To outsource, or not to: That’s no longer the question.
For a majority of CIOs, the decision to outsource has pretty much been made for them by a mix of factors. These include a technology environment that’s gotten increasingly complex, an increase in business demands, and a lack of internal skill sets.
From a technology perspective analytics, cloud computing and mobility have introduced new levels of complexity to the technology landscape, demanding CIOs to look outside their IT teams for help. At the same time, not all IT teams have been equal to the job of keeping pace with swift technology changes.
And finally, the number of business projects Indian IT teams have had to undertake a year has risen dramatically, even as the turnaround time for each project has shrunk.
For many CIOs, it feels like the walls are closing in,.
The move to outsource is an evident way out. Yet it isn’t easy. Many CIOs are wary of providers that want to stick to the letter of a contract and not its spirit. Stories abound of IT teams unable to get help from their providers over a weekend because it was not stipulated in a contract. Then there’s the thorny issue of attrition within the ranks of providers. A number of CIOs have taken to outsourcing because their own IT organizations can’t hold on to talent—only to be surprised to find out that their providers have the same problem.
CIOs also believe that providers are not always transparent. “Vendors have a tendency of deploying less qualified or skilled resources, which leads to delays or unsatisfactory jobs. In software delivery, vendors have a tendency to increase costs. They deploy 10 people for a task that requires only a single person. Project management and monitoring should to be done in-house. This will help in a changeover of vendor if the need arises,” says S.C. Mittal, senior executive director, MS and IT, and group CTO, IFFCO.
For all these challenges, there’s no getting around the fact that in the last few years, new trends have made it increasingly impossible for CIOs not to outsource. Here are three of the most important drivers for outsourcing—and one thing to watch out for.
Taking Business Foward
In March of 2008, faced with plateauing sales, Hero MotoCorp decided to make it easier for its dealers, its primary customers, to work with the two-wheeler manufacturer. “We wanted to ensure our ability to track customer information, sales and service trends, defect analysis, etcetera, to enhance customer experience. Also, our dealership network had grown into a complex mammoth and we wanted to standardize it because it was only going to get more complex,” said Vijay Sethi, vice president-IS and HR and CIO, Hero MotoCorp in a story CIO ran in 2012.
All of that could be accomplished with a dealer management system.
So, in 2008, Hero MotoCorp started the rollout of the largest dealer management system in its industry. Today, its dealer management system connects over 1,900 partners and stakeholders on to a single system.
Key to the success of the dealer management system were two facts: One, that Hero MotoCorp outsourced it, and, second, that the business was heavily involved in the project. High levels of business involvement is not as common as it should be. For the most part, IT departments and different lines of businesses tend to work in silos. And in instances when they do collaborate, it often creates friction. For years, we’ve heard stories of CMO-CIO relationships that have soured. Almost unkindly, a CMO is often referred to as a CIO’s bête noire.
But at Hero MotoCorp, this is unheard of. “IT and the business work very, very closely,” says Sethi. “The demand for the dealer management system was a pure pull from business and our channel partners. The business teams—mainly sales, marketing, customer care, and over 600 dealers at that time—fully realized the benefits an integrated system could bring to their entire ecosystem and customers,”
The business case for the project was led by the business team, which calculated the benefits that a dealer management system could introduce. This included the potential of improving customer experience at Hero MotoCorp’s dealers, enhancing the efficiency of channel partners, improving the internal effectiveness of the organization, and sales.
Anil Dua, SVP, sales, marketing and customer care at Hero MotoCorp, who was instrumental in key decision-making during the roll-out of the project, says, “The business was fully involved. Our core team comprised business and IT personnel and was involved right from the day we started gathering requirements and the evaluation of consultants and partners. All the decisions, including the decision to outsource the DMS, were jointly undertaken,” he says.
Enabling Scale, Speed and Access to Technology
“For us, business agility was the single biggest factor in the in-house versus outsource decision. We realized that the time-to-market for a solution does impact the relevance of the solution and the corresponding business benefits,” says Dua.
Sethi agrees. “An organization can’t reap the benefits of the project if some of your users are getting to use the first version of the system—when the system is ready to go to next version with a new set of benefits,” he says.
Speed is among the reasons that one of India’s most prominent conglomerates, Dalmia Bharat Group, is turning to the cloud for sourcing solutions. The Dalmia Bharat Group is expanding at a rapid pace. With business interests in cement, sugar, refractory, and power, the company is growing through a series of M&As with big names such as Kohlberg Kravis & Roberts, and Orissa Cement. The company has doubled its customer base in the last year.
The group, led by CIO Vinit Thakur embarked on a hybrid cloud solution to achieve a massive consolidation plan of all its companies. “If an organization is in a rapid growth mode, it’s almost impossible to build IT capabilities at a rate proportional to the speed at which it’s expanding. It’s also difficult to make the infrastructure available for different projects quickly, and this can influence your decision to outsource,” he says.
Another important driver for outsourcing is that it allows enterprises to get their hands on new technology and services. According to the State of the CIO (CIO magazine’s annual benchmark survey) 64 percent of Indian CIOs say that access to new technologies or services is what drives their organizations to open their doors to outsourcing. Another 46 percent of CIOs say they outsource because it gives their businesses access to world-class capabilities. Surprisingly, lowering IT costs is the second most important driver of outsourcing (55 percent of CIOs).
Bridging Skill Gaps
A full 41 percent of Indian CIOs outsource because they say they have inadequate internal skill sets. This isn’t surprising given the pace of technology change, and of business demands.
“In the process of expansion, if CIOs were to create IT capabilities within their organizations (by hiring more talent), it would become a challenge to provide these professionals with a career plan (once expansion is over),” says Thakur.
