By the IDC data, outsourcing shows itself as the most fast growing IT service in the world. By the 2009 year its turnover forecasting to be about 1 billion and Russia won’t be an exception since 2004 has been demonstrating high rates of growth in this field (more than 50% yearly). However, the outsourcing share on the native market of IT services is still small that means that the high development dynamics characterizes first of all by the law level of this business development.
The ability to implement IT outsourcing in business is the one out of the parts of the strategy of the modern organization. There are several key kinds of this service: outsourcing of the infrastructure and data-centers; outsourcing of applications and its management; outsourcing of the end users working places and the customers’ part; outsourcing of the network powers; and also outsourcing of the business processes based on the IT infrastructure. Depending on the Company’s priorities and aims the separate parts of the business can be on outsourcing and the all processes in the IT sphere as well. This is the strategy outsourcing which differs by the detailed developing the co-operation between the outsourcer and the client.
The definition of outsourcing is rather flexible. It considers that while the different levels of co-operation with the service-providers and the range of readiness passing on the one or other functions it is always possible to find the contact point for the mutual co-operation. Depending on the systems and business-processes criticality between customer and services provider the Service Level Agreement is studied which allows synchronizing the functions of IT according to the business requirements.
IT experts differently evaluate situation on the native outsourcing market. Their view-point depends on the scale of their companies’ business. By the Denis Kalinin, IBS DataFort CEO, outsourcing segment in Russia growths the same as the IT services market in the total. He names the demand rising on the outsourcing services as the indicator of the economy development. The business of those companies that had developed disorderly began to structure, creating the new fields of activity.
“Several years ago companies shifted the non-core assets this is concerned to be the previous epoch of the outsourcing. During the process of the assets shifting for the first time the question of the possible risks decreasing and the responsibility sharing has been risen. Nowadays companies begin to take care about the efficiency and clearance, aim the west markets, and enter the exchange. Demand on outsourcing points out that modern business already has economic, organizing, and management mechanisms that allow using this service”, concerns Denis Kalinin. Nikolai Stelmachenko, Microtext IT-services Director, notes that unlike western companies oriented on the global and long-terms outsourcing agreements Russian companies give the second line processes that don not demand the high qualification. Moreover, the majority of SMB still does not have the clear business-processes. “We observe the readiness of the Russian market to the outsourcing of the equipment support, HR, exploitation activity, — he tells, — but the outsourcing of the whole IT infrastructure we can count on fingers. This kind of services in our country is not promoted, although the suitable conditions can be noticed”. By the opinion of Ilya Baimetov, Parallels PM Director, the perspectives of the IT-outsourcing market are connected with the rise of the companies pools oriented on the complex projects in IT infrastructure outsourcing. At his term, Valery Kornienko, System integration Director, IBM Inc., in Eastern Europe and Asia, concerns the lack of the resources as the main driver of the IT outsourcing in Russia.
Surpassing the barriers
IT outsourcing wide-scale development in Russia is prevented by the number of factors which should be paid with attention by these services providers. Tatiana Michailova, Head of Systems Management Department of Energy Consulting/Integration Company, marks among them the specific of the native mentality (notably the unavailability of our business to submit the own to someone), risk to lose control over the IT systems, the fear of secret information leakage, and also the lack of information about the service and the counting scheme of its efficiency. Really, the last factor is closed to the regional companies. Anatoly Gaverdovsky, Senior Vice-President, EPAM Systems, adds one more reason — the human resources hunger on the IT outsourcing market of Russia, and also the “do-it-yourselfer complex” which prevail the real business-tasks in the companies.
“Today it is very hard to find large Russian organization from oil-gas or industrial sector which does not have the affiliated company for outsourcing purposes — as a rule it is the IT department in the past, launched into ‘free space’. Such ‘affiliates’ is the main obstacle on the service-providers way, which are eager to offer outsourcing services for large business”, — concerns Valery Kornienko, IBM.
By the opinion of Andrey Vyshilov, the Head of Consulting Division, HP Russia, IT field in our country is on the evolution stage. This means that budgets which company get for IT-systems creation are still lower than budgets on the current infrastructure support. “In Europe the active outsourcing wide spreading began when the share of expenses on the current systems support surpassed the expenses on the development of the new ones, — he tells, — and to free the cash for development companies induced to optimize expenses on support”.
