Information Technology Outsourcing

Information Technology Outsourcing is a company outsourcing of computer or Internet related work, such as programming, to other companies. It is used in reference to Business Process Outsourcing or BPO, which is the outsourcing of the work that does not require much of technical skills. At its core, outsourcing involves transferring ownership of an organization¶s business activities to a service provider. For a fee, the outside service provider carries out the activities and maintains responsibility for their outcomes. The outsourcing arrangement may be either tactical or strategic. Tactical outsourcing has a short-term focus on minimizing operational inefficiencies or maximizing daily operations . Strategic outsourcing seeks overall business improvement rather than simple cost savings so that a company can achieve its long-term strategic goals by focusing on those activities central to organizational success.

Types of Outsourcing
Outsourcing essentially implies the transfer of non-core services to third parties who specialize in providing such services. It can cover a wide range of components depending upon the core competency as well as the requirements of the outsourcer. Outsourcing may be broadly classified into the following types: y y y Information Technology (IT). Human Resource (HR). Customer Service.

focus is to concentrate on core specialization and . Web Development application. administers and manages the selected process based on definite and measurable performance. R&D. advanced analytical skills and business expertise. volume and efficiency. Market Researched. y Business process outsourcing may be defined as the delegation of one or more IT intensive business processes to an external agency. Clinical Research. rather than just process expertise. research process outsourcing and analysis process outsourcing.y y y Engineering. KPO Industry handles more amount of high skilled work other than the BPO Industry. In today's competitive environment. Business Research and Analytics. KPO business entities provide typical domain-based processes. It is being claimed that KPO is one step extension of BPO. domain knowledge and experience of the people carrying out the activity. y Knowledge process outsourcing may be defined as a high added value process chain where the achievement of objectives is dependent on the skills. Knowledge Services. while KPO derives its strength from the depth of knowledge. In other words. BPO is more about size. experience and judgment factor. Business Processing Outsourcing (BPO) and Knowledge Processing Outsourcing (KPO) are the two major components of the outsourcing industry . Intellectual Property and Patent related services. The future potential of KPO is quite high because it is not restricted to Information Technology (IT) or Information Technology Enabled Services (ITES) sectors and includes other sectors like Legal Processes. Engineering Services. which in turn owns. KPO involves business processing outsourcing.

EDS. and enabling technologies. Finally. Then the phenomena of Business Process Outsourcing arrived. IT Outsourcing IT outsourcing has existed for a while. So the client and the customer needed . other outsourcing ideas emerged. which was almost a total takeover of a customer's IT environment. and applications were monitored and managed remotely from a Network Operations Center (NOC). Many companies and organizations have come to realize that by outsourcing non core activities. and the customer was assured high service guarantees through the implementation of Service Level Agreements (SLAs). In the past. Customers liked these services and bought them mostly to ensure availability for their systems and networks. In the late 1980s. large consulting firms like Andersen Consulting. flexibility. Computers were expensive then. Timesharing was one of the first types of IT outsourcing services introduced in the 1950s. the users and developers of information technology were using different computer platforms and incompatible proprietary architecture. SHL Systemhouse and vendors like IBM invented remote management services. The current form of outsourcing is completely different from the traditional form of outsourcing. Timesharing was popular for almost 25 years.core-competency areas and outsource the rest of the activities. not only cost are minimized and efficiencies improved but the total business improves because the focus shifts to the key growth areas of the business activity. It offered customers professional assistance for streamlining and managing their operational business processes. emerged as an offering around 1990. and even large companies opted to buy processing cycles of computers. IT outsourcing. yet it has suffered from some limitations in the breadth of offerings. service quality. CSC. Consultants generated this idea as well. networks. Customer's systems. But as technologies evolved.

But in today¶s business world. Types of IT Outsourcing Information technology outsourcing can be clearly classified into three different types: information technology outsourcing. For example. These packages are costly and it is hard to hire trained people to work on these systems. This contracting firm takes care of all information processes inside the firm. a lot of firms outsource their IT department to a specialized contracting firm. The computer world was dominated by mainframes. Almost all types of business nowadays need an IT department to fulfill their Information Management requirements. To cut the extra cost. quite a few firms spend tremendous amount of money on acquiring ERP packages in order to meet their information requirements. All these factors led to the form of outsourcing where the service provider had to be inside the firm in order to provide the services. Information Technology Outsourcing: This type of outsourcing deals with corporate IT projects contracting to an outside contractor. The networking quality and speed has improved so dramatically that it takes only few seconds to transfer tons of gigabytes of data from an offshore service provider¶s server. work under the same environment as the firm and provide the service. This type of outsourcing is seen throughout all . and the networking infrastructure was of very low quality and very costly. the usage of converging computer platforms and open Architecture have made it possible for the firms to outsource its IT function to service providers who may be sitting in some other country far away from the firm. Most of the firms entered into agreements where the service provider would sit inside the have the same computer platforms in order to do business. This has helped the business to get the information faster and thus has helped the corporate world in cutting down the cost. and business process outsourcing (BPO). data entry and call center outsourcing.

