Managed Services Gaining Traction Among Indian CIOs

The Indian managed IT services market has matured quite a lot over the years. Outsourcing, which has always been seen as an initiative to reduce cost, has gained special significance in context of the current economic downturn. Besides, the perception CIOs have of outsourcing has also changed positively over time.

According to Satish Pendse, CIO, HCC, earlier CIOs had a lot of concerns about data security; they were too possessive about having everything stored in the physical premises. “In the current economic circumstances, there are limitations to how much we can spend and what we can in-source, which has forced us to look out,” he says.

Going further, Pendse informs that earlier Indian service providers were concentrating more on western markets like the USA and Europe. As businesses in these regions have now dried up, service providers are getting more serious about the Indian market.

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Outsourcing is now rephrased as managed services. These long-term IT contracts allow CIOs to focus on more strategic issues rather than just mundane IT operations. A recent survey by CIO Klub and Ernst & Young indicated that managed services will clearly be a top CIO priority in 2009. CIOs will be keen to outsource functions like facilities management, helpdesks and call centres.

What are the advantages that managed services bring to the CIO’s table in current times? V Subramaniam, CIO, Otis Elevator, believes that it is one way to effectively utilise resources and optimise cost. It allows CIOs to focus on core business functions and delegate mundane activities to someone, who can manage them in an effective manner so as to deliver business value.

As for non-IT companies, developing and retaining skill sets is becoming exceedingly difficult, so managed services will gain more significance for Indian CIOs, feels Vikas Gadre, CIO, Tata Chemicals. “New technology paradigm shifts are happening in this area. It is much better to give away the responsibility of managing these technologies to the experts. In addition, when such kind of services are consolidated and offered by a third-party partner, we get advantages of cost reduction,” he says.

Vendor Negotiation

Vendor negotiation will now become all the more crucial. Although vendors are now approached as partners, budgetary constraints would force CIOs to become clever contract negotiators. “Now when CIOs approach vendors, the top management would expect them to get far better pricing than what they did in the past. They would expect them to have very stringent SLA delivery norms, quality norms etc,” says Pinakiranjan Mishra, partner, Ernst & Young. CIOs will be expected to ask vendors to show RoI of the managed services contracts.

According to Gadre, CIOs are realising that practically everything is negotiable. Right from annual maintenance charges, payment terms, service levels to warranty periods, everything is now open for negotiation. “Here at this stage every vendor is looking for business. Demand and supply are there but we are reaching an equilibrium, which is much lower in terms of value points,” he says.

SLAs

It is expected that enterprises will now become more insistent about strict adherence to SLAs. CIOs should definitely not shy away from re-negotiating SLAs to achieve maximum cost benefits. According to Mishra, there will now be more pressure on vendors in terms of delivering SLAs. Earlier, when they were lax, companies did not really bother about minor gaps in services. “This year I think companies will be more demanding and vendors will need to be very careful about maintaining SLAs, otherwise enterprises would switch service providers easily,” he said.

Companies also use parameters such as a customer satisfaction index. At regular intervals, they conduct customer satisfaction surveys with segmented customers. This customer satisfaction index must be higher than 90 to 95 percent to meet certain SLA norms. “This is a surrogate measure so as to understand whether the service provider is providing the services up to the expectations of the customer or not,” says Gadre.

What happens when SLAs are not met? This question must also be answered under the same contract. “If SLAs are not linked to penalty and rewards, they will have no meaning. One must also execute the penalty and rewards, it should not be just on paper,” says Pendse.

SLAs also need to be referred to while making payments. “One must always map the invoices against the work order while making payments. In the very first year, you can generate savings as high as 10 percent just by carefully managing invoices and mapping them with work orders,” says Pendse.

It can be safely concluded that CIOs can achieve more than the desired result just by keeping a sharp vigil on the managed services contract in the current difficult times.