Not worth powder and shot
Despite the evaluations of IT outsourcing in Russia, the main figures on this market have goof incomes on this business part. By Michael Sergeev, Communications Director, Gars Telecom, for the last three years IT outsourcing services have had the stable positions in 35-38% from the annual company income. So, by the last year results this part of the business brought Gars Telecom 158 million rubles.
“As usually, it is obscure, what the IT outsourcing concerns to be. If the IT functions that the customer can provide himself but transfer, which is the 100% of our income”, — comments Anatoly Gaverdovsky (EPAM Systems). Curiously, that for the some large Russian integrators IT outsourcing did not have an opportunity to become the one out of key business activities. By the words of Nikolai Stelmachenko, by the 2007 year results Mikrotest Company income from IT outsourcing was 0,53% from the consolidated revenues and 5% from support and service revenues.
It’s true, that Mikrotest specializes only on outsourcing of the customer’s IT systems exploitation. Dmitry Rozhnov, Outsourcing Projects Manager, CROC Company, also notes the unimportance of the IT outsourcing share in the company income structure — a few per cent from the consolidated revenues. “However, our field shows impressive annual 100% growth, — notes he. — I am sure that in the nearest future IT outsourcing in Russia will develop actively, and the all models, which are used on Western market, will come in a couple years to us”.
Degree of confidence
For the last year the level of the confidence to the outsourcers has grown essentially. The direct evidence is the multiplying of the opened contracts, and as the consequence, the growth of the realized projects. By the Dmitry Rozhnov (CROC), on the market there are so many companies which render the IT outsourcing services. Notably, that the kinds of these services differ significantly by the price and the scale of the solving tasks as well. In view of these facts, the mistrust of clients demonstrates not so much to the outsourcing as the professional level of the provider. Majority depends of that how the both sides — the Customer and Provider — are eager to formalize attitudes in a Special Services rendering Agreement. The more clearly Customer understands the necessity in outsourcing the lower risks in work with outsourcers. At the same time the number services for outsourcing is individual for each company.
“Year by the year the IT culture level in Russian companies is growing, IT budgets are rising firstly on services support and outsourcing. Besides, for the last time the range of the outsourcing services has been growing significantly, and the agreement conditions has become more flexible. Even this explains the rising interest and confidence to the professional outsourcing not only from the side of IT Departments but from the top management side as well”, — concerns Nikolai Stelmachenko (Mikrotest). Upon his view, many large companies working in the different market fields endeavor to pass the routine IT tasks in the whole the third parties, that allows decreasing expenses on the IT infrastructure, and for IT services — concentrate its attention on the strategy and development IT in organization.
Nevertheless, notes Denis Kalinin (IBS DataFort), still many companies have gaps in understanding of the IT outsourcing meaning. Majority of top management knows the core moment of the service, but what advantages it gives, a few know. “If the Company has the view what processes really necessary to pass on outsourcing and what management tools it has, the confidence to the service supposed to appear”, — concerns he. In his opinion, it is impossible to pass on outsourcing the key business-processes, because it means the whole business passing to the third parties.
To illustrate we can show the rare examples of the billing systems outsourcing. It is possible to pass on outsourcing the infrastructure of a such system, but it concerns to be highly important part of the telecom company. Another example is from the financial sphere. They are glad to pass the Data Center’s infrastructure and networks but at the same time control themselves the core of the bank’s system because it is the heart of the business.
The difference between outsourcing and work contract is that the first one considers the pass of the control over the determined tasks to the executor visa versa the subcontractor carries out the number of activities under the strict control from the customer site. By the Dmitry Rozhnov (CROC) opinion, his company offers the customers carrying out the regular monitoring of the quality rates of outsourcingб and at the same time the structure and the frequency is determined by the customer. In the case of the terms breach of the determined tasks the CROC clients will learn at that very moment.
Customers present requirements to the IT and outsourcers have the own expertise in this sphere. Some symbiosis of these parts formalize by the only Service Level Agreement (SLA), which guarantees the quality of the works. The correct agreement determines the efficiency of IT outsourcing. “It is important, the Customer should be satisfied, and our Company avoids the unplanned expenses. The control over the SLA execution should carry out on the two levels: either from the site of the Outsourcer, or the Customer”, — concerns Nikolai Stelmachenko (Mikrotest).
