Saturday, October 07, 2006

IT Outsourcing

Oct 05th, Thursday:
The IT Management class today was on IT Outsourcing. For someone like me who has worked in the IT Outsourcing industry for more than 5 years and has "been there and done that", I wondered how much of value addition would there for me.But I was completely wrong! The class exceeded my expectations, showed me a new dimension and made me think more about this business.

My experience had involved mostly working in the implementation phase of an IT project. Sometimes, I was pulled into the Request for Proposal (RFP) stage or did an assessment of the outsourcing project. But what I learnt today was of significant importance.

We had a guest speaker, Ms TJ Virk from IBM, who gave us an overview of the “anatomy of the outsourcing deal”. She talked to us about the various stages of the deal- Determine Interest, Define value, Detailed Analysis, Assessment and, Contract which I found extremely interesting. I was surprised to know that several years of relationship building, a lot of hard work and a bit of trade off (negotiations) is involved before a big outsourcing deal is bagged. Also, when IBM goes in for bidding an outsourcing deal, it looks at several evaluation criteria. Of the various criteria that she talked about, of particular interest to me were the one on "cultural fit" and the "commitment to long term strategic partnership". Ms Virk even walked us through a case study where the IT services of a Bank in Canada were outsourced to IBM.

So what are the reasons for outsourcing? There are many. Reduction in costs, make costs variable, focus on core business, improve service levels are few of the reasons. I found this session extremely useful because in a nutshell it gave me an overview of how things are done from the concept stage to the implementation phase.

Later, during the class, Prof Mufti showed us a framework that can help managers take a call on whether a company should go in for outsourcing. On one axis of the grid , we had the “Strategic Dependence” of the work in the organization and on the other axis, we had the “Operational dependence”. If the Strategic dependence is low and the Operational dependence is also low, it would be in the best interest of the company to outsource their operations. If the operational dependence is high, but the strategic dependence is low, organization can think of outsourcing, unless it is huge and well managed.

One of the last slides that Prof Mufti showed to us was very interesting. He said that more than 90% of the supplies of young professional for work in offshore centers reside outside the current hot spot cities of the world. Only 28% live in India. The remaining 72% live in countries like Chine, Russia, Philippines, Brazil, Indonesia, Turkey and Poland .
IT outsourcing is about to explode and every country with pools of talent would want a share in this pie soon. !


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