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Much has been said about the benefits of outsourcing. So much so that outsourcing has become a knee jerk reaction of management trying to wiggle their way out of a tight situation. Outsourcing has also been tried out as a substitute to having an IT department. Needless to say, such initiatives more often than not fail. A Dun and Bradstreet's study indicates that as many as 25 percent of all outsourcing relationships fail because the clients don't communicate their needs clearly, costs exceed expectations, and quality of service is poor. Outsourcing has its benefits, but a lot of meticulous planning goes behind every successful outsourcing story.

SLAs

Service Level Agreements are contracts between the IT user & the service provider, which details out the expected Terms of Service & Quality of Service, which are quantifiable, measurable & enforceable. SLAs need to have a clear language and be business focused. Frequent technology changes may necessitate shorter agreement periods. A good SLA defines expectations precisely. They include both remedies and penalties for missing service levels. A clause to update these service levels based on improved industry standards is also important. SLAs could usually do with some outside help. A consultant would be in a good position to provide information on industry standards for a particular service or furnish benchmarks. What has to be clearly communicated to the consultant is the business critical needs that a particular software or hardware is expected to meet. These can then be translated into technical metrics for the SLA. The rewards & penalties give an idea to your vendor on how critical a service is to your business. The SLAs should be measurable and enforceable. Service levels which practically cannot be monitored effectively are of no use.

When evaluating technology-based vendors, technical skills should be the most important factor in the short listing process. Legal action is a last ditch measure. The vendor selection process should be elaborative enough to lower the probability of defaulting on the service levels. A legal tangle may not offer an immediate solution in the fast paced IT world, where uninterrupted service for your IT system is vital.

Multiple vendors

Outsourcing individual business applications or services has led to a situation where organisations have to deal with a large number of outsourcers and applications vendors. In a report by Cutter Consortium, out of those companies using outsourced services, 73 percent have more than one outsourcing supplier. More & more vendors specializing in their technology offering. This not only allows them to be technically superior, but also gives them a cost advantage. However, a high percentage of vendors close shop every year. IT service continuity becomes a major issue. IT users change vendors frequently, diluting the outsourcing advantage by over managing & disaster managing outsourced projects.

Future of IT departments

As more & more companies derive benefit from outsourcing & established delivery models to emulate, most corporations will eventually rely on outsourced IT services. The role of internal IT departments may change but they will not become extinct. Organisations will have much smaller in-house IT departments that will have the job of identifying, integrating and managing IT partners. Technical knowledge will still be required to talk to consultants & IT vendors as well as manage projects. Vendors do take greater care when there is technical staff at the client's end. Technical architectures & choice of technology are important decisions in IT projects. For example, in a software project, they influence the TCO as in deciding the development time, amount of training required, supporting hardware & the life of the software.

Outsourcing will soon be managed as an investment portfolio whereby cost is reduced, & risks are mitigated. The efficiency & performance of an IT department will be measured by the benefits that accrue out outsourcing in a timely manner.

India as an outsourcing destination

India has proved to be an effective outsourcing destination for Fortune 500 companies. Citibank, Morgan Stanley, Wal-Mart, AT&T, General Electric, Reebok, General Motors, Sony, Boeing, Coca-Cola, Pepsi, SwissAir, United Airlines, Philips, General Electric, IBM, Reebok, Lucas, British Aerospace, General Motors, and Sears are some companies relying on software companies in India. It is estimated that one in four global majors outsourced their mission critical software development to India in the year 2000-2001.
It is not surprising that corporate giants in the United States, Europe, and Japan are increasingly looking to India for cost-effective and high-quality software solutions. A lot of independent studies including a World Bank-funded one in the United States confirm that vendors rated India as their number one choice for outsourcing.

The benifits of outsourcing to India is widely known today. The tragic events of September 11 have made corporations now realize one more advantage; that of having multiple locations for data and applications, and having off-site IT systems, which can protect their business when a disaster occurs.
Since 1991, Indian software exports have grown mainly based on India's reputation of high quality and cost effectiveness. India is being looked at for providing state-of-the-art technology and timely deliveries.

Labor accounts for more than 75 percent of the cost of developing software, and the market for highly skilled IT professionals is very tight in developed countries. Recruiting, hiring, and training people to meet the constantly changing needs of the IT environment not only costs a great deal of money but can also delay the completion of projects. India has twice as many technical graduates as the United States does, on an absolute basis. The result is that Indian software developers can maintain a critical mass of qualified employees in any specialty despite turnover rates that can be quite high. Lately, the Government of India has taken steps to triple the output of engineering students by the year 2008.

A comparison amongst some countries in Asia Pacific by McKinsey based on these factors highlights the following:

Ratings are on a scale of 1 to 3, 1: Denotes low 2: Denotes average 3: Denotes high

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