Outward bound

Outsourcing is often touted as the answer to IT costs spiraling out of control – but does it really work? Imthishan Giado investigates.

Tags: BT GroupIDC Middle East and AfricaManaged servicesRoads and Transport AuthorityUnited Arab Emirates
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Outward bound Tareque Choudhury of BT.
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By  Imthishan Giado Published  November 8, 2009 Arabian Computer News Logo

Outsourcing is often touted as the answer to IT costs spiraling out of control – but does it really work? Imthishan Giado investigates.

For years in the world of IT, outsourcing has been the equivalent of a no-brainer.

In theory, it allows CIOs to, at the stroke of a pen, cut their overall headcount, with all the attendant benefits that brings not just in terms of salaries, but also in terms of management overhead and human resources. It allows IT teams to be smaller, better skilled and more focused on achieving business objectives, as opposed to dealing with relatively petty issues like user support or server management. And most importantly, it cuts costs while improving standards, as enterprises can grow faster while using teams of best-in-class service providers to carry out their projects.

This is the theory – and for most of the world, it’s nothing less than a fact. However, the Middle East has noticeably been slower in its uptake, and large IT teams are still very much a fact of life in this region. Kavita Bhadauria, senior analyst for IT services at IDC Middle East, Turkey and Africa reveals more.

“Saudi Arabia is definitely the leading market in terms of outsourcing in the Middle East, and then followed by UAE. The uptake has been relatively slow in other countries. In KSA, spending has largely been in verticals like telecoms, transportation and e-government projects and also smart cities. They are definitely a huge potential for outsourcing,” she says.

Most companies tend to think of outsourcing as still following the same pattern it did in the early 2000s, when companies farmed out call centres and basic telephonic support to overseas firms, usually in India. Today however, outsourcing is a much broader umbrella term that can cover a whole spectrum of functions.

Yes, it may still involve setting up a pipe to Bangalore where a team of agents respond to your helpdesk tickets, but it can now also cover all day-to-day general operational functions within an organisation – from basic server maintenance to capacity management and even application development. This type of outsourcing – different from outshoring, described above – is where the managed services provider sends in a team of individuals to work alongside the regular IT team on the projects at hand. It has the added benefit of considerable savings in HR management – for example, if an employee goes on leave, the outsourcer must replace them regardless, as it would be a breach of contract not to provide the stated headcount.

At this point, one might ask – why would CIOs prefer to have these teams present in the country at all? Would it not be easier to have the entire operation based overseas – or more appropriately, “true outsourcing”?

IDC’s Bhadauria admits that the more basic model is widely prevalent here and that cultural concerns still win out at the end of the day:” That has yet to happen in this market – the Middle East is not really open to that model. There are service providers providing the highest level of support services from their offshore centres, but that model is not very accepted in the ME market. It’s a desire to control the entire system and also related to the security concerns some people still have in this part of the world.”

In terms of what functions are actually being outsourced, there is no clear consensus, but most organisations tend to dip their toes in the water first with service desks and desktop support, and if successful, move to outsourcing their entire IT operations.

BT’s Tareque Choudhury suggests that application development and security are also growing areas of interest: “Typically, it’s about application development, because it’s very difficult to get that core skillset within your organisation. A lot of security monitoring is being outsourced – people are taking security quite seriously right now and they don’t know what’s happening on their part of their organisation. They tend to outsource it to companies that can, like a security guard, watch their organisation for threats.”

Not everyone agrees with this view. One such company is the UAE’s Road and Transport Authority(RTA), which has invested heavily in outsourcing through Indian vendor Wipro – but has yet to entrust security to an external party. Indranil Guha, manager for IT infrastructure management, explains his point of view.

“The most easy bit people are ready to try is desktop support and service desks. The next step is core operations – server and datacentre operations. I have seen many companies that are a little reluctant with that but they are OK with the idea when they see some successful implementations. But security is an area, I still think everybody including RTA would give it a really microscopic look before outsourcing. I’ve seen a reluctance among people to put their security environment, logs and all these things in the hands of the outsourcers. How transparent would the company be with the parent company?” he suggests.

Guha elaborates on the RTA’s outsourcing mindset: ”Our strategy is: any non-core activity which does not need day-to-day decision making should be outsourced. What IT has done is taken that strategic decision and has implemented it from day one since we launched our IT services in April 2006. We had our service desk outsourced and our IT operations completely outsourced. What I mean by the latter is day-to-day backing up of servers, checking the server health and doing the capacity planning.

“As a policy, we said that we will not hire too many field engineers here. We’d rather manage multiple projects or specific large projects and have these engineers outsourced. That has come up as a very successful model,” he states.

