WHY OUTSOURCE IN THE FIRST PLACE?
The practice of IT outsourcing is not limited to a certain industry, nature of business, or size of business. IT outsourcing is present in banking and finance, utility services, production and distribution, health care, retail, and even broadcast media. The practice has already become a norm so much so that one can seldom find a company that has not outsourced hardware or software which it utilizes in its operations. Reasons for IT outsourcing are varied as the type of businesses it can be utilized in. Flower retail and distribution company, Island Rose went into IT outsourcing to allow them to personalize and tailor-fit IT software and hardware akin to their needs. Island Rose Founder and Marketing Director, Dustin Andaya, disclosed that IT outsourcing has allowed them to pick from a pool of talent of vendors, allowing them to have people dedicated to certain fields, giving more depth to their work and operations.
"If we hired a programmer, his expertise might be limited to certain programming languages or platform as opposed to outsourcing from an IT firm that can give us many options to choose from," says Andaya who has outsourced services such as web design and development, programming, and other cloud services such as hosting, data management and storage, and software as a service.
For utilities third-party payment receiver CIS Bayad Center, variation of outsourced services and software are favored over inhouse IT specialists. CIS Bayad IT Planning Officer, Joewe Cinco recalls that the increase of Bayad Center sites and merchants prompted them to "tap software providers who had available pool of aspects" to provide what their business required and "eliminate wasteful steps and procedures in hiring or developing internal skills which the company did not have."
Power distribution company, Manila Electric Company (Meralco) also believes in the convenience outsourcing brings, but has larger faith on outsourcing identified as "smart sourcing." "With smart sourcing, you define what service and service level you need done and get it out of your way," narrates Meralco Vice President and Chief Information Officer, Marthyn Cuan. "When they deliver, it's turn-key already. [The vendor] will monitor whenever a fault is about to occur, do maintenance for you, and if there's anything else that you want to ask them to perform on top of whatever they're already doing, then that's simply a request." Smart sourcing, apart from low level outsourcing, means a company can cover multiple assets; covering service level agreements, not just transactional operations. "It's more of getting an entire stack, moving it out, and managing your risk at the same time," says Cuan.
Getting the Most from Outsourcing IT outsourcing opens up more possibilities for user companies by way of the advantages they get from implementing their outsourced IT.
Philippine Airlines (PAL) Information Security & IT Risk Manager, Alejandro Sol Cruz Jr., cites diversion of expenses to more important aspects of the business rather than putting sole financial focus on IT advantage. "Capital expenditures may be lessened or freed up from being used on IT and diverted to core airline functions," says Cruz. "[In addition,] better and possibly newer technology may be deployed faster with less cost depending on the service levels agreed on by PAL and the IT service provider.". Having the freedom to focus on other departments of the company was also in the mind of Solar Entertainment Corporation executives when they outsourced digital archiving services for video content from IBM. "In the case of our managed service agreement with IBM, it allows us to focus more on the broadcast operations whilst having an IT expert provide us the service required," says Solar Entertainment Corporation Vice President for Operations, Ralph Joseph Roy, whose first time to outsource IT was just last year. "Also, the arrangement addresses needs related to maintenance and obsolences of equipment."
Meanwhile, Andaya of Island Rose considers flexibility and scalability as advantages of outsourcing that have thoroughly worked for them. "IT outsourcing enables our company to remain small and flexible while being able to concentrate on our core competencies," relates Andaya. "It gives us the ability to pool resources from other companies on a per need basis allowing our operations to grow bigger or smaller as the need arises." PAL's Cruz echoes Andaya's statement saying that another advantage of IT outsourcing is the convenience of getting "flexible IT infrastructure that may be scaled up or down on-demand."
Flexibility and scalability has become attractive features for most outsourced IT services and products. Flexibility gives more freedom to the users depending on their needs and scalability allows them to tailor-fit services and products according to their needs, size of business, and most importantly, budget. Pitfalls But outsourcing is not without pitfalls. Convenience comes with a price, literally, that can take a big chunk of your company's funds. Bayad Center's Cinco reminds that outsourcing may get expensive. "We have to remember that these service providers also run their own business and maintains a pool of experts to be able to provide the service you need," says Cinco.
Meanwhile Andaya notes that expenses may not be the biggest pitfall with IT outsourcing but the problem of exposing your data to the service providers. "The bigger disadvantage is that we have little control over privacy," says Andaya. "Many IT outsourcing firms tend to get best practices and apply them to other companies therefore making us lose some competitive advantage."
Similarly, Cinco points out that softwares being used in back-office operations are a matter of primary concern. "There will be security and confidentiality issues especially if you outsource payroll, database maintenance, and other back-office process which provides them access to information," shares Cinco who, since he was tasked to handle IT planning and development since 2007, has been in charge of taking back control of the more critical systems in their organization while outsourcing those that are non-critical but essential to their operations.
Cinco warns that this confidentiality and security issue may lead to abuse within the user-vendor relationship. "The outsource provider gaining access to your information will see business opportunity," Cinco shares. "[The service provider,] having knowledge of how much money you make will then try to diversify and try to take on more projects even if they cannot give preference or provide the exact fit of skills or solutions needed for your project.
After taking in the pros and cons of IT outsourcing and finally deciding to outsource, the concern that you will then tackle is from whom to outsource. Do you outsource all needed IT from just one vendor or do they take in products and services from different vendors?
Our Lady of Lourdes Hospital Chief
Information Officer Myrna Rabulan notes from their current outsourcing status that the advantages of multi-service providers outweigh the disadvantages of a single-service provider.
"Some advantages of a multi-service provider are competitive pricing, technical expertise and practices can be shared. [Your company] can also lower the business risk in case the service provider closed down," shares Rabulan who outsources accounting software, hospital information system, payroll, and web development.
Meraclo's Cuan shares that the power distribution company has taken in multiple service providers, specifically for their enterprise asset management, enterprise database, and ERP software. Cuan notes that they have limited their selves because they "try to make sure that there's sufficient scale."
He also maintains that it is important to build good relationships with their service providers. "We build partnerships with them so that if they grow, we grow. I there's a new solution from them, we benefit from the solution."
However for Andaya, outsourcing from multiple service providers is also a strategy for the company. "We tend to spread out the work to many different firms mainly because of data privacy issues," says Andaya. "We believe no one firm should know our overall strategy so spreading out the work to different companies is the best way to ensure that our information is not used in any wrongful way."
In general, outsourcing from single or multiple service providers should work to help you further your company's goals. Cinco, who also believes in outsourcing from different service providers, shares that as "technology keeps changing at a fast pace, we wanted to maintain our competitiveness by tapping these technologies or resources which would greatly benefit our objectives."