An easy way to cut down costs and increase production is to outsource IT work to cost-effective service providers. The BPO market is predicted to have a global annual growth rate of 22% for the next 4 years. The contractors do all kinds of work. including coding customized software for their clients.types of business. and a host of other related e-commerce services. organizational productivity management. IT maintenance and labor costs. Sometimes. accounting and finance components with business organizations. India is growing as a steady source of outsourcing provider. SGML/HTML coding for the Internet. .and paper-based data entry in any form. no matter wherever they are. and innovation management. The BPO trend is shifting dramatically from IT outsourcing to HR. except for the IT companies. This way also cuts down expenses on research. server space. Business Process Outsourcing (BPO): BPO is a step beyond IT outsourcing. supply management. e-business data entry operators may assist the database design and management. BPO can be treated as an investment strategy for sourcing business value chains. development and marketing. This allows the firm to cut costs on expensive software. including the customer relationship management. It increasingly becomes a strategic choice for companies that look to achieve cost reductions while to improve their service quality. increase shareholder value and focusing on their core business capabilities. Data entry operators at call centers in the country can input any type of data. taking raw data from the firm and generating all kinds of MIS reports for the management use. Advantages and Disadvantages The main motive behind business process outsourcing is to allow a company to invest more time. develop and update databases and accurately handle a high volume of data at high speeds. Data Entry and Call Centers Outsourcing: Data entry and call centers operators who work in a corporate data center are equipped to handle high volume digital.

Advantages for a firm are as following. Contract: Services will be provided to a legally binding contract with financial penalties and legal redress. and human resources in core active items without losing quality and name. Capacity management: An improved method of capacity management of services and technology . defining quality levels. cost re-structuring. cost advantage followed by increased ability to focus on core competencies is the major driving factor. This is not the case with internal services. y Operational expertise: Access to operational best practice that would be too difficult or time consuming to develop in-house. y Cost restructuring: Operating leverage is a measure that compares fixed costs to variable costs. Access to lower cost economies through off shoring called labor arbitrage generated by the wage gap between industrialized and developing nations. infrastructure) are focused on developing the core business. This will involve reducing the scope. y y Knowledge :Access to intellectual property and wider experience and knowledge. y Improve quality: Achieve a steep change in quality through contracting out the service with a new service level agreement. For example often organizations outsource their IT support to specialized IT services companies. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable. y Cost savings: The lowering of the overall cost of the service to the business. Thus. re-negotiation. y Focus on Core Business: Resources (for example investment. re-pricing. y y Access to talent: Access to a larger talent pool and a sustainable source of skills.

and application services which enable to buy at the right price. The security of North American or European company data is more difficult to maintain when accessed or controlled in the Sub-Continent. y Risk management: An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation. Software companies are trying new avenues through business process outsourcing to increase their revenues. Risk is the major drawback with Business Process Outsourcing. y Commodification: The trend of standardizing business processes. can cause security risks both from a communication and from a privacy perspective. From a knowledge perspective. allows businesses access to services which were only available to large corporations. for example. IT Services. underestimation of running costs and the major risk of losing independence. Thus. y Enhance capacity for innovation: Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation. business process outsourcing assists in increasing a company's profits as well as shareholder value. a changing attitude in employees. y Venture Capital: Some countries match government funds venture capital with private venture capital for start-ups that start businesses in their country. y Catalyst for change: An organization can use an outsourcing agreement as a catalyst for major step change that cannot be achieved alone. outsourcing leads to a . The outsourcer becomes a Change agent in the process. Outsourcing of an Information System.where the risk in providing the excess capacity is borne by the supplier. Outsourcing helps convert a fixed cost structure into a variable one and allows for more flexibility in handling of business related uncertainties.

and European countries. maximizing positive outcome. The following are trends in IT outsourcing. Another framework. TRENDS IN INFORMATION TECHNOLOGY OUTSOURCING Outsourcing has changed its format from single activity outsourcing to business process outsourcing.S. y y y The gradual acceptance of Western intellectual property (IP) standards.different relationship between an organization and its contractor. Several contracting problems companies face. to achieve any benefits. minimizing risks and avoiding any threats. Offshore sourcing moves up the value chain. BCM consists of a set of steps. manage and control the business processes that are. In the U. The global outsourcing becomes a major outsourcing trend in recent years. Comparing India to China. More corporate giants are opening dedicated software development centers in places like India and Russia. a Business continuity management (BCM) model is setup. identified as AHP. more focused on the identification process of potential out-sourceable Information Systems. In order to save costs and to provide better and more efficient services to the clients. Risks and threats of outsourcing must therefore be managed. to a lack of understanding of technical IT. Stratification of offshore countries based on cost and skill sets. ranging from unclear contract formatting. or can be outsourced. outsourcing IT jobs to countries like India and China is already visible in the business world. y y More and more IT jobs will move overseas in the coming years. service providers have crossed the international borders and continue to look out for new emerging markets. In order to manage outsourcing in a structured way. to successfully identify. India apparently has an advantage over China since it .processes.

