The Outsourcing Revolution
Subodh Tavse

Predictions say that the worldwide IT outsourcing market will grow to over$300 billion. The range of IT activities being outsourced is expanding fast. It is clear that IT outsourcing is not simply a fashionable, passing trend of the 90s. It is an increasingly viable option being taken by more and more public and private organizations.

A significant change in management philosophy has taken place in the 1990s. Organizations have switched emphasis to concentrate on their core activities in order to increase market penetration and become more competitive. It is now widely recognized that to compete effectively, it is essential for business to concentrate on terms like core competence and value addition.

To begin with, outsourcing requires an understanding of the new concept of core competencies. The new definition of core competency builds on the old one, which is identifying what you do best What's new is that you have to connect to an ever-larger number of markets and constituencies to earn the most on that competency as rapidly as possible. And from each of those connections, you have to learn how you need to adapt so that you're continually coevolving with your marketplace. Outsourcing some of the other activities related to the business might enable the company to deliver greater value to its customers at lower costs.

Some Insights

The future is not what it used to be & outsourcing is increasingly being used as a tool for gaining a competitive edge. Understanding of where, when and how to successfully outsource is proving to be one of the most difficult and important business skills needed for any company’s future. Outsourcing today covers a range from various functions of business viz. HR, real estate management, inventory control and most commonly, the information systems (MIS) and related communications network management.

So when do companies decide to outsource. They do so when they ask themselves the following set of questions:

          1. Are my resources being utilized effectively?
          2. Do the department’s objectives support the corporate direction?
          3. Can the IT department enhance our corporate financial goals?
          4. Are the current resources capable of supporting new technology?
          5. Is there a quicker, more effective method to handle these issues?
          6. Should we consider an offshore solution?
          7. Are 40% savings for real; what are the after-shock effects?
          8. Will employees have a basis for litigation? What are their options?
          9. If I make the wrong decision, what are the consequences?

Outsourcing used to be a tactic to improve operations and financial performance of troubled organizations. Today outsourcing has evolved to be a preferred method of doing business by companies for numerous positive reasons. As outsourcing fulfills a need that transcends virtually all businesses, outsourcing has also caught the eye of the investment community. Any business that helps other businesses perform better are well positioned to prosper far beyond the millennium change. Some of today’s common reasons to outsource would be:

          1. Reduce and/or control operating costs
          2. Improve company focus
          3. Access to additional resources
          4. Free up resources for other purposes
          5. Accelerate reengineering efforts
          6. Accelerate migration to new technology
          7. Share risks
          8. Compliance with year 2000 issues
          9. Redeployment of internal resources
         10.Enable quicker response to business drivers
         11.Transform capital expenses and fixed assets to more flexible monthly business expenses

Improving business through Outsourcing

Outsourcing allows companies to focus on broader business issues while having operational details assumed by an outside expert. For many companies, the single most compelling reason for outsourcing is that several of the issues are siphoning off huge amounts of resources and attention from management. Following are the key benefits of outsourcing that allows the concept to improve the business

          1. Gain Access to World-Class Capabilities
          2. Accelerate Reengineering Benefits
          3. Share Risks
          4. Redirect IS Resources to more Strategic Activities

Tactical Reasons for Outsourcing

          1. One time applications
          2. Reduce or Control Operating Costs
          3. Make Capital Funds Available
          4. Generate a Cash Infusion
          5. Secure Resources not available internally
          6. It is hard to buck the outsourcing tide in IT

Outsourcing is the best proposition for companies which run short of cash flows and resources. Outsourcing seems to be the key for resource optimization and infact a better way of focusing on the core competency to facilitate the growth path.                       

SUBODH SURESH TAVSE
Institute for Technology and Management, Navi Mumbai.
catchsubodh@rediffmail.com