Outsourcing, neoIT

Five questions with neoIT's Atul Vashistha

02 Sep 2003 | (Interview)

How does the Fortune 100 approach the outsourcing of its services and projects? The drive to reduce cost has helped develop a large and growing international outsourcing industry, and it can be a matter of significant consequence how much of its operations a company outsources, to whom it outsources, and the type of relationship it sets up with those outsource providers.

Intelligent Outsourcing Strategies spoke with neoIT cofounder and CEO Atul Vashistha, to get his thoughts on the how and why of global outsourcing. Before neoIT was born, he was senior vice president, international, at Cardinal Health, a Fortune 100 company. He also served as vice president of marketing and business development at Rural Metro Corp. He currently sits on the advisory board of the Center for Services Leadership at Arizona State University and the software division board for the Information Technology Association of America.

Three-year-old outsourcing technology provider neoIT, based in San Ramon, Calif., offers products designed to handle the automation of a company's outsourcing lifecycle, and it includes people, projects, and services in that definition. Its software products - such as neoIT Enterprise Buyer Application Suite, neoIT Enterprise Buyer Hosted, and neoIT MarketMaker - target savings in time and cost that are built into collaborative, outsourcing relationships. The company also has a large advisory effort to help companies get the most out of their global outsourcing projects.

Intelligent Outsourcing Strategies: What are the main outsourcing issues for Fortune 100 companies? Saving money? Reducing IT headcount?

Atul Vashistha: I've been on many calls with Fortune 100 CIOs or CFOs, and the number one factor is cost. The reason they want to outsource is to reduce the cost of their infrastructure. They are outsourcing it, so they're getting a lower cost from a supplier, and if they're going offshore especially for application development, they're getting lower cost. Another thing they're doing is taking a shared service center - for example, that manages their call center - and they're selling that piece to a supplier, and then they're doing a 10-year contract with that supplier to provide the service back to them. So it is a cash event for the company.

The other reason for outsourcing is that it's a change in their management philosophy, and they're trying to focus on their core competencies.

Intelligent Outsourcing Strategies: Do they need to make a tradeoff between control of their resources and saving money?

AV: I think the reason that a lot of companies are not outsourcing as fast is because they're concerned they're going to lose control What they find is that by outsourcing, they are not losing control. Let me give you an example of the GE model. They use the 70-70-70 model. They outsource 70 percent of what they do, so 30 percent is being done by them to retain control. The 70 percent they outsource, they use offshore suppliers for a higher level of savings, and 30 percent of the outsourcing is done onsite. They keep control, the oversight, but they get the all the core competency of the supplier and the cost benefits.

Intelligent Outsourcing Strategies: Do companies have (or need) an exit strategy when they get into an outsourcing relationship?

AV: Always. We always recommend it to companies. It doesn't matter if the contract is five years or 10 years; you will almost always be renegotiating it within three years. You may be going through acquisition or divestiture, markets change. Always negotiate an exit clause within the contract itself. When you're doing the deal is the best time to negotiate an exit clause, because it's the time when everyone is most likely to be agreeable.

It needs balance. You have to provide the supplier with a certain amount of business. They have to have some room to maneuver. The GE 70-70-70 model works well, because there's some benefit on the GE side and some on the supplier side.

Intelligent Outsourcing Strategies: Talk about global outsourcing. Are there some things better done in the U.S., or are there skill sets that are superior in other countries?

AV: When you're looking at it from a Fortune 100 perspective, there are only so many suppliers that can really service the Fortune 100. I'd say it's probably less than 50 companies around the world. You start looking at countries and the ones that stand out are India and Ireland. India is definitely the most mature for legacy systems, application development, application support, and application maintenance. If you're doing those, India should be your top choice. They've been doing it for years. If you're looking at packaged software, Ireland is very good at it.

And then you start expanding beyond that, the newly emerging areas like call-center and back-office processing, there are maybe five or six companies in Europe that can handle that, and maybe 10 companies in India that can handle that.

Intelligent Outsourcing Strategies: Just how much of a company can be outsourced?

AV: Depending on how much of a business you outsource, you can secure better deals. I believe the GE model will be followed by a lot of others. It's about maturity. To get to [the GE] model, it takes a lot of time. You have to look at that as a goal and build that core competency. There are other companies that are moving in that direction - JP Morgan, Texas Instruments - as good users of outsourcing. Then there are some companies that are on an 80-20 model - they outsource 80 percent of it.

Related Content: