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Taking outsourcing to the next level

Having won some key long-term projects in important verticals, HP Services is giving serious competition to IBM in the managed services space, says Akhtar Pasha.

Hewlett-Packard’s Managed Services business has been offering limited, discrete ‘out-tasking’ services for 17 years. However, it did not formally enter the strategic outsourcing market until the second half of 2002. Thereafter, its Managed Services business has not looked back; it has signed long-term contracts with companies such as HLL, Tata Steel, Ashok Leyland and Reuters. The recent announcement of big wins in the BFSI segment—Bank of India (BOI) and Bank of Baroda—will give a new dimension to the company’s Managed Services business.

This success has firmly established managed services as HP’s fastest-growing business unit. It grew at the rate of 40 percent in 2004, above the industry average. According to IDC India, the managed services industry is expected to grow from $ 467 million in 2004 to $ 1.03 billion by 2008 at a CAGR of 30 percent. Says Marshal Correia, Director, Managed Services, HP India, “Except for telecom, we have customers in every vertical that are outsourcing IT infrastructure.” The deal with BOI has been selected as the winner for the Outsourcing Centre’s 2005 Outsourcing Excellence Awards’ ‘Best First Steps’ category. (See box).

Check out the following to understand the kind of progress HP’s Managed Services group has made during the last few years.

• The size of HP Services’ (HPS) typical contract has increased from less than $ 20 million in 2002 to $ 150 million for the BOI project in 2004—and it’s a 10-year contract.
• It has expanded beyond traditionally discrete, tactical ‘out-tasking’ projects or facilities management into truly strategic outsourcing projects.

Except telecom, we have customers in every vertical that is outsourcing IT infrastructure Marshal Correia Director Managed Services HP India

Correia attributes the increasing number of strategic IT infrastructure-outsourcing deals to the rapid growth of large enterprises. These organisations are resorting to outsourcing due to the sheer increase in the number of transactions, shrinking time- to-market, need for scalability to cope with growth, and need for business processes and the underlying application infrastructure to support their growth. They also want to improve efficiency, reduce costs and make their IT systems proactive.

Comments Ravindra Datar, Principal Analyst, IT Services & BPO (Asia-Pacific), Gartner India Research & Advisory Services, “We believe the mega-deals that we saw in the last couple of years in the Indian market are just the tip of the iceberg as against the actual potential of the Indian market. Only a small fraction of India’s large enterprises are outsourcing IT services, and in most cases the outsourcing is done on an ad hoc basis for specific, short-term requirements.” He adds that with the Indian economy rapidly integrating with the global economy, competitive pressures in the domestic and international markets, the necessity to comply with local and global standards & regulations, technological advancements towards improving efficiency, and the quality of products are factors propelling organisations to outsource IT services. Large enterprises are looking at long-term IT infrastructure-support projects from providers. Additionally, the practice removes the complexity of managing multiple provider relationships. Customers feel that a global provider can bring in best practices and has the expertise to execute large and complex projects with a breadth of product and technology solutions.

Opines Datar, “Aggressive business development activity by multinational managed service providers in the local market will drive growth, as is being observed in many mega-deals signed by large Indian enterprises with multinational service providers.” Gartner forecasts a comfortable 19.8 percent CAGR for the Indian IT services market from 2004 through 2009.

Reference clients

We believe the mega-deals that we saw in the last couple of years in the Indian market are just the tip of the iceberg as against the actual potential of the Indian market Ravindra Datar Principal Analyst IT Services & BPO (Asia-Pacific) Gartner India Research & Advisory Services

HPS’ Managed Services contracts may not be as big as IBM Global Services India’s—the latter has long-term contracts with Bharti Televenture, ABB, Siemens, Syndicate Bank and Whirlpool. However, the company’s managed services business has many contracts with customers in different verticals. BOI was under competitive pressure from public and private sector banks that were going ahead with technology-enabled transformation. Says D Krishnamurthy, General Manager, IT, BOI, “HPS’ approach offers us a single point of contact for all IT services, thus increasing productivity and standardisation, facilitating consistent service levels and customer experience, and improving billing and reporting. It will help BOI leverage proven methodologies such as the transition and transformation methodology, HP Global Method, information technology service management (ITSM) and HP programme management methodology. This will significantly reduce the time-to-implementation while providing improved operational control and effective service policies. We have reduced our technology management costs by 20 percent by outsourcing our IT infrastructure to HPS. Outsourcing IT infrastructure allows us to fix our technology costs over a long-term contract, and there is no risk of our technology becoming obsolete.” HP’s Managed Services bring strategic outsourcing solutions combined with technology standards (such as ITIL) that reduce costs and offer a single point of contact for resolving problems.

K G Mohan, Vice-president in charge of information technology at Hindustan Lever, says that the company’s rapid expansion of IT infrastructure led to a decentralised system that left internal gaps and a shortage of skill-sets to manage the infrastructure. Additionally, its IT applications were getting more critical and required monitoring of service level agreements with multiple vendors; the utilisation of IT assets also had to increase. “HP has done the job well for us. We chose it three years ago to manage our IT infrastructure because HPS uses international standards (ITIL/ITSM tools) and has a proven record of implementing complex projects. Besides offering cost-effective solutions and services, HP provided us with a flexible and reliable IT infrastructure,” Mohan states.

Tata Steel, another customer of HP Managed Services, was outsourcing business IT (which includes sales & marketing, materials, SCM, HR and payroll) to IBM while HP was handling the production-related servers, VAX and Alpha, including hardware and software maintenance, in 1998. Since the production servers were on proprietary architecture, it was not possible for IBM to manage them. HP Managed Services offered Tata a complete portfolio of services—strategic outsourcing, utility pricing solutions and proven methodologies such as ITIL.

Explains Anurag Agnihotri, Head, Process Optimisation, Automation Division, Tata Steel, “We needed better control over our IT environment, and uniform service levels across the organisation. We decided that the only way to achieve this was to outsource to a partner who understood our needs completely—and HPS stood tall.”

BFSI in mind

Correia sees an opportunity for HPS in the BFSI segment because organisations in this vertical are under pressure to automate and implement technologies such as CRM, data warehousing, disaster recovery and business continuity services. Some companies in other verticals such as manufacturing are up for grabs as many contracts are coming up for renewal this year. Correia is optimistic: “There are many government-public projects which are in the conceptualisation stage. These will keep our growth engine healthy.”

Sustaining better-than-industry growth rates in IT infrastructure outsourcing will not be easy for HP. The good news from Gartner is that Indian enterprises have just scratched the tip of the iceberg, and more mega-strategic outsourcing deals are expected. This should benefit both HP and IBM as they raise the stakes in the great Indian IT outsourcing bazaar.

akhtar@expresscomputeronline.com