Absolutely, on the rendered by the outsourcer services the quantity of the current projects influences. However, there is a inverse relation: the more complicated project and demanding Customer to the rendering service, the more possibilities an outsourcer has to grow.
Where there’s demand, there’s supply
Experts recommend never begin the outsourcing projects from the business-applications support. This is very risky for the both sides, because this service is under the frequent changes, whereanent it is very complicated to align the contact. “It is reasonable to begin with the basic services when the whole task is to pass on the total IT outsourcing for the short period”, — concerns Dmitry Rozhnov (CROC). The all more or less large outsourcing projects begin from the users working stations support, notes he. “In Russia the demand on the ‘outstaffing’ is rising — the use of the IT personnel of the external company. In the case of the business unpredictability and the temporary requirement in the working force rising company buys the IT specialist working time partially or totally”. — tells Nikolai Stelmachenko (Microtest).
The one out of the most demandable on the outsourcing market is the Data Centers Service. By the Michael Sergeev (Gars Telecom), here is the longest order. By the forecasts, this kind of service will show the stable growth in the further 6-7 years. "The distinctive feature of the Russian It market and IT outsourcing in particular, — is the nontrivial approach to the services rendering. By our deep thought, service cannot be the art thing. Outsourcing in Russia should change in a quality manner forward the standardized typical service that means the functional outsourcing",— concerns Denis Kalinin (IBS DataFort). The advantages of this service are in the clear efficiency.
Upon average the expenses on the own IT Division are about the two thirds from the IT outsourcing services price. Out of this price the one third is for the IT infrastructure and equipment maintaining. The IT outsourcing customers save 10-20% from the consolidated revenues. For instance, for some customers it is pointless to hold among the personnel the professional in the sphere of networks and telephony and pay him monthly if it is enough several visits per week or the long-distance work of such a specialist.
Besides the direct expenses decreasing it is possible to save on the working place, on vocation fees, personnel education and other indirect wastes. Low level services such as different office equipment support require the permanent specialist and it is possible to win on the IT specialists’ quantity, which for such projects need in several times fewer — and owing to there’s qualification they will manage the purposed tasks faster.
By Denis Kalinin (IBS DataFort), several key factors push the companies pass on outsourcing. If the own IT Division works properly and the management costs is not a problem, there are no reasons to apply the outsourcers. If the costs on IT services are high and the results are not satisfied, so the costs on the outsourcing in the beginning can be higher than on the own IT Division. There is the third way: when outsourcer gets only the resource management and the 20% save achieved by this. The last variant is the most widespread among Russian companies.
“The consolidated support cost of the IT includes not only sums payable the providers for the hardware and software support but also costs on the own IT Division. Any outsourcing project begins from the estimation of the current costs on the support, and some transformation which further allows optimizing the wastes. Isn’t having the proper expenses information it is impossible to evaluate the outsourcing efficiency”, — Andrei Vyshilov from HP Russia is sure.
Upon the view of Valery Kornienko (IBM), the services cost on the IT outsourcing market growths in proportion to the inflation and working force appreciation. As long as the global model of the services rendering on the Russian market hasn“t still established, this tendency, concerns he, in the nearest future will develop. “The majority of the IT outsourcing projects in Russia has just started. It means that one or two years this process will move on the self-repayment. But now it is hard to forecast the efficiency of the projects. In telecommunications field the situation is not so complicated: ROI in outsourcing can be less the half of the year”, — tells Michael Sergeev from Gars Telecom.
Not so long ago on the Russian market of IT services the software lease has begun to develop. By the Ilya Baimetov, PM Director, Parallels, this idea is not fresh: for the all period of the software existing these products can be leased and it is means that it is the one payment scheme for the end user. The difference is that the license payments divide into periods. Nevertheless, software developers get the advantage of the stable and predictable income — the software is paid monthly. Users besides the clear and predictable expenses structure get rid of the necessity in the own information infrastructure creation and support. In addition the time of the software integration and wastes on its rejuvenation decrease cardinally. To the IT outsourcing of full value Parallels refers the “Soft as the service” approach within the bounds of it the software product delivers via Internet. Services provider renders the software hosting providing the fast rejuvenation and easy management, and also the different applications interoperation. This approach has the big perspectives connected with the passing of the customers’ servers with the applications on the side of the hosters. Upon the Parallels forecast, in 8-10 years by some means or other more than 50% of the current software will offer by the scheme “Software as the service”.