it shifts its focus on manufacturing sectors. Business Process Outsourcing Industry size The following Table show the Global BPO market by industry. where Information Technology is the largest industry which accounts for 43% of BPO market.has English-speaking labor force. Global BPO Market by Industry Industry Percentage (%) Information Technology 43 Financial Services 17 Communication (Telecom) 16 Consumer Goods/ Services 15 Manufacturing 9 . such as computer hardware and automobile industries. therefore. Chinese government has acknowledged this comparative disadvantage.

while the BPO industry is expected to continue to grow in India. IBM Daksh. and TCS BPO.8 59 . 25-35 insurance. Pune and New Delhi and the top five Indian BPO exporters for 2006-2007 according to NASSCOM are Genpact. Moreover. despite the industry growing 38% in India last year.Kolkata. According to McKinsey. they estimate that 8% of that capacity was utilized as of 2006 Business Process Outsourcing to India Important BPO centers in India are Bangalore. Mumbai. Size and Growth of BPO in India Year Size (US$ Bn) Growth Rate (%) 2003 2.9 billion USD from offshore BPO and 30 billion USD from IT and total BPO (expected in FY 2008). 10-12 auto. of which: 35-40 retail banking. Transworks Information Services. its market share of the offshore piece is expected to decline. This 63% is a drop from the 70% offshore share that India enjoyed last year. Morocco. WNS Global Services. Egypt and South Africa have emerged to take a share of the market. 8-10 telecoms. accounting and HR. China is also trying to grow from a very small base in this industry. 8 pharma. India thus has some 5-6% share of the total BPO Industry. 10-12 travel/hospitality. other locations like Eastern Europe.India has revenues of 10. 10-15 others and 20-25 is finance. the global "addressable" BPO market is worth $122 ± $154 billion. but a commanding 63% share of the offshore component. Philippines. Chennai. Kenya. Hyderabad. However.

revenue from ITES-BPO have shown a year-on-year growth of over 29.16. BPO and KPO companies in India are maintaining good success record. Though there are many competitors in the market like China. etc. Philippines.2 per cent in 200607 to an estimated 5.000 in year 2006-07. On the export front.53.5 million people graduate in India every year.8 per cent (from 2006-07 to 2007-08).India has been a pioneer in providing outsourcing solutions and has been providing a range of outsourcing services to countries across the globe. Annual revenues are around $11 billion. With a huge market size. Inspite of severe financial and banking crisis affecting the world's economic growth.4 The business process outsourcing industry in India refers to the services outsourcing industry in India. As a proportion of national GDP. the IT-BPO sector revenues have grown from 5. around 0.000 in year 2003-04 to 5..1% of Indians). around 1% of GDP. Combined revenue of the IT and IT Enabled Services (ITES) that includes Business Process Outsourcing (BPO) was USD 52 billion in the year 200708. Also.5 per cent in 2007-08. As of 2008.7 million people work in outsourcing sector (less than 0. it is still the major player in the world in outsourcing due to its many advantageous factors. catering mainly to Western operations of multinational corporations (MNCs).2004 3. many of the IT.3 2005 5. Wages are rising by 10-15 percent as a result of skill shortage. Malaysia.9 45. direct employment in Indian BPO grew from 2. India's outsourcing is still continuing to dominate the global outsourcing market. Around 2. .7 44.

IT and KPOs. If not properly handled. under the Ministry of Communications and Information Technology. Conclusion Outsourcing information technology has both pros and cons. legal. etc. Outsourcing should not be imagined to be a solution to all perceived IT problems. actually increase the costs and negatively affect the bottom line. These risks arise due to the large . Both at the Central and the State/ Union Territory (UT) level. While. several policy initiatives and measures are being undertaken to promote the sound growth of BPOs. over 600 Multinational companies are known to be sourcing product development and engineering services from their centres in India. Besides.India has already registered its mark on the globe in IT-BPO sector. insurance. While. the nodal agency responsible for the overall development of outsourcing and information technology (IT) industry has been the Department of Information Technology. it is right to say that India is continuing to leverage its fundamental advantages of talent. Consistent and continuing evaluation of IT operations and services are important. Many other process outsourcing activities are also taking place in India like that of research. outsourcing can. instead of reducing the costs. Thus. Ministry of Communications and Information Technology. quality and early mover advantage/ experience to garner a large share of the growth in global sourcing of IT-BPO. in States/ UTs. IT outsourcing is also a risky decision to most organizations. there are concerned 'Department of Information Technology'. cost. The Department of Information Technology. At the Central level. is the central authority responsible for outsourcing industry. huge opportunities in KPO sector will help the Indian market climb the global value and knowledge chain.

.project scale. the long lead times to complete the project and the potential loss of services across governments.

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