Outsourcing Of Information Technology In Vodafone
Outsourcing is a clear strategy, which a company uses to get benefits with the help of its product or services, the goals are to earn a profit, this intelligent decision by any company of industry can give benefits to not only the company but to the country and economy of the country where the outsource is done. The relationships get stronger and outsourcing partners can get the advantages from various aspects, Outsourcing can change the global business, the countries, which have the poor economy, can get more benefits, and reduce their operation cost. Many of the companies do outsourcing of human resource and IT with their own name, so many advantages can be taken. Whereas, some of the companies outsource their IT system as there are chances of growth. If we take an example of Vodafone India, which has renewed the contract with IBM, the IT technology outsourcing contract is giving benefits to both the companies and countries (Eonomictimes.indiatimes.com, 2016).
The companies get benefits more than the companies do who did not outsource, this strategy is better than lowering the costs because outsourcing is a process that can financially benefit the companies in numerous ways. The companies who outsource their services become able to reduce the rate in regarding with the annual sales. The companies wanted to increase their sales or expand their businesses should consider the IT services; they can increase their profitability and maintain their functions or reach their set goals through outsourcing services. However, the better services and value can be given to the customers, both the companies can satisfy the customers through outsourcing, the company that is selling or giving IT services to the other company and the company, which is taking the services. IT and basic business services can speed up the manufacturing process through considering the facts or importance of outsourcing.
Reasons For Outsourcing Information Technology
It has lead in the recent years just because of the IT services, the companies are taking IT with a serious look because they know that benefits are there, however, It and technology are considering important to run the business since 1990’s, the implementation of the IT services process has given the visible positive outcomes in the business process. Moreover, it an opportunity through which the companies can take various advantages in the market or industry, IT outsourcing can be important as new relationships, opportunities and additional services are there. To boost the profitability, there is need to think strategically like Vodafone did, after getting benefits of 5 years, the contract is renewed again because companies get advantages in the market, customers are happy, IBM is well recognized and trustful brand this is the reason that their IT outsourcing in India serves the IBM and Vodafone in better ways. The company has thought strategically, in order to get the advantages; the companies communicate again about the processes and manage the deals. Depending on the vision, the companies have so many reasons to undertake outsourcing (Schniederjans, Hamaker, & Schniederjans, 2010)
Lowering the cost can be a benefit for any company as the sale could be increased in this case, however, it could be the number one reason that organization could choose for the outsource, every company focuses on lowering the cost of its business model. There are around 80% of the companies, which have chosen the strategy outsourcing due to the cost cut.
Improve The Company Focus
Outsourcing can be a framework, which can improve the company focus, the company through doing the outsourcing can focus on the responsibilities which it has towards the customers, the company become able to understand the customer’s needs because the more the services will be given the more experience can be taken from the market of different countries.
Obtain Access To Excellent Responsibilities
The company becomes able to understand about the core activities, through outsourcing the IT services, the company can be capable of managing the technology worldwide and can help the customers to satisfy their needs so that they can compete with the modern world, in this case, the companies can be more productive.
There are benefits of the outsourcing, the customers can be retained for long-term, as the customers get an experience of the product or service in own or another country; the retention increases. If the customers know, that brand is loyal and serving or giving the benefits to the other firms or countries, they will trust more, the quality outsources customer care can result in retaining the customers. Example, the Vodafone customers are increasing day after day, as they know that the company is loyal and serving better, and outsourcing by IBM, the company Vodafone has opened across 22 telecom circles in the country and the company is having around 194 million customers (Phadnis, 2016).
The scale of the services increases through the outsourcing; the company if outsource then flexibility could be there, the company becomes able to speed up it processes and in this case, the company quickly scale up. The customer’s demands can also be increases because the services could be given better if there is an expansion, there will be maximum customers and the company can give the services without compromising on the quality services, which are need to be given.
Raise The Revenue
The better experience the company get the better revenue can be raised. As the company can get the advantage from the customer, there could be the better understanding of the customer’s preferences, a company can become powerful and productive through outsourcing the IT, and the company can generate maximum revenue through interactions. Customers care agent in the countries is listening to the customers carefully, the problems are being sorted out because the company knows that customer is interested in a product. IBM in this way has also increased the revenue because of the quality services, which is given by the Vodafone to the customers and the customers become loyal (Kokes, 2014).
