The Russian IT-outsourcing market is growing by 60%-70% per year, and according to experts, the monetary volume on the IT-outsourcing market will reach one billion dollars by 2009. However, according to specialists, the majority of players in this market segment offer low-quality services. Moreover, Russia’s traditional distrust of outsiders affects the market, inasmuch as businesses today are not willing to trust their valuable information to the management of a third party.
The term IT outsourcing appeared in the U.S. in the 1980s, while the term made its way to Russia in the second half of the 1990s, and interest in the service began to appear just this century. Indeed the essence of outsourcing is best expressed as follows: “Do only what you do better than everybody else and allow an outside source to do what it does better than others.”
If we look at the preliminary estimates of CNews Analytics, the volume of the Russian IT services market was 48.75 billion rubles according to 2006 results. Moreover, given that around two percent of the market goes toward IT out sourcing services, based on last year’s results, this figure was 975 million rubles in Russia.
Only the “lazy” today do not offer IT outsourcing services on the Russian market today. Indeed, according to a Web search for “IT outsourcing, ‘the system shows more than 2,500 company sites offering all types of ГТ services; however, IT specialists doubt the full-fledged operation of this segment. It would seem that not too long ago, the word itself sounded strange, but today such services are offered by nearly every other IT company’, says Ruslan Aliev, Gars Telecom development director. ‘And every third company talks about its many contracts and loads of experience’. In reality, Aliev says in the overwhelming majority of cases, the experience of a telecom outsourcing firm is in line with the description of services offered on said firm’s site, and all the same, all of the actual projects appear here and there. However, they are not all the large-scale and. as strange as it may seem, they are not global outsourcing like IBM or Hewlett Packard, but rather. Russian firms working for other Russian companies”.
“To my mind, the rapid development of the IT industry and the complications of hardware and software support have led to the proliferation of П outsourcing on the market”, believes Yuri Lyseriko, director of the information safety department at Rosevrobank. “Despite the relatively quick development of IT outsourcing in Russian, the main problem is the quality of service provided”.
There are a number of factors impeding the development of IT outsourcing in Russia namely, weakness in protecting data, the lack of experience of several providers, low level of integration between functions delivered for IT outsourcing, and other functions, believes Alexander Samodurov, director of the information and technical support department at Mastertel. “Psychological factors are far from the last cause of the delay in the development of IT outsourcing. Indeed, these include the counteraction of the employees themselves to new trends within the enterprise, a company’s protection of information and adherence to the paradigm of ‘I’ll give nothing to no-one’. A bit of time is needed, so the situation will be favorable for the successful development of domestic IT outsourcing. However, at this stage, IT outsourcing project are gaining steam, given they are actually effective for small- and medium-sized businesses”, says Samodurov.
“The increasing burden of expenses is enticing larger number of office-building owners to outsource to operators offering telecommunications, Internet access, cable-network installation services for a building, dispatch services, access control video surveillance, etc,” notes MikhaelBabaev, deputy commercial director and head of the commercial client relations department for the Arctel branch in Moscow and the Central federal District.
The Home Front Fires Are Burning
In terms of outsourcing, there a number of main types, such as professional (the outsourcer has better specialists); production and technical (the outsourcer can provide the necessary capacity); finance and administrative (the outsourcer can manage several projects and transactions to expedite them and decrease costs); and geographical (labor may cost less in certain areas of the world). In terms of the type of IT outsourcing, market players are divided as follows: IT framework, software and programming/data entry support IT system and information security.
“The main advantage of outsourcing is that a company can save on expenses and significantly reduce manpower and expenditure on maintaining an IT system and application as well as to concentrate on its core business activities and not be distracted by non-core activities”, explains Lysenko. Among the shortcomings worth noting in IT outsourcing are the price/quality ratio, the possibility of becoming a “slave” to outsourcing, given changing your provider will interfere with special information available to it long-term contracts, which are more than years. In addition, many outsourcing companies have only just begun to provide these services and a company could end up guinea pig project in addition to other nuisances. Meanwhile these shortcomings are not only prevalent on the Russian market; they are a common trend on the international market as well.
“All the advantages and drawbacks ate associated with Russian specifics”, believes Aiev. “Meanwhile, the main driving force in the development of the Russian IT outsourcing industry is the proper organization of many industrial and natural resources companies”, underscores Aliev. Indeed, companies today are entering the world and Russia-wide community thus they must play by the rules. Furthermore, when going public, a company must take into consideration such indices as organization, development and the effective functioning of an established business, such as labor costs, staff size, asset amortization, etc. Moreover, IT outsourcing maintain non-core assets, to minimize taxes and to shift responsibility for possible errors and failures at work to the level of financial responsibility between legal parties in terms of labor interrelations is becoming very attractive for these companies.
Many development companies today have a lot of experience in setting up individual parts of the commercial real estate puzzle. “However, unfortunately there has been the practice hiring a general contractor for the construction of various facilities”, notes Babaev. “A similar system is ideal with a large volume of projects. When setting up a modem office building, it is necessary to observe a number of specific requirements, and definitely attract theflashiest and most in-demand tenants, resulting in the effectiveness of the general contractor lowering. Keeping in mind the high demands for reliability, quality and uninterrupted functioning of telecommunications network for each part of the building’s infrastructure, the owner must coordinate the operation of a large number of subcontractors specializing in setting up and operating separate utilities. Therefore, the owner must hire experts of the highest quality to effectively manage a complicated modern office center and control the interaction of the telecommunications system as part of a single working infrastructure. Having full-time specialists on staff to perform these part-time duties is inefficient, so using IT outsourcing is an effective solution”.
