
Discuss upfront what is included and what is not. The less specific you are with the outsourcing partner upfront, the more you’ll pay down the road-in both time and money.
Guideline No. 3: De-risk yourself
Outsourcing is a people-intensive business where macroeconomic changes, such as exchange rates, can significantly affect profitability. Since you do not want to be working with a company that can disappear overnight and leave your project in the lurch, look for a company with at least 500 employees. This is a good metric to ensure that the vendor has enough cushion to survive turbulent times.
Make sure that the vendor you choose has enough experience in dealing with a variety of projects. The experience that comes with handling many projects helps. Look out for the technology DNA! A vendor who is aware of the latest technologies and does innovative work will be the best bet.
IT smarts at your beck and call
Democratization of outsourcing means having IT smarts at your beck and call. Today, working with offshore outsourcers is not only possible but financially beneficial for SMBs. In the shift away from a deep-pocket luxury, outsourcing partnerships have become an accessible, profitable foundation for simply doing good business.
Whether you’re looking to outsource a simple enhancement to an existing Website or a turnkey initiative, a nimble firm that facilitates budget-friendly, innovative solutions using the best of new-and proven-technologies can be the path to successful business.
Srinivas Balasubramanian is Chairman and CEO of Photon Infotech. Before Photon, Srinivas was a senior vice president at Webmethods. Prior to that, Srinivas was founder, president and CEO of Infravio. Srinivas served in various capacities at Infravio, initially responsible for raising the initial institutional venture capital round. Thereafter, Srinivas served as chief strategist of the company, driving the company to a thought leadership position in the emerging Web Services and SOA market until Infravio’s ultimate sale to Webmethods, which he architected. Srinivas has an MBA from the prestigious Indian Institute of Management (IIM), Calcutta and is a graduate from Birla Institute of Technology and Science (BITS), Pilani. He can be reached at [email protected].