The companies like IBM, through internal and external outsourcing, experiencing the real success because they are focused on the diversifying contact centers. IBM has outsourced its contact center, through the services given in the country by Vodafone; through this, the company gets much comfort in the industry because customer service is guaranteed.
Due to outsourcing the It technology, the risks could be shared, the outsourcing provider, can cover the risks through providing the risk over multiple clients, there could risks regarding the unintentional errors or omissions, unauthorized modification, failure of IT system etc. To deals with such risks, outsourcing with other companies can be beneficial.
Obtain The Resources
Through outsourcing the IT or technology, the resources could be obtained that are not present internally, example, if the company is facing problems regarding the technology or services than other company can be helpful in this way. There could be the sharing of information or technology, rapid growth can take place and results could be in greater economies of scales (Gonzalez, Gasco, & Llopis, 2010).
Benefits Of Outsourcing Information Technology
One of the major and most important trends in the field of information technology within the past decade is the increased usage of the outsourcing of the technology design, development and other activities related to Information technology like Information technology security and networking (Peslak, 2011). This is not without any good reason as well. There are many benefits to it.
IT outsourcing can be defined as the practice of transferring all or a part of one’s It activities and functions to an IT outsourcing company or the IT vendor (Peslak, 2011). The major areas, which are usually outsourced by the companies, are the application development area, system development area, IT project management area, system maintenance area, telecommunication, and LAN services. It can be outsourced to a local or national vendor as well as any vendor that located offshore.
Our chosen company, Vodafone globally outsourced its Information technology functions to IBM and EDS in the year 2006. Under this contract, the Vodafone agreed to outsource its application development and maintenance services to IBM and EDN. The main motivation for this deal for Vodafone had been the cost reduction. The Vodafone operating companies situated in Germany, Hungary, and the UK and in the Netherlands outsourced their It to EDN. Whereas the companies of Vodafone in India, Australia, New Zealand, Spain, Ireland, Greece, the Czech Republic, Italy, Portugal, Ireland, will work with IBM as the outsourcing partner(Vodafone.com, 2006).
The contract was given for a period of seven years at first. The contract was renewed in 2011 for a five-year extension and then again extended to a five-year period in the year 2016. The recent contract with the IBM of Vodafone India is based on providing the Vodafone Essar with virtualization of its operations. Moreover, the company will aid Vodafone Essar in migrating to the hybrid cloud architecture. The new contract is heavily focusing on providing automation, cloud and analytics tools (The Economist Time Bureau, 2016).
There are many benefits of this outsourcing deal, which would be enjoyed b the Vodafone India. Some of the general benefits of the outsourcing are explained in detail as follows.
Control Over The IT Cost
The outsourcing of the Information technology functions reduces the costs and gives control over the fixed costs of the IT. It does this by converting the fixed costs into variable costs. This aids in budgeting effectively. Furthermore, the company has to pay only for the services that it uses and when one needs it.
Reduction Of The Labor Costs
Outsourcing also aids in deploying your human resource where you need them most. The hiring of the human resource that is technology adoptive and knows the technology is not always the case. Because of the constant changes and upgrading of the software and technology, the professionals are usually not always hired as trained. The companies have to use a vast amount of budgets on their training and developments. Therefore, through the outsourcing of the technology, the companies enjoy flexibility in deploying their resources to the areas, which are more important to their operations.
Expertise And Knowledge In IT
The companies usually are expert in their field of operations. The technology as being one of the necessities nowadays like the other main functions and tools for the organization is not possessed by the organizations as their key expertise. If one organization does not know what the best automation available is nowadays, or what type of software is the requirement of our company, then how would it be able to judge if it is hiring the right professionals or getting the right software for its automation. One needs to have the consultancy from the expert of this field. Another better option is to completely or partly outsource your IT to a company, which is an expert in this field and knows what would work best for you.
Increment In The Competitiveness & Efficiency Of The Company
Companies which usually develop in-house technology have to have very highly advanced research and development departments. This takes a very large amount of resources in terms of financial and human resources as well as time. The implementation of the technology and its maintenance also takes time, resources and huge costs. With the outsourcing of the IT functions, these costs, time and resources are available for the company to invest in their core business. Moreover, the high costs of in-house development also force the companies to transfer this amount to the customers ultimately making their product or service more costly. The outsourcing helps the companies thus in investing this time and resources in making their operations more productive, efficient and consequently making the company more competitive in the market.
