Spin it off

SME IT/ OUTSOURCING

When outsourcing your IT needs makes sense.

Can SMEs benefit from outsourcing their information technology (IT) needs "� especially given that they have low budgets and hardly any IT department to speak of. At the outset, IT outsourcing would make sense only for SMEs with a decent IT department and at least a homegrown enterprise resource planning (ERP or ERP-like) package that ties in the loose ends of the sales, marketing, production and operations departments.

A start of sorts has already taken place in India with SQL Star International, an IT knowledge and enterprise services unit, having bagged a strategic outsourcing contract in the Indian SME market segment. Granules India, a fully integrated pharmaceutical formulations manufacturer with the world's largest 'granulation' capacity, entered into an agreement to outsource its entire IT management to SQL Star. What's interesting is that Granules India itself is a provider of outsourced pharmaceutical formulation solution services to large global pharmaceutical firms. Now it's outsourcing its own requirements to another Indian firm.

Outsourcing, as it may appear from media stories, is not necessarily about massive financial services outsourcing deals and government outsourcing contracts. It is indeed a viable option for SMEs as this case in point of Granules India indicates. For instance, very few companies do their own cleaning "� they employ a contractor. Isn't that a simple way of outsourcing? The same with accounts, legal, marketing and many other processes that are cheaper for someone else to do or require special skills.

The art lies in deciding which processes to outsource or keep in-house. The obvious thing is to keep your core competencies in-house, as that's your competitive advantage. Theoretically all other processes could be outsourced. IT is simply a case in point.

As I indicated earlier, if you are a company with a handful of employees, it obviously is unrealistic to employ a person full-time to look after your IT. In this case, you may not have much of IT anyway. However, if you're an auto-ancillary outsourcing unit for an MNC or maybe a supplier to a major auto parts or auto OEM, you will surely have to ensure that your IT needs are in shape. Large companies are very particular that they can seamlessly tie into your networks. Now if you don't understand the difference between an Ethernet cable and a phone cable, isn't it sensible to outsource this very critical task to a domain expert?

Outsourcing frees up key management time, physical space and finance which crucially can be deployed elsewhere in the business, say experts. More importantly, outsourcing mitigates the need to use temping staff, resolves recruitment and IT headaches (which are managed by the outsourcer) thus saving valuable time from the internal management of people and processes.

The best part out here is that all the big IT companies like SAP, Oracle, Microsoft and SAS are here with modular packages and consultancy offers "� all at reasonable prices. They also offer EMIs in certain deals. It's worth considering such offers. But more of this in my next column.

However, here's a word of caution from Paul Roehrig, senior analyst for IT management and services at Forrester Research who says that one of the biggest risk conditions in outsourcing deals occurs where customers assume that the vendor is supposed to be driving all of this. Another mistake is to keep employees and customers guessing about the implications of the outsourcing engagement. Leaving employees and ultimately the user community guessing can cause disruption to your small to midsized enterprise's outsourcing efforts. He suggests that one puts in a communications plan in place as part of the initial kick-off of an outsourcing effort.