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Outsourcing: Talent on Tap

Outsourcing IT can provide real benefits -- if you avoid traps like reduced access to key data, vendor inflexibility toward changing business needs, poor communications, internal resistance, and outsourcer price wars that undermine service.

On March 27 last year, hundreds of IT experts and administrators logged on to their computers as employees of Japan’s Sumitomo Metal Industries, or SMI, one of the world’s top producers of steel products. By the time they logged off at the end of the week, they were no longer working for SMI.

They hadn’t been downsized — their bosses had merely signed a $660  million outsourcing deal that would “drastically reform” SMI’s approach to information technology. As a result, the workers suddenly had a new master with another well-known name, IBM, the world’s biggest computer company.

More precisely, their new employer was IS Information System, a Tokyo-based joint venture set up to manage the contract. IBM provided 65 percent of the outfit’s start-up capital of $280,000 while SMI chipped in the rest. In a bold leap of faith, the Japanese company handed responsibility for SMI’s information technology to IBM for the next decade. It also handed over a huge chunk of its staff. Most of the new company’s 420-strong workforce arrived straight from SMI, while Hitoshi Yamaoka, a senior executive from IBM Japan, took over the helm.

As those SMI employees abruptly discovered, IT outsourcing is taking root in companies around the globe. Dataquest, a division of US-based research company Gartner Group, reckons global demand for outsourcing services will grow from $65 billion in 1998 to nearly $142  billion by 2003. Asian companies are moving more slowly than those in the US and Europe; most estimates put the region’s slice of the global pie at about 10 percent, give or take a couple of percentage points.

But recent developments have spurred the regional market into action. Pressure for business reform, accelerating technology life-cycles, and a new reliance on the Internet have made IT a tough challenge for the typical in-house department. Whether they like it or not, Asia’s companies are accepting a new home truth: There’s no shame in turning to others for help.

No shame — and potential for significant rewards. According to the US-based authors of the Hatchett Benchmark 2000 report, selective outsourcing can lead to an IT saving of between 20 and 50 percent.

Certainly, there is no shortage of options. The outsourcing industry cut its teeth on mainframe data center services years ago. Today, there is practically no area of IT that can’t be outsourced, from data centers to network management, from application support to proprietary software development, from help desks to PC installation and support. More recently, application delivery has entered the fray with the arrival of application service providers, commonly known as ASPs.

And while many companies will call on multiple vendors to supply services in specialty areas, others will place their eggs in one basket. “We believe in one-stop shopping,” says Peter Goodwin, CFO of Collex, an Australian waste management services company with more than 60,000 clients. “That’s the concept that we sell our customers, and that outsourcing logic works just as well for us.”

A member of French conglomerate Vivendi, with more than 2,400 employees — including just 16 at the head office in Sydney — Collex uses outsourcing so extensively that no IT professionals are on the payroll. Last year, Goodwin signed up Atos Origin, a Netherlands-based outsourcing company, to host, support, and maintain servers running newly acquired software applications from SAP as well as front-office software. So far, so good — but it’s early days. “The proof of the pudding will be in the eating,” Goodwin says.

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