Motives and expectations
By the Dmitry Rozhnov (CROC) words, outsourcing service users aspire to decrease the expenses on the own IT Division and to fulfill the lack of the resources for the normal IT infrastructure functionality in the necessary volume and with the required quality. “Besides, today outsourcing is the perspective and fashion sphere, and some companies aspire by the own experience evaluate the pros and corns and compare the results with that they had”, — adds Nikolai Stelmachenko (Microtest).
During the last Outsoursing & IT Services Summit, London, analytics presented opinion that while passing on the service model IT Divisions would be phased out. For the companies in which IT is the one out of the resources that support the business operability such a scenario is possible and the own IT service can be decreased till the one or two specialists responsible for the development strategy and co-operation with the external IT outsourcer.
“However, if IT determines the whole activity and appears as the source and the determinative factor of the innovations and the new ways for the business, I can hardly imagine IT Divisions vanishing”, — comments Valery Kornienko (IBM). By Denis Kalinin (IBS DataFort), outsourcing firstly is the partnership. That is why it is necessary for the client to understand that outsourcer is not a competitor for the own IT Division. It is also important to determine the bounds of such a partnership, otherwise can appear the reasons for the mutual accusations, that are the cause of the 99% of the outsourcing contracts break up. Before the start of the service project it is necessary to determine the management tools. The Customer should understand what exactly he can do if the result is inconvenient. However, good relations the informal communication is also very significant. It is very important that the both sides have the mutual expectations.
East and West
Western and our native outsourcers draw the sward for the large Russian clients. By Nikolai Stelmachenko (Microtest), Russian outsourcers more flexible and dynamic that Western and ready to work on the terms that are preferred by the Customer (specialists and the services are chipper than abroad). Moreover, native IT services providers are rather involved into middle and hard contracts. “As for the Russian outsourcers entrance on the international market, there is no real sense. The own IT outsourcing market is not full enough, and the international — divided between more successful large ones, which concern this activity as strategically important”, — notes Nikolai Stelmachenko.
“The one out of the sharp problems that is specific for the all native IT companies and the foreign companies representatives as well — is the lack of qualified personnel”, — Dmitry Rozhnov (CROC) is sure. Upon his words, the Russian IT companies’ advantage is in the right understanding of the current situation and in operative solutions excepting. At the same time to agree some elementary problems about a week is necessary for the Western company.
“The flexibility of the Russian outsourcers can become the hard factor for us. On the other hand, we observe, that more Russian companies enter the international markets. In this case our services and help in the new markets conquest can become the meaning competitive advantage before the Russian integrators”, — concerns Andrei Vyshilov (HP Russia). Denis Kalinin (IBS DataFort) notes, that for the Russian outsourcers native market is the only profit source, visa versa for the global transnational players it is only the share of the world pie. That is why for the good of the business Russian companies are eager to sacrifice the profitability in the separate projects. But upon the view-point of Valery Kornienko (IBM), in the perspective the advantage undoubtedly will be in the hands of the native players owing to the flexibility and mobility. “However, I think that the future is for tandems from the global and local players and within the bounds of the one project”, — tells he.
By the view of Nikolai Stelmachenko (Microtest), to build the business only on IT outsourcing nowadays in Russia is possible only for the companies that have several permanent customers. Large integrators cannot afford it. And it can be explained that our IT outsourcing market is so meager in comparison with the projecting or the service support for instance. By the way, foreign IT companies can’t live owing only to the IT outsourcing as well. The majority realizes this serves in the package of the services using the cross-sale: for example server solutions sale only with the technical support or outsourcing.
To conclude, necessary to mention that outsourcing moves by the way of the more flexible services rendering agreements. It is very important for Russia because the majority of the local companies experience the boom that is followed by the transformation processes of the mergers and acquisitions.
In these conditions not the fix contract for the 5 or 6 years becomes the principal but the flexible agreement that concerns possible changes of the Customer’s IT infrastructure.