When communications contractors and operators agree on the conditions at the design stage, the owner has the right to expect a high quality service: a residential building and commercial real estate with the necessary communications infrastructure. This interaction is the most effective. “Specifically at this stage it is better to determine the services required by outsourcing”, explains Lada Zhgun, sales director for communications services at AMT. “The communications operator reduces the work of the developers in terms of communications and is fully responsible for the quality of the service offered, from a building’s design to construction of the communications system and use of the IT infrastructure and provided services”. Therefore, by being a co-investor, an operator can complete the set up of the communications system partly or in full at its own expense. By outsourcing IT, the owner of a building is not only free horn extra financing and time spent on managing non-core assets, but also receives additional income from the functioning of a telecommunications company at the facility. In turn, communications operator receives guaranteed income from the provided services to the building’s tenants and fully controls the service process as needed, hiring contractors to complete additional work, while also seeing that the equipment is in working order and is updated. In other words, the operator manages the non-core assets qualitatively", explains Zhgun. Moreover, many market specialists believe that this is contracting rather than outsourcing.
Sticking to One’s Profile
The key moment in IT outsourcing is when non-core services, and sometimes core business, are entrusted to outside providers, and there are issues influencing financial security. “All non-core business processes not part of a company’s business model are outsourced”, explains Aliev. “For example, practically all construction companies could outsource telecommunications, and the logic here is simple: telecommunications has a financial impact on large corporations, given that their activities are divided up between dozens of offices requiring effective communications”.
For example, IT is often outsourced for software applications and its further operation. “Accordingly, management takes the opportunity to conduct the core business of the enterprise and does not spend money on developing its own software and have the company provide this service”, explains Samodurov. In theory, almost any service can be outsourced such as Web hosting, small network administration, specific program writing, testing of finished software, functioning of specific services, telephone center, technical service, etc.
“A manager makes the decision to outsource a service or not”, believes Lysenko. “This is usually a cost issue and the financial security of the provider, agreement on the level of service, plus insuring against risks, so it is very difficult to find such an outsourcing company which suits us”.
Conserve Time and Energy
The outsourcing of an IT system, which is the lifeline of all companies, to a third party must be thoroughly analyzed. Information security is one of the main priorities. “In this case, it is very important to write out the responsibilities of a provider, such as an SLA”, underscores Lysenko. “For example, the hosting provider agrees to take responsibility when there is no access to the corporate site as a result of equipment failure or faulty operations. However, if we look at any hosting provider, we see that the provider under no circumstances will agree to take responsibility for the hacking or modification of a site and the information contained on the site, even if the problems are the fault of the provider. Nevertheless, there are means for regulating this aspect of IT outsourcing interrelations”.
“For example, a company not associated with outsourcing can be hired to control the process”, believes Samodurov. “This company will check and audit the reliability of the outsourcer. A similar process is also used to control quality”. Overall, the specifics of Russian business are lack of trust in а partner, and, consequently, there must be personal trust in a relationship between business partners. If this is not the case, there must be various means of control. However, Aliev disagrees. “Trust is of course necessary, but it is not a business instrument”. All outsourcing processes must be decided via legal means".
Relations with Outsiders
The interaction of the outsourced company and the company is one of the most difficult and acute issues. The most well-known and widespread means now is to sign an SLA; however, if a service company agrees to sign an SLA, this is not a guarantee of effective operations“, says Samodurov. There are other factors, such as the adequacy of the hiring company and its preparedness to meet the outsourcer halfway, the professionalism of the outsourcer, as well as the quality-control system of the outsourcer. It is very important to have understanding and the outsourcer must have clear goals, priorities and organized policies of interaction.
“Everything must be written in SLA”, says Lysenko. “This is a very complicated and valuable product. I believe that the more detailed and sound the agreement, the simpler it will be for both parties to work”.
Aliev cites several features of effective outsourcing projects, such as the company using outsourcing is first and foremost the user of consulting, given that no-one in Russia immediately allows an outside company to manage their assets. The second feature is that only a businesses owner or financial management firms can sell their consulting services, given that the key understanding and main motive for outsourcing is to lower costs. The remaining talk about quality, increasing responsibility and SLA are chips in the marketing sphere. The third feature is the centers of influence. Indeed, within every company there are various centers of influence. One party may have an opinion and deputy may have another one, while an IT manager has another opinion as does the financier. Therefore, the outsource provider must be prepared to take on this opinions. The fourth feature is the Soviet mentality of not wanting initially to hand over the reins to another business. However, the opposite effect occurs, as the project does not demonstrate the planned effectiveness; therefore, effective telecoms outsourcing is not possible in authoritative organizations, as the outsourcing company is simply not allowed to do its job. Finally, the fifth feature is double accounting. This is a widespread practice which could seriously complicate the situation of evaluating the quality of а соntractor’s work in outsourcing projects.