Where is the value-add in the Indian IT Industry
Much has been touted about the success of the Indian IT industry, especially for establishing itself as an IT and BPO outsourcing hub. The mantra for success has been ‘cost and quality’. However, as customers get used to outsourcing to India and as competition increases within India and from countries like Canada, Philippines and China, a question arises:
“Quality and cost are given. All Indian companies provide identical services, with the same quality and comparable cost. What is the value-add that an outsourcing company provides to the customer, specially after so many years of existence?”
The Current situation
A typical investment bank would have the same functionality duplicated across multiple systems, primarily due to mergers or acquisitions of business and resultant technology or due to consolidation across geographies.
An outsourcing vendor would happily service all these applications because it is paid to do so, and the customer-side Chief Information Officer (CIO) would allow it because he would get commensurate budgets.
However, in the present times, a CIO is under pressure to reduce costs. He would, typically, renegotiate rates and Service Level Agreements (SLAs) to get a better deal. The CIO might compare the vendor with other similar vendors who are eager to get a marquee account, even at cost.
If the hapless vendor gets sucked into a price negotiation, he would be at the mercy of the CIO each year, when the same exercise is repeated. He may have to compromise on quality (and quantity) in order to retain his margins. This compromise would cause a downward spiral next year in terms of negative customer perception, reduced prices as well as penalties for not meeting SLAs.
A win-win situation
If however, the vendor is able to provide value-add which provides a bigger bang for the same buck, and is able to demonstrate the same pro-actively, the CIO would be able to prove to his board the justification of budgets and retention of the existing vendors. A win-win situation.
Here is how does the vendor does it.
An IT organisation has insight into the business processes of its customer because it is supporting the existing technical applications and it has direct or indirect access to the business users.
If an outsourcing vendor controls of all business applications of the customer, and sometimes, applications of multiple customers of the same vertical industry, then the vendor can compare and analyse systems to find commonality in processes in order to reduce the total cost of ownership of these applications without sacrificing the customer’s competitive advantage.
An example of Value-Add: Application Rationalisation
An analysis of Back Office Systems in an Investment Bank would reveal that Trade Capture is done by multiple systems in multiple geographies, exchanges and financial products. These represent the same business process in different systems and therefore add to the cost of the business process.
This situation is ideal for performing an application rationalisation that will:
- Reduce the cost of maintenance and therefore cost of ownership of the application
- Create positive feedback within the client organisation that would improve marketing exposure and generate additional business
- Provide application development revenue to the IT organisation
- Improve morale in the IT organisation because of new systems development instead of monotonous maintenance
A reasonable negotiation, augmented with this goodwill, can lead to business compensating for the loss of revenue due to decrease in applications to be maintained.
Business Processes is a common thread across IT, BPO and Business
Although Business Process Outsourcing is looked down upon by project managers as being non-IT focused and having a low-end repetitive job profile, there is a common thread that runs between Application Outsourcing, Business Process Outsourcing and the Business Value add that the customer demands. That thread is business process.
What is required is an ability to link IT processes and business processes in such a way that IT processes can be modified based on changes in business processes. Further, it would be beneficial if the business users can control and redesign the business processes without IT processes hampering either the redesign or the implementation of the processes.
Benefits of Being Business Process Centric
The focus on business processes also creates a link between IT application maintenance as well as Business Process Outsourcing. In case an IT organisation is doing Application Maintenance, it can now:
- Present a case why it is the ideal candidate for BP outsourcing
- Use business process modelling to help create a common business-oriented help desk
- Help in business process rationalisation
- Help in the creation of SLAs that are related to business, not just IT
- Focus on highlighting value-add that is more apparent to the business users, who ultimately control the purse strings.
It is therefore important for the IT industry to create a formal representation of business processes and its link to IT processes. A new model of business process modelling needs to emerge that would combine the traditional methodologies of process representation in the IT world with
- Operations Research techniques,
- Cost-accounting concepts of value chains and
- AI techniques for rationalising business rules.
This needs to be represented in a formal mathematical notation similar to pi-calculus so that in future, computer-aided tools would be available to optimise the processes, identify bottlenecks in terms of time, throughput and costs.
This article was originally posted in The Tribune on August 23, 2003 and has been updated for this blog post.