While this may sound as everything within IT is up for grabs, Guha adds that there are some things which should be never be up for discussion: “Strategic decision making, innovation. CIOs and the key people in the department involved in innovation and strategic decision making or recommending strategic initiatives to the respective verticals, whichever business they are in – I don’t see that being outsourced.”

Not everyone, however, experiences such good fortune with outsourcing. T Nagarajan, IT manager for Toyota agent AAB Qatar took a crack at outsourcing for his main ERP project after being unable to find the right skilled staff – and is still trying to disengage from the process, describing it as a “bitter experience”.

He says: “Normally, when I have to recruit somebody, the cost goes very high. The easiest way is to get someone for three to six months – postponing the problems, instead of a finding a permanent solution. But when we started looking at the real quality of the staff coming into our business and trying to support us, then things completely changed.

”When the outsourcing staff comes in as an expert for a particular field, I found that the existing employees are being sidelined. The enthusiasm and morale were less, and their productivity was going down because automatically the importance was being given to the other staff as they were considered as experts when they were brought in,” he continues.

Nagarajan adds that the outsourcing staff were not always up to his standards: “I did notice that even the top companies sometimes won’t take so much of care while recruiting. They just recruit and then immediately push them to this part of the world. The company is also not aware of the credentials of that guy, his attitude. When we start interacting with him, then we find that this is not our exact requirement. Maybe technically he is very good, but it’s not always about the technical things.

Contract Law

Indranil Guha, manager for infrastructure management at the RTA, is well aware of the crucial rule contracts play in outsourcing. Here, he reveals how he structures his own service agreements. “We have service standards divided into gold, silver and bronze categories. They’re supposed to meet gold standards all the time. If they miss gold, they get a percentage penalty.

If they fail silver, then it’s a higher penalty – and that’s not a linear scale. If it’s a 99.5% and they met 99% which is missing gold but into silver, then there is a penalty. But if it is below 99%, they are into bronze and the penalty is much higher.

Below bronze, there is mutual discussion and we could even consider termination of the contract if we feel that the company is not capable of pulling back into gold,” he says. “There are also financial penalties for not meeting the SLAs and NDAs. I would not like to quote a number here, but it usually varies from 10% to 20% of the total value or the monthly invoice,” adds Guha.

2656 days ago
Piers Ford

Jerome, I'm writing a new piece for ACN - giving the readers a Top 10 tips for successful outsourcing in the region. It will be a rundown of the main considerations that IT managers need to make before outsourcing any process or aspect of their IT departments (price, SLAs in place, project management etc). I'm looking for sharp, pithy recommendations and advice. If you would like to contribute, please let me know (piersford@aol.com)

2872 days ago
Jerome Thorson

This was an interesting, if limited attempt to help people understand outsourcing. I shall briefly share some of my 30+ years of experience in outsourcing, working with the father of outsourcing, EDS. I assure your readers, that Outsourcing does work as evidenced by the pleathora of companies wanting to be in the business, and by numerous success stories propogated by those companies. I think the basic premise is wrong. If costs are spiraling out of control, the problem is with the CIO, and outsourcing may not fix his problem. It is true that you can get fixed priced contracts, but they almost certainly will not be less expensive than an in-house solution. The CIO's costs may probably increase, at least in the short run. I note with interest the comment by the RTA manager with respect to contract management and penalties. While I agree that service level agreements are esstential for monitoring the basic deliverables, too many outsourcing contracts get into trouble when one or both sides believe they must stick to the letter of the contract, leading to an inflexibility that can kill the relationship. In my years in this business I've never seen a contract that was suitable for the entire duration of a relationship. Business changes, requirements change, people change (on both sides) and there need to be ways to accomodate those things without jeopardizing either party's benefits. Outsourcing is about building a working, trusting relationship between the parties. If that exists, then every problem has a solution. If not, one or the other will try to kill the deal. I think this is the reason why outsourcing has not caught on in the Middle East; trust is earned over time, and someone has to make the first move. But, making the move to outsourcing could jeopardize more than the CIO's job if the company is unprepared to engage the outsourcing supplier. One final point on the provisioning of qualified staff. There are market rates for every job in the world, and most CIO's are well aware (or at least should be) of the cost of people. It cannot be forgotten that if an outsourcing provider takes on the headcount of the company, they will probably continue to have the same people working on site as before. The value add is the people who can be seconded, as necessary to solve a problem, a luxury most CIOs don't have. It has been years since I've heard anyone put forward the premise that outsourcing is the answer to out of control IT costs If there are still people who believe that is the value of outsourcing, then they should stay away from it. If, on the other hand, they outsource for the right reasons and work toward a trusting, flexible business relationship, outsourcing can work, and work very well indeed.

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