Quick Implementation Of The Technology
Same as mentioned earlier, the companies who are developing the technology and software in the house have to go through a very long and tiring process after which the ultimate implementation and deployment of the technology is done for its usage. The companies who tend to outsource these activities not only save the entire cost of their own hard work but also the time that needs to use the technology. The implementation time thus in the outsourcing of the technology is far lower as compared to the in-house development of the technology.
Focus On Core Business
The main benefit of the outsourcing of the technology is that the company can invest its resources and time on its business and work more on its core business for increasing its productivity and efficiency.
There are many other motivators for the outsourcing of the technology as well. However, the three major categories of the motivation for the activity and decision of the outsourcing are
- And Politics
However, these are not the only reasons and benefits of the outsourcing, which motivates the companies to go for it. For example, many organizations tend to adopt outsourcing because they perceive it has an efficient way (Patil and Wongsurawat, 2015). Mostly now, the main motivators of the outsourcing have been more because of the strategic reasons than the cost savings. The research has supported the idea that outsourcing is used as a strategy in which the results in the form of increased performance and efficiency are expected. As mentioned earlier the most used strategic use of the outsourcing is the benefit of allowing the outsourcing company to focus on its core competency. The competition of the market forces the companies to reassess and redirect their limited resources to their core activities to gain more productivity (Kremic, Tukel, and Rom, 2006). In India, specifically, the outsourcing is also expected to raise the competent behavior of the organizations
Critical Issues In Outsourcing Information Technology
The main purpose of outsoaring is to save the cost and money. Technology is increasing day by day and making companies and organization difficult to bring in innovation and advancement in less time. Therefore, now organizations are gaining there focuses on saving the amount of money by reducing the services and IT services so that they can compete with other competitors and can get a competitive advantage. As there are a lot of benefits for the organization due to outsourcing information technology it also includes some issues that most of the company faces some of them are mentioned below;
For the outsourcing purpose, an agreement is signed between the outsourcing company and organization who want to outsource it IT service. For getting IT services, the organization provides its important information and intellectual property to the outsource company so that they can provide services to the organization that is a customer of the outsourcing company. Outsource provider or outsourcing company has the right to get access to use important data of the organization and are entitled to have intellectual property right protection. The main purpose of the outsource companies is to provide the techniques, software, and technology that will help the organization to handle it is important information data etc. Third party software licenses involved many restrictions like prohibiting customers from transferring the software to other outside organization (Crow and Muthuswamy, 2014).
IT outsourcing is kind of a shared environment in which information is shared between the origination that is a customer of the outsource company or service provider. This shared an environment that is involvement of a lot if people and clients lead to having more risk to the confidential information and data of the company. On the other hand, different network side of the organization that is customer becomes more sensitive regarding exposure for example; LAN, WAN, and dial-up connections of the organization. Outsourcing IT services include risk regarding access of confidential data by the employees of the outsource company, risk involvement in the transfer of data from one side to another side in the organization or outside the organization. Moreover, a risk is also involved when the employees in the organization and employees of the outsource company shared the same network (Wallen, 2012). This type of risk usually occurs when there is a lack of communication between the client that is organization and the outsource company. For example; Vodafone is fully dependent on IBM Company for its technology and IT functions.
One of the major risks that the organization is facing due to the IT outsourcing is getting poor quality software or sites for handling the important and confidential data of the organization. When a firm gets its IT function done by an outsource company then that firm is basically, compromising and taking risk regarding its high-quality services. Outsource companies sometimes have hidden cost for the customers that increases the operational, IT functions cost of the organization. for example, if the organization is not getting its issue resolved and even paid an amount for it, then on demanding more effective assistance and technical help from the outsource IT department will lead the organization to face high cost (Coombes, 2015).
Another problem that most of the organizations are facing includes the poor or lack of employee relationships. When a company outsources its IT functions than at the time problem employees of the organization cannot get same IT person or engineer every time from the outsource company. companies outsource their IT functions because to a lower overall operation and function cost of handling confidential and important systematic data but it only works when employees of the organization have the ability to get used to having different contractors from the outsource company. In this situation, the relationship between the employees of the organization and employees of the outsource company cannot be built.
On having IT functions outsourced, most of the employees in the organization cannot perform their task until outsource firm resolve the IT issues. This will lead the company to face a loss of work or fail to complete the task on the desired time. In this competitive world, as an organization is planning to outsource their IT function to lower their cost, the number of outsourcing companies and its customers (an organization who want to outsource their IT function) are also increasing. There is a possibility that most of outsource firms give priority to those organization that pays them to hire prices. If one’s company cannot fit the demand and pay lower than other firms pay then the outsourcing firm may take the responsibility and security of that firm lightly (Corporate Computer Services, Inc., 2016).
