Wednesday, March 08, 2006

Outsourcing: NASSCOM 2006 Round Table’s Point of View

At the India Leadership Forum - NASSCOM 2006, Economic Times invited 5-global IT heads for a business discussion. At the round table were Ronan McGrath, CIO, Roger Communications (Canada), Aaron McCormack, Vice President, Network Platforms, British Telecom Global Services (BT), Erik Viens, Vice President and CIO, Invista (USA), Les Dawson CEO, Southern Water (UK), and Richard Gragner, Director-General of IT, National Health Services (NHS) (UK).

With, India clearly on the radar screen of these companies, Economic Times invited the five global IT heads to talk about their IT strategies and spending, competitiveness of Indian software development companies , increasing global competition, and if outsourcing meant handing over or reducing responsibility. And, the five responded as under:

Ronan McGrath: As the biggest cable and wireless Canadian company, Rogers will not outsource telecom infrastructure, but can outsource some non-customer facing areas of business.

From the Indian strength and weakness point of view, it is an opportunity to move as much non-product developmental activity as possible. Once IT moves to product development in the next 3 to 4-years, everything else can be outsourced.

Aaron McCormack: British Telecom was the first to off-shore customer services to India and has been here for quite some time now. We spend 2-billion pounds a year on infrastructure, product development and systems support using Indian companies like MphasiS. They do a great job; they’re the best people at the right rates. As long as, India has companies like that, they’ll do fine but it won’t survive on low cost labour alone.

BT connects successful BPO companies in India and other locations like Philippines, Hungary and Columbia, I think the hardest challenges Indian companies will face in the business is scale, as they move to newer business models. I think they can meet the challenge. If we believe Mr. Friedman, the flat world is tilted towards India for a little while.

Erik Viens: At Invista, we don’t sell gigabytes, we sell giga kilograms. We initially spent $200-million on IT, but we currently spend half of that. We moved a bit of the network to India and got a handsome return on it. The challenge going forward is to make it run cheaper.

Initially focusing on India for cost and speed, we were willing to take potential cost savings on labour arbitrage for faster turnaround time. Surprisingly, we got better quality in REP, specifically in SAP implementation. We were quite pleased with that, or the triples of cost, speed and quality.

Les Dawson: In UK, utility privatisation process saw a huge investment in IT and IT infrastructure. Everyone came to India because it was TINA (there is no alternative) situation.

I think the challenge facing software companies is how to differentiate them selves to add value in terms of domain knowledge. Ten years ago, the first outsourcers looked for cost, quality and speed. Now they want to differentiate in their own business.

Richard Granger: The NHS spends 70-billion pounds a year, out of which 2.5 to 3% is spent on IT. We’ve worked with CSC, Accenture, Fujitsu, BT and let them manage the market around specialist suppliers and hardware vendors. I did not award any large contracts, because then you don’t get value, instead what you get is an exquisitely expensive for of dependency. Global vendors did not have high volumes of healthcare contracts, so domain expertise is a limiting factor, as well.

The non-existence of regulatory frameworks for processing personal data is one of the constraints of outsourcing to India. Organisations processing data by off-shoring to India do so without customer involvement. At the NHS, data will not go outside the European Union, until there is a regulatory framework in place.

Constraints and all, the India IT services industry continues to clock a robust growth rate. Sukant Srivastava, Managing Director of Keane India, a Boston-based IT services and business process outsourcing firm with 2,800 of its 10,000 global employees in India, has plans afoot to ramp up numbers from 10,000 to 15,000 over the next 3 to 5-years.

Srivastava strongly believes the next wave is towards emerging outsourcing areas like infrastructure, testing and advanced technologies, with enhanced focus on vertical-based solutions, niche technology areas, including RFID and smart-card solutions. Similar to the way ITeS – BPO functions evolved from outsourcing low-end data-entry activities to more analytic-based processes, the trend in IT is to move from tactical application services to integrated solutions.

Srivastava believes opportunities for Indian IT services abound if they deliver higher value from off-shore by combining technology, domain and programme management expertise. But, infrastructure failing to cope with the high speed growth of the industry could pose a massive threat. As the service providing model matures, more and more global companies are beginning to establish captive centres in India, an interesting dynamic for traditional service providers.

However, increasing competition means only the ‘best of breed’ will succeed, and India has to ensure it maintains its supply of IT / ITeS talent by pro-active collaboration between the Indian industry and academia, including government initiated programmes that allow India to manage its growth in outsourcing. If all of the above are accomplished, NASSCOM’s positive outlook on India being the preferred outsourcing destination will be more than fulfilled.

It will always be Rah Rah time for India!

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The article is sponsored by A-1 Technology Inc which is an established Software Development Company and is one of the best Software Development Companies in the era dealing in offshore outsourcing including services offshore website development and software development.