Whether you like it or not, information technology (IT) is a critical part of your business, and your ability to compete is directly tied to your organization's ability to manage and process information. However, processing and managing data is an expensive proposition. Cost-conscious executives often use outsourcing as a way to both reduce costs and increase expertise, but deciding to outsource some or all of your IT needs should not be taken lightly. While making a good decision can increase both productivity and earnings, a bad decision could be crippling. Across the country, many executives are embracing outsourcing a portion or their entire firm's IT needs, and this trend holds true in Alaska.

OUTSOURCING NEEDS AND CHOICES

Today, executives can choose from a wide range of outsourced IT services, much of which has been aided greatly by the proliferation of the Internet and Internet-based connectivity. Conceivably, virtually all of your IT needs, including much of the network hardware, could be outsourced to a firm on another continent. However, most firms have chosen to practice selective IT outsourcing, in which only portions of a firm's IT needs are outsourced. A firm's predisposition to outsource any particular IT function can depend on a number of factors, but cost, economies of scale, technical expertise are critical criteria.

According to Tony Velez, the president of PC-Net Communications, many companies in Alaska are choosing to keep routine support in-house or at least on-site. This generally includes installing new software applications on desktops, troubleshooting printing issues, and solving other basic problems. According to Velez, smaller networks that consist of fewer than 15 computers don't require full-time IT support. Most of the problems that arise in businesses of this size are routine and don't require a high level of support. As the size of the network increases to about 35 to 40 computers, most companies require full-time support for at least basic troubleshooting. Additionally, companies of this size also can benefit from some amount of high-level support related to firewalls, servers, IP connections and other advanced services. Higher-level support, however, is an expensive proposition. Upgrading routers, installing new firewalls, and establishing new VPN connections often requires a healthy capital budget as well as significant technical expertise. While many businesses may require these services on an occasional basis, most small- to medium-sized businesses don't undertake these kinds of projects frequently. According to Velez, "Once these networks are in place, they only require basic maintenance," which can often be handled by lower-cost in-house or vendor-supplied labor. By managing IT needs through an outsourced channel, firms can realize cost savings by leveraging a vendor's ability to gain economies of scale.

ALASKA SLEEP CLINIC

Other firms benefit from outsourcing primarily in the area of technical expertise. One of PC-Net's clients, Alaska Sleep Clinic, has very specialized needs. Alaska Sleep Clinic specializes in diagnosing and treating sleep disorders. Due to the unique nature of the business, their IT requirements involved setting up sophisticated IP cameras and other monitoring equipment. PC-Net configured ASC's network, connected its multiple locations, and currently provides ongoing support. This allows Alaska Sleep Clinic stall" to focus on the core business while maintaining cutting-edge IT systems.

KEEPING COMPUTERS SECURE

Additionally, medical professionals and law firms have heightened security requirements due the sensitive nature of these fields. These networks require additional protection to secure them, and PC-Net has come to specialize in setting up and establishing such protected networks. A small law firm with only a few staffers still has stringent IT requirements, but employing full IT staff on its payroll is not as financially attractive as outsourcing this work. The client firm benefits by realizing outsourcing's full expertise without incurring the costs associated with developing and maintaining that competency in-house.

HR IMPLICATIONS OF OUTSOURCING IT

For IT professionals, outsourcing can be daunting. Last March, Grand Rapids, MI-based supercenter chain Meijer said it would be outsourcing 81 information and technology positions to India. Meijer announced that it would partner with Bangalore, India-based technology services firm Infosys Technologies Ltd. The jobs eliminated include 55 contract workers, and 26 employees of the 365 positions affiliated with the retailer's IT department. According to Meijer officials, the outsourcing was part of ongoing cost-cutting initiatives to streamline operations and keep the grocer competitive.

A LOOK TO INDIA

India is an especially attractive location for outsourcing. India has a large pool of well-educated workers trained in a number of IT-related fields. Wages in India are far lower than wages in the U.S., and the quality of service offered by Indian firms is rapidly improving. According to four independent reports recently released by Goldman Sachs, Wachovia Securities, AMR Research and Gartner, Indian firms are finding more efficient and higher-quality approaches to providing service and software projects to customers around the globe. According to InfoSys president and co-founder S. "Kris" Gopalakrishnan, "We've created an awareness that it's not just cheap labor; it's high quality." InfoSys, incidentally, is one of India's first global companies.

India's growth in this sector is impressive, with the largest Indian IT and technology outsourcing firms expecting annual growth of 30 percent, according to the Goldman Sachs report. By contrast, the same report predicts their U.S. counterparts to grow by only eight percent.

ALASKA JUMPS ON BANDWAGON

Outsourcing to India is nothing foreign to the Alaska business environment.

Accenture recently closed its Anchorage office, which was primarily engaged in contract-based business information systems and accounting work for a major oil producer. The Accenture office was closed because that work was moved to a lower-cost center in India. In June, Accenture opened a new center in Pune, India, that is to employ 1,600 workers. Though many people may dismiss accounting as a field that is not susceptible to outsourcing, modern business generates enormous amounts of financial data that is processed and analyzed with many IT-intensive systems. While at least some of the Accenture employees have ultimately found new jobs with their original client or other employers, they were all subject to job churn.

OUTSOURCING PROBLEMS DO EXIST

However, outsourcing to India is not without its problems. A number of large American corporations have outsourced their call centers to India. Even though India has a large skilled work force that is fluent in English, many problems can arise. Anecdotally, it seems nearly everyone has had trouble with PC support call centers that have been outsourced to offshore vendors. Gateway, a leading U.S. PC maker, recently announced that it would hire 130 technical support workers in North Sioux City, S.D. Most of these new hires will answer customer calls. This action follows a major outsourcing effort of almost its entire call-center staff after the dot com bubble bust of 2000. At least a portion of that work went to India. With U.S. PC manufacturers long competing on price, one wonders if Gateway isn't counting on enhanced customer service to bolster its value chain, rather than slashing costs to maintain margins in an era of plummeting PC prices. In this case, communications skills are as valuable as IT skills in delivery high levels of service.

Steven Cinelli holds a Bachelor of Science of Civil Engineering from Michigan Technological University and is licensed as a professional engineer in the State of Alaska. This December he anticipates receiving his MBA from UAA. He has spent the last four years working in telecom in a variety of managerial, regulatory and financial roles.