Firms who want to outsource its IT functions cannot control outsource company. Moreover, organizations become dependent on the outsource firms. Outsource firms control their data, information, provide them IT facilities etc., which means company loses control over its main functions and information and the way in which company behaves. If a company fails to get the proper outsource its IT function then there will be a risk to the organization that is; it will be completely locked in because of the paid money for the services but facing the delay and laziness of the outsource company in resolving important issues and documenting the important issues.
Nowadays, organizations are focusing on getting their operations and function of the business done by the outsource firm instead of getting low-cost labor and employees for their IT functions. For example, nowadays the use of SaaS is increasing. Moreover, the use of Cloud based data transfer and controlling is increasing. Outsourcing IT functions also play an important role in affecting the moral of the organization. For example; if the employees in the organization are facing some technical issues that are; delay in the work due to the delay of information provided by the outsource company. Moreover, due to the delay in resolving issues by the outsource company, then it will lower the moral of the employees and they may work slower to perform assigned a task (ROY and PETERSON, 2014).
Critical Issues In Managing Outsourced Relationships
IT Outsourcing is the activity in which a company contracts with another company that specializes in Information technology functions. These companies give the specialist organizations the contract to do a part of their work in the most effective manner. The gain of the popularity of the outsourcing is because for many reasons but still the companies have resisted on outsourcing their core competencies and whilst outsourcing their non-core activities only. The companies who get these contracts are usually the ones who specialize in the outsourced functions and these are their main and key core competencies. This outsourcing of the functions is also referred to as the contracting or the facilities management (Lin, Pervan, and McDermid, 2007).
The Information technology outsourcing or the ITO is the transferring of the property rights and the decision rights of the development of the IT infrastructure, which is then used by the outsourcing company and given to an external company or vendor.
A number of organizations are increasing the number of IT functions outsourced by them. This is because of the reason that this outsourcing of the IT functions is providing them with benefits in the form of productivity, cost reduction, the high satisfaction of the clients, and quality services. However, there are also many challenges accompanied with the success of the outsourcing of the technology. These challenges if not catered within time and in an effective manner can also lead to potential failure of the outsourcing and losses as well.
The outsourcing of the IT infrastructures has provided the companies either large sized or small sized with a level playing field. This is evident that the companies who tend to ignore the technology as a strength and main competency loose many opportunities and are not in the competitive standing.
One of the many factors, which are crucial for the outsourcing activity success, is the management of the outsourced relationships. The management and monitoring of the relations with the third party providers are crucial for its success. It is evident that a large =number of outsourced services were unsuccessful when the companies do not monitor the third party providers constantly. The outsourcing of the functions does not free the organization of the risk and responsibility of that functions but allows it to have more free time to delegate its time more on its core competency. Therefore, it is crucial and imperative for the outsourcing companies to maintain a close relationship with the companies they are outsourcing their functions (Rivard and Aubert, 2015). It is very important that there is a close relationship between the outsourcing team and the service provider. Both should not have any communication gaps in between them.
There should be an open environment for both the team and the service provider company to easily communicate their ideas. The arising of the conflicts in between these two can cost the company with an unsuccessful outsourcing (Felton, 2008). Even if the functions of the company are being outsourced, it is essential that the company should accommodate and facilitate the service provider with all the requirements of knowledge and information as this would be crucial. The service provider needs to have a close communication link with the company, as it is dependent on the knowledge and information transferred to them to develop an effective system and function for the outsourcing company (Vagadia, 2011).
This should be made sure specifically by the management itself. The interest of the top management is crucial to the outsourcing of the technology. Even with the outsourcing of other functions, the communication is very essential. However, with the outsourcing of the technology, it is more crucial as the technology is a very sensitive tool for an organization. Any wrong judgment by the service provider about the exact needs of the outsourcing company would divert the whole process and the output would not be the one expected. This is mentioned to show the importance and the reliability and dependence of the service providing company on the outsourcing company facilitation, accommodation and information transfer.
