If you think outsourcing is the prerogative of large IT business houses, think again. Several mid-market and SMB customers prefer tier-2 partners to large companies for ITO. By N Geetha

The buzz around outsourcing has been there for sometime now. All major vendors are contending fiercely in this space to bag outsourcing orders. In case of large orders, outsourcing has come to mean vendors bypassing the channel route to go direct.

Thankfully outsourcing has not been ignored by the channel. The channels too have been taking efforts to build successful businesses around this domain by building expertise in various technology-service domains.

Critical aspects

Vikas Save

A question therefore arises; does the channel fully understand the true sense of outsourcing? Vikas Save, Executive Director of Mumbai-based Enhanced Software Solutions explains: "Large channel companies understand it well. But that's not the case with the smaller ones. As a result, the channel community is yet to mature to consider outsourcing as a specialized business."

According to R Sridhar, Director, Triangle Technologies, a partner from Bangalore opines that many channel partners who have grown vertically have already embraced

outsourcing as an opportunity to grow horizontally. He believes that outsourcing is the only way to give the customer a better value proposition be it corporate or an individual. Sridhar is also the Secretary of Karnataka Association of Information Technology.

Sandeep Roy, County Manager - Channels, India & SAARC, Cisco Services asserts that channel partners are seen across the spectrum of technology-awareness and they are able to engage with their customers in different ways.

"When customer requirements are being evaluated, vendors such as Cisco Services too would play a role in ascertaining the mix of outsourced versus owned services and solutions," mentions Roy and further adds, "we have had significant success in taking our services to the market through channels. We believe that it is the training and empowerment that we provide that enables our partners to offer more relevant counsel to customers."

Trends in outsourcing

R Sridhar

Nasscom is been bullish about FY10 and estimates the growth of IT services sector to be up to 18 per cent. The interesting part of the story is that the largely unaddressed SMB segment accounts for 50 to 60 per cent of the potential market in India in the outsourcing game which would definitely interest the channel community.

Cisco's Roy states that there is a huge growth opportunity for partners with the surge in demand for models like managed services, IT as a service, and remote infrastructure management.

"Businesses are looking to move away from infrastructure support that calls for significant manpower and in-house resources. This would mean that Services providers, and their channel partners, would have a significant role in the IT support and assurance offered to customers," states Roy. Going by the specifics, Roy maintains that as the technology and offerings around hosted and managed services increase, business across sectors will buy varying percentages of managed services from vendors.

Ravi Verdes, CEO of Bangalore-based Frontier Business Systems makes an interesting observation. He says, "The customer perception with regard to the biggies doing a better service delivery job is changing fast. Several SMBs give a preference to tier-2 partners over large companies when it comes to outsourcing IT projects." (See case study: The big SMB promise)

Channel-opportunities

Vikas Save of ESS finds the opportune space to be in the top line growth and not bottom line as most outsourcing deals will be grabbed by large players who in turn will sub-contract most work to maintain their bottom line keeping main positions, project management and applications/tools in their control.

Save finds that resource development at low cost, printing solution, etc, are a few areas that partners need to focus on. Specializing in a particular area with proper systems in place is critical which could scale seamlessly as well driving cost low would create opportunities, Save says.

Triangle's Sridhar finds a possible growth opportunity in outsourcing in channel business if only the channel decides to move out of being just box pushers.

"If a dealer has to address home segment and is constrained by the manpower he can outsource the activity of installation to an AMC company. For instance, APC has perfected this model in selling their UPS and domestic inverters," reiterates Sridhar.

According to Sridhar, today, in Bangalore market, the SIs and end-to-end solution providers have a complete synergy in their activities. The outsourced areas are networking, power solutions, and storage where the mid-sized corporates who want to have the domain expertise but have financial constraints are the ideal customers.

There have been instances of partners resorting to this module while and willing to grow at a gradual pace to tap the large deals.

According to Varghese Joseph, Director - Omega Integrated Solutions, a storage solution provider from Hyderabad, channel partners could make money in the remote support and on site support, over a period of time till the customer gains confidence.

"Once customer is confident of your service, you can drive greater product business. Technical support brings up value-business issues such as like performance related issues, expansion related issues. But the value-business also ensures good margin without too much order-hunting," says Joseph. Omega is a partner of Netapp and EMC (Data Domain).

Sweet spots

Sandeep Royd

He points out that large enterprises typically have their in-house systems in place, and therefore look at outsourcing storage to the cloud, or buying some managed services. Channel partners, he says, need to be aware of the various solutions available across levels, and should also ensure that they are able to provide the required support to the customers who outsource their IT infrastructure management to partners.

The channels have opportunities in manufacturing, BFSI, and government, to name a few sectors.

Roy sees that the partners can take advantage of the growth by improving their skills and expertise in particular domains. "We are enabling our partners to become trusted advisors of their customers," he says. According to him partners must focus on a subscription-based service-delivery model to ensure profitability.

Save of ESS comments: "The trend is that customers will outsource most of the infrastructure deployment and management activity instead of hiring their own people to do the job."

Given the scope of the Indian market, all partners stand to earn handsome revenues through outsourcing, he states. Sharing his own experience Save says: "For us some of our implementations were part of a scalable process. They reduced the costs of our customers and helped us grow."

ESS has carried out outsourcing projects in IT infrastructure management, application management, disaster recovery management, and printing services.

Challenges and investments

However, this business comes with financial challenges. Save of ESS says that the investments are related to the area of expertise one wants to focus on. He finds creating domain expertise, implementation of proper systems which are scalable and control on cost becomes critical.

Cisco's Roy states that the partners need to invest on manpower, systems, real-estate for storage solutions, etc. He says: "However, as the move towards this market is now seen from more services companies and even product companies, channel partners can grow their share in the market organically, without having to make their entry with investments in a full-sized organization."

Joseph of Omega Integrated Solutions estimates an ongoing investment of Rs 30 lakh to Rs 40 lakh as adequate for successfully chasing the outsourcing projects.

The other two challenges, according to Sridhar of Triangle, are developing an ability to spot business opportunities and managing internal resources. "In outsourced projects the payments are usually linked to man-hours or quantum of work. As a result, managing resources becomes the biggest challenge," Sridhar remarks.

The key to fast growth in outsourcing business is ability to manage resources better-both financial and HR. A sound resource acquisition and deployment helps deliver a good service, a prerequisite of any outsourcing project.

Land of opportunities

According to Sridhar, despite these challenges, the opportunities are immense. Given the high costs involved in manpower acquisition and retention, customers prefer outsourcing resource intensive functions to doing them in-house.

He shares his own experience in document process outsourcing: "One of our large customer accounts-an insurance company-had a lot of documentation work to be carried out regularly. They outsourced that activity to us. We deployed a few employees with expertise in working with documentation software. We get paid per document basis."

Omega's Joseph sees opportunities in the SMB sector more in terms of handling data center management which calls for an investment in putting up small SAN labs internally. Banking, finance, securities, retail, shopping malls, budget-airlines and the likes have a great potential to outsource their projects to partners, he says.