Second-Gen Outsourcing: Marriage or divorce?

PANJIM (GOA), INDIA: As many enterprises step into a new era of IT management with the first generation of outsourcing riding into sunset period, CIOs face a new list of options, dilemmas, problems, challenges and opportunities.

In a candid and shared torrent of views and experiences, all this and more came out in a panel discussion on Second-Generation Outsourcing today at C-Change 2010 here.

The panel was moderated by Mani Mulki from Godrej Industries who started by admitting that any decision on outsourcing is not easy and relates to execution gaps, cost of inefficiency and more.

“An outsourcing opportunity has to narrow down this execution gap,” Mulki said.

With this the discussion traveled a little back, first trying to define the first generation of outsourcing, or outsourcing 1.0.

The first round did a strong reflection on the débutante genre of outsourcing, where Rajesh Panchal told how not everything can be outsourced.

“What exactly is outsourcing 1.0,” asked Venkat Iyer, from Star TV, saying it could vary between PCs to strategic outsourcing of IT infrastructure, applications and even people. He cited the big ten-year contract signed in 2001 at Tata.

“It involves a lot of strategic acceptance,” added Upal Chakroborty from DLF Ltd. He referred to how the depth and degree of relationships have changed over the initial years. Companies like Bharti have gone beyond 1.0, with some percentage of their revenue going to IBM.

The most interesting point that came out as the leitmotif of the discussion was the importance of trust and relationships in an outsourcing set-up.

Mulki demonstrated it poignantly by showing a picture of a crocodile having its jaws open while a bird cleans its teeth.

“It’s all about the trust that is entrenched between the two. The same applies to an outsourcing relationship also. This is why trust, relationships, realistic expectations and perfect delivery on both sides matter a lot.”

Moving forth, Venkat Iyer cited the example of Tata’s acquisition of Corus that required migration of entire Corus business to Tata and how the work was entrusted to IBM. “This was built on trust of many years,” he said.

Business value derived beyond day-to-day operations to building value is what 2.0 would be about.

Pandurang Salunkhe from IPCA Labs said that lessons and unmet expectations in 1.0 phase would be the triggers and criteria in 2.0, and this would mean last mile issues, attrition etc.

“It won’t be lower-end work like facility management, desktop management, but business automation, domain and knowledge-related work. In fact, 2.0 can be about some complex areas, a continuous phenomenon that outsourcing companies will come to take up more mature work,” according to Salunkhe.

JRC Murthy from Gulf Oil related the experiences of outsourcing to the same vendor. “The first was more about stabilization and standardization but second term was about value. In second-generation phase even unused hours, for instance, can be used for training also,” he said.

Rajesh Panchal from United Phosphorus, on the other hand, maintained that long-term contract and focus on users, as well as smooth relationships, would be good for generation 2.0.

“When you move to 2.0, do revisit what your internal customers want and what was their experience earlier, because it’s they who get impacted,” he said.

Pandurang though dissented that outsourcing is more of an IT decision, and you can’t talk to users.

Rajesh continued his stance by illustrating how financial systems show the role of IT other way round.

As it gradually turned out, SLAs, capex converted to opex, flexibility etc would be the key benefits expected from 2.0. It would be more about vision and here the IT team would be business focused who will identify what needs to be done and then identify an IT service provider that will give that value. It will also underline CIO’s role in negotiating.

If 1.0 was about focus on costs, SLAs, uptime and maintenance of IT architecture, 2.0 would be more transformational and user oriented, where SLA on business value and drivers would take centre stage.

Another interesting facet that came out was how much power incumbent vendor holds.

A debate that stirred was on how much could the vendor be allowed to know with Non-Disclosure Agreements (NDAs)? A CIO strongly asked, “Does existing vendor get undue advantage of inside-knowledge of what sells, what politics work, and business nuances of existing organization etc? If so how to incentivise new vendors?”

Venkat then gave an eye-popping analogy as he compared outsourcing relationship to a marriage. “If you break it, there is a clear divorce but then if you can’t work it out in ten years of a contract, then something is wrong. As a partner you should try to make it work.”

Clear expectations however work it or mess it, Pandurang argued. And then there was a rejoinder, “Known enemy is better than known guard. No incumbent should be allowed to exploit your weakness.” A CIO stressed.

From the audience CIOs took the analogy into a lighter but thought-provoking vein.

“Even if it’s a marriage it can’t be an Indian marriage. At best it’s an American, European marriage, or contract marriage where inefficient relationships can’t be dragged for the sake of it.” Atul Kumar from Ispat Industries added with another strong comment “2.0 is more an outcome of recession.”

The panel ended with a stimulating question. “Would there be a 3.0 after 2.0 that will mean sunset for a CIO’s career also?”

As Mulki answered, “Today CIO is a technologist who is business aware. It would be vice versa next.”

In another interesting panel discussion moderated by Upal Chakroborty, DLF on ‘Digital Enterprise: Fiction or Possibility’ CIOs talked about many pitfalls, risks and incentives for digitization.

Here areas like what areas to be digitized, security limitations, applications worth it, rural India potential and pitfalls etc and how subjective elements or decision-making areas stay out of scope of digitization came to the fore.

Suresh Shanmugam from Mahindra & Mahindra Financial Services highlighted the issues and opportunities that rural India presents in this context. Ramesh Janarthanam from MIRC Electronics talked about how digitization can help change experiences of vendors, partners and customers. It’s a utopia but a long way to go, mulled the panel.