Another aspect of the management of the outsourcing relations is the consideration of the gains and losses of the service provider as well. The companies usually going for outsourcing do not want to consider what the service provider company is gaining from the contract. The companies outsourcing their technology blinded by their own cost cutting advantage squeezes the profit margins of their service providers not taking into consideration the fact that it may cause them to not innovate and become creative and cut costs in their provided technology making it lower quality. They tend to forget that the lower margins can cause their service providers to make a lower quality product, which will hurt their company subsequently.
This shows that not only the cost, efficiency, and productivity, the relationship with the service provider also is very crucial for the success of the outsourcing activity.
Recommendations For Outsourcing
Outsourcing is an advance movement, any company who wants success in the market; need to consider the benefits and importance of outsourcing, many of the companies are successful, as they have managed their business well in the other countries or with the other businesses. However, there are chances to take the risks but in my point of view, every company which is familiar in the market or in the industry need to take the risk for the betterment or effectiveness. For the benefits on the market there is the need to consider the importance of outsourcing, following are some suggestions through which the companies can get success in the market (Solli-Sæther, 2010).
Outsource The Right Activities
For the companies, it is important to know first that what are they are best and which product, service or technology can give them the benefits, if the company becomes able to identify it, in regards to the consumer choices or preferences, and then companies can outsource the services. In another way, if the outsource activities are not effective, or if there are problems in the identification then failure could be there. For the competitive advantage, it is needed to consider the unique services, the company needs to make the well or good sense about the best services, so the risk should not be there because risks at all the stages cannot be affordable.
Dependency On Suppliers
The dependency on the supplier need to minimize, there should be maximum or numbers of vendors, so the pressure or dependency could not be there, as in the case of Vodafone, there is just or supplier or vendor IBM, for the IT technology, which has increased the dependency rate Vodafone. Vodafone need to consider more vendors because in this way, maximum profitability can take place and customers can be satisfied. Vodafone has become the familiar and strong brand in the market, customers are well aware of the brand; in this way, if it considers different vendors then there could be effectiveness in the business processes.
Consider All Outsourcing Cost
There is the need to consider the outsourcing cost before the outsourcing because there is need to save the money for the future processes, the company needs to consider the right vendors; the vendors which are giving the product or IT services at the reasonable cost; cost or money need to be saved at every single point.
Choose The Right Help
The vendors which are chosen for the IT outsourcing need to fit best according to the demand; there is need to take the efficient decisions in regards, there is need to evaluate the strengths and contrast that which party can serve you better, or where there could be maximum advantages in the future (International Monetary Fund, 2011). There is a need to think about the profitability and the company, which can serve in the better way. The companies who have the experiences can serve better, example the experience about the country culture, language, tradition etc.
Consider Reviews And Feedback
Once you did the outsourcing of your business, it does not mean that you have to leave the business at the companies, which are selling your IT services, the vendors, and outsourcing companies need to keep check on them because things can be wrong if there are no awareness about the current situation of the market or industry. There could be the loss of the customers if the outsourced companies are not treating the customers in a good way. Every outsource company needs to take the substantial amount of good or positive feedback from the customers because of the negative feedback the company may not get success. However, with the experiences and review every company could get better with the time in the market.
Write A Solid Contract
There is a need to write done everything, outsourcing can be a problem for a company as there are many issues, the company makes the solid contract in order to deal with the vendors, however, for the partnership, there is the need to record everything so that in future one must have the evidence. In the contract, there is the need to write about the payment and strategies, which are going to be considered, the rights are also needed to be mentioned as the contract can be terminated if not all the terms and conditions are fulfilled (Vitasek, Ledyard, & Manrodt, 2016).
Keep The End In Mind
The companies need to be well prepared and need to know about the market situation. There is the need to consider the end and need to keep the end in mind because there could be worst situations if one is not prepared. With the end of the contract, the business relation needed to be finished until if both of the companies do not want to do outsourcing contract again. If we talk about the Vodafone and IBM case, in which there was an IT contract of five years, both the companies decided to do contact again as the relationship were smooth as both the companies earned the profit or revenues. However, the agreement should be terminated or agreement should not be made again if benefits or profitability is not there.
To conclude, it can be said that the major motivators or reasons of the outsourcing of the technology are cost reduction, strategic use for focusing on core competencies and having flexibility, and lowering the risk of doing vast researchers for in-house developments. However, there are many success factors for the successful implementation and adaptation of the technology. The companies need to consider their relation with the service providers with more importance as it is very crucial to its success. Moreover, the interest of the main stakeholders in the outsourcing activity and the consideration of the gains and losses of the service provider are also of critical importance for the success of the outsourcing activity.
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