Making a point: (L to R) Bank of America's Sushil Prakash, i-flex Solution's Deepak Ghaisas, Business Today's Priya Srinivasan, Pfizer's Arun Gupta, BPCL's R.P. Singh, Nasscom's Kiran Karnik, HLL's K.G. Mohan, and HCL Techs' Vijay Ahooja

Total IT outsourcing has been the buzzword in the Indian IT world ever since telecom major Bharti signed an eye- catching $750-million (Rs 3,375- crore at the then exchange rate), 10-year outsourcing deal with IBM earlier this year. Can we expect to see more such deals in the Indian market? How ready are companies to hand over their IT infrastructure to third-party service providers? How big are concerns like security and database confidentiality? At the annual summit of cios organised by India's National Association of Software and Service Companies (nasscom), the association and Business Today facilitated a roundtable discussion on these and other issues related to outsourcing. The panellists included K.G. Mohan, Chief Information Officer, HLL; Arun Gupta, Senior Director (Business Technology), Pfizer; R.P. Singh, ed (Information Systems), BPCL; Sushil Prakash, VP & Head (Technology), Bank of America; Deepak Ghaisas, CEO (India operations), i-flex Solutions; Kiran Karnik, President, NASSCOM; and Vijay Ahooja, Assistant VP, HCL Technologies. The discussion was moderated by Business Today's Priya Srinivasan. Excerpts:

BT: Do you see many more deals of the scale of the Bharti one in the Indian market?

Kiran Karnik: I think that was probably by far the biggest. And in terms of the concept, the company has taken the whole chunk of activity and outsourced it, not just parts of it.

Vijay Ahooja: If you look at the size of such IT deals over the past two years, even by global standards they have been enormous, Rs 500 crore or Rs 700-800 crore. Even global players are taking note of this market.

In the next phase, organisations will ask themselves the necessity of the fixed-cost model and will try and convert these fixed costs into variable costs. Most organisations overseas went through a cycle where they converted all fixed costs into variable costs. IT outsourcing was one way to do this. Once a deal becomes a trendsetter in a specific vertical, like the Bharti deal, then just to be competitive, others will have to do it. It will turn out to be a pure financial compulsion.

BT: How about a vertical like banking, which is another competitive services-oriented vertical like telecom? What sort of deals are you seeing there?

"Business process re-engineering doesn't work unless you outsource the whole chunk" Kiran Karnik, President/Nasscom

"Service providers have to address the issue of comfort in case of the banking sector" Deepak Ghaisas, Chief Executive Officer/i-flex India

"Fundamentally, as a company we believe in outsourcing" K.G. Mohan, Chief Information Officer/HLL

Sushil Prakash: The model that we are following is one where we have classified outsourcing into three specific buckets: the lower end of the spectrum has facilities management, help desk and the entire spectrum of IT management; the next bucket is systems integration, application development and integration; and the top-end is consulting. We have been using outsourcing as a process for at least six to seven years now. We started off with the lower end, and the bulk of outsourcing is still confined to the first and second buckets. For us, outsourcing is a long-term relationship. At the lower end we have partnered with Wipro and CMS for facilities management, and TCS and Infosys for application development. We work with a number of companies across the spectrum.

BT: How about total IT outsourcing where you hand over the infrastructure management to someone else?

Prakash: In our experience that maturity is yet to arrive (among Indian service providers), since we believe that accountability will still be with us even if we transfer processes. We have sensitive issues such as information security and compliance. We need to control these, so handing over control completely is a distant prospect. However, areas such as network operations or data centres can be outsourced.

Deepak Ghaisas: You must remember that banking is one of the most tightly-controlled verticals in terms of regulation and most countries have laws that have to be kept in mind. There are reservations as well. If I sign this contract then will I become so dependent that I will be incapable of running the process myself? Will the service provider take me for a ride later? Or will I depend on this service provider for every report that RBI wants? So we (service providers) have to address the issue of comfort, even to the extent of saying in the contract itself that if the bank reaches a certain size and wants to take over the operation, we will be in a position to transfer the process to it.

BT: What about pharma?

Arun Gupta: Pharma is a conservative sector when it comes to IT adoption. One of the key reasons is that pharma has not been under great cost pressure the way some other industries have. A recent report that looks at a 30-year time horizon says that pharma has significantly outperformed (other sectors) on various parameters, including profitability. Given that background, outsourcing has just about begun to happen (in the industry). In India, we started outsourcing a couple of years ago. We started with facilities management and then outsourced our network-it was totally managed by the service provider. In 1997, Pfizer shifted some of its work to India. Other pharma companies are pretty much in the same position.

"Pharma is a conservative sector when it comes to IT adoption" Arun Gupta, Senior Director (Business Technology)/Pfizer

"Accountability will still be with us even if we transfer processes" Sushil Prakash, VP & Head (Technology)/Bank of America

"Once a deal becomes a trendsetter, others will have to follow suit to remain competitive" Vijay Ahooja, Assistant VP/HCL Technologies

R.P. Singh: Our view is very clear; there are certain jobs you can outsource and certain jobs that you can't. We don't believe that we can outsource IT in totality any day. It is now part of our business and nobody can run our business; we know our job best. At BPCL, we don't want to waste our resources on non-value-added services. When it comes to maintenance of hardware, we outsource only if we find that the vendor can do a much better job. In terms of communication, we find that our systems work better and are cheaper than those of any provider's. We outsource maintenance, and cost is just one of the drivers, not the main driver. We will never outsource our business processes. If you look at our SAP (an enterprise-wide management programme) implementation, we have 100 people of which IT (professionals) numbers just 40 people; the rest are all business people. Today, we supply people to SAP when IT needs them for implementation (for other companies) since we have a whole bunch of business specialists trained on SAP.

BT: What do you earn from this?

Singh: We charge SAP Rs 15,000 a day per consultant.

Ghaisas: Does the customer know that the person coming in is from BPCL?

Singh: They have actually demanded our personnel on occasion. We have a very regular system of training and upgrading people; 87 certified SAP consultants in-house.

BT: How is the HLL experience? Do you also have a hidden business model of hiring out SAP consultants?

K.G. Mohan: No, we have no hidden business model (laughs); we focus on our core. We are not an IT company. Fundamentally, as a company we believe in outsourcing. What we can do better and cheaper outside the company, we will do it across the board, be it distribution and logistics or IT. What we keep in the company is intellectual leadership and the capability to integrate processes. We split IT into three: applications development support and maintenance, IT infrastructure and IT-enabled processes. All three are outsourced. For applications, we have a lean core IT team of 24 at the managerial level and have strategic partnerships with a range of software houses; it is modular outsourcing with different partners delivering different value. The in-house team should be able to integrate the various technologies into a cohesive solution, boast expertise in business processes, study best practices, and have the ability to manage projects. Anything that falls outside this, we outsource at various price points. We have outsourced IT infrastructure. We have outsourced network operations to Cable & Wireless, and server and desktop management to hp.

BT: There is clearly a resistance to total IT outsourcing for various reasons. However, the benefit of outsourcing is best realised when it is total. How do you resolve this?

Singh: Honestly, we don't see a single company that is ready in terms of business knowledge integrated with IT, which is ready to take on total outsourcing today. I want people with updated skills. This kind of integrated business expertise is not available.

Prakash: To add to that, many companies take on the mandate but do not have the competence for total IT outsourcing and give it to a third party. We are very scared of this situation where we are explaining our processes to vendor after vendor.

Karnik: Finally, if you are looking at radical changes like BPR (business process re-engineering), then unless you give the whole chunk it doesn't seem to work.