Dalmia Bharat leveraged a pool of highly-skilled IT talent by engaging with some of the best outsourcing partners in the industry to consolidate its business systems, says Thakur. “Had we chosen to build these capabilities in house, this would have been a very time-consuming, difficult, and high-risk journey,” he says.
To gain competitive advantage, businesses are always on the lookout for new trends and technologies to create new tools and applications for their customers. The truth is that IT may not have skills at their disposal, and thus, suffer from severe skillset gap within IT departments.
In the case of Hero MotoCorp’s dealer management system, Sethi knew that the scale and the speed at which the project had to be implemented would require a huge influx of manpower. Sethi knew that the company could not offer career paths to support engineers, rollout engineers, training and technical consultants, once the dealer management system was complete.
“It wasn’t pragmatic for us to build those skills internally,” says Sethi. “We were looking for skilled people who possessed domain knowledge, experience, and knew the business processes required to manage, support and run the project successfully.”
When deciding who to partner with, R.D. Malav, VP-IT at Jindal Poly Films, feels that the most important criteria is looking for vendors with proven track records in a given industry is important.
Atul Govil, head SAP and IT, Corporate, India Glycols, says CIOs must be extremely clear of the deliverables specified in a contract, otherwise the whole partnership suffers. “Whether it’s a fresh contract or one up for renewal, it’s important for CIOs to delineate clear roles and responsibilities of both the service provider and their own organization. This must be documented in detail with exclusions, if any. In addition, outcome-based metrics to evaluate delivery performance should be firmed up with mutual agreement. Specify confidentiality measures, desired work quality thresholds, change request management, an escalation matrix and recourses in case expectations are not met. Ensure the partner has skin in the game, and have provisions and penalties for over and underperformance,” he says.
At Hero MotoCorp, Sethi revisited the company’s contract with the implementation and support partner and decided to modify the terms and conditions of the contract a few years later in 2011. “As the dealer management system was still moving up the lifecycle curve and was still maturing, we started getting a lot of requests for enhancements and improvements from our dealers,” says Sethi.
The company realized that the response time for making these changes was not very aggressive—owing to the geographical spread of the outsourced team. That’s when Sethi decided to shift the location of his external support team to Hero MotoCorp’s Gurgaon facility and ensure faster response and resolution. “As we moved forward, support processes became more crucial to the business rather than agility in rollouts,” he says.
It was a bold and unusual move. But it worked. By having the outsourced team sit alongside, Hero MotoCorp’s internal IT team, Dua and Sethi achieved multiple objectives. First, by sheer osmosis, the outsourced team picked up a deeper understanding of business processes. In addition, the move also motivated the outsourced team more, resulting in far lower attrition.
Sethi made another change to the contract. He decided to insource project management so that timelines and resources could be managed more efficiently.
These changes have done wonders for the organization and have also received a good response from the business as the benefits are clearly visible and attributable. “I must also appreciate that the partner also brought in lot of value-added inputs to change the contract to make the overall project much more efficient and effective,” says Sethi.
As more Indian organizations see the value in outsourcing, Sethi’s experiences will come in handy.
Outsourcing Success: A Joint Venture
If you think outsourcing is an IT project, you’re wrong. Here’s how the CIO and the VP of sales and marketing joined hands to create one of the best outsourcing strategies in the Indian auto industry.
As businesses folded around him during the great depression of 2008, Vijay Sethi, VP-IS and HR and CIO of Hero MotoCorp, was toying with the idea of creating what was going to be one of India’s first—and largest—dealer management system (DMS) in the two-wheeler industry.
Sitting in his Vasant Vihar office at the heart of South Delhi, Sethi realized that the only way to stay ahead of competition and grow business in a down economy was to keep dealers happy. If the company could fulfil dealers’ needs faster—and in a less cumbersome manner—it would help them service end customers better and grow Hero MotoCorp’s business. But Sethi knew that its current mode of working—manual inventories and siloed and labored interaction with dealers—would throw a spanner in the works, hindering growth.
The solution? A single DMS platform that makes processes uniform across dealers, and introduce a direct, real-time, and predictable information channel between the company and its dealers.
It was a goal that thrilled business. It found resonance with the company’s SVP of Sales, Marketing, and Customer Care, Anil Dua. “The customer today is becoming more and more IT savvy and the DMS is a key step toward enhancing customer service,” says Dua.
It was also a goal that wouldn’t come cheap. But because Sethi had business’ backing, cash wasn’t a problem, internal IT skills were. In what was going to be one of the best business-IT joint ventures, Sethi and Dua together decided to turn to outsourcing. “The core team, which comprised business and IT, was involved right from the day the company started gathering requirements and evaluating partners. All the decisions were jointly taken,” says Dua.
The project helped Hero MotoCorp achieve competitive edge by standardizing the customer experience across dealerships. But three years into the partnership, the company realized that there were huge gaps between request for enhancements from its dealers and the response time of the vendor.
That was partly because the outsourcer wasn’t able to understand the business process of Hero MotoCorp. A representative from Hero MotoCorp would then train outsourced IT personnel. But there was another stumbling block at the outsourcer’s end: Attrition.
To fix that, Sethi and Dua decided to revisit the terms of the contract. They insourced project management which was being managed by the vendor. The duo moved the 60-strong support and development teams to its premises to improve the response time and resolution of the dealer requests. This, in turn, reduced attrition significantly.
Sethi and Dua’s collaborative outsourcing strategy has worked like a charm. The business is so involved in the project that Dua personally discusses requirements with the insourced IT team.
“The teams work closely with each other and with the core business team. This has helped us create an ecosystem with a much better understanding and response,” says Dua.
Shubhra Rishi is principal correspondent. Send feedback on this feature to email@example.com