Jan 2004

WHITE PAPER

Outsourcing: A must for the Telecom

Industry

www.hssworld.com E-mail: info@hssworld.com

Outsourcing: A must for the Telecom Industry

Introduction Volatility in the telecom Industry As the Telecom Industry emerges from the

depths of its most severe downturn, many

questions remain unanswered about how

struggling OEMs and surviving service providers

restructure their business strategies and

operational efficiencies for profitable growth. If

the industry has stabilized, where does it go from

here, and how does it get there? How does an

industry once believed immune, prepare itself for

similar catastrophes? The road back from the

meltdown is not an easy one. It is a tough way

and needs to be built on a foundation of long-

term stability, proven technology that meets

customer needs, and quality services that solves

business problems.

To validate, the author's claim to turn to

outsourcing as a solution to tide over this

dynamic telecom landscape, it is helpful to have

an understanding of the overall business climate.

Every organization regardless of size or telecom-

domain will face a set of challenges. The extent

to, and the rate at which these challenges

change and a company's ability (or inability) to

control and predict them are what determine the

overall instability of the environment. Changing

customer demands, ever-changing industry

standards, legacy systems' inability to keep up

with the growing volumes, interworking

challenges between diverse nodes are just some

of the hurdles that mars the telecom industry.

And what’s more disturbing is the fact that these

challenges are ongoing, unpredictable, and often

unmanageable, making the overall telecom

climate volatile and the need for adaptability

paramount.

Businesses in today’s turbulent environment

should consider creative strategies to help them

weather the volatility in today's telecom industry.

One of these strategies is outsourcing. Telecom

players have been outsourcing various functions

of their businesses from maintaining and

supporting mature product lines to more recently

co-developing sophisticated 3G node-elements.

And given the growth of the overall outsourcing

market, it's clear that the strategy is steadily

gaining acceptance.

This unstable nature of the industry is

further re-validated by a survey conducted by

IDC. As per the findings of this survey conducted

in 2002, the telecom industry was found to be

one of the most volatile industry (Figure-1).This white paper suggests the adoption of

outsourcing as means to tide over the volatile

telecom industry. The paper further examines

how strategic outsourcing can help organizations

become adaptive and flexible by partnering with

mature partners.

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Figure 1: Volatility by Industry (Source: IDC, 2002)

Outsourcing Partner Selection is the key Outsourcing: Panacea for

Telecom Industry There have been many how-to guides

written about taking advantage of offshore

outsourcing. These guides generally focus on the

selection of projects and services to send

offshore, the contractual terms and conditions of

the agreement, and assessing risk factors,While

these are certainly items for consideration, it

makes sense to first focus on the primary critical

element that will have the most impact on the

success of any outsourcing arrangement – the

selection of an outsourcing partner.

The author contends that outsourcing is one

way for the telecom companies to tackle this

volatile industry. Outsourcing is not a fad, and it

is not just a method of gaining a one-time cost

advantage. Outsourcing has the potential of

overcoming cost-pressures, gaining access to

specialized resources, optimizing existing

investments and establishing a sound, flexible

strategy. In fact, this view is supported by IDC's

survey, which indicates that companies in volatile

industries are already embracing outsourcing as

way of managing uncertainty. As shown in figure-

2, companies in volatile industries have a greater

than average tendency to outsource IT functions.

And the trend is only expected to continue.

With organizations viewing outsourcing as a

solution to transcend the volatile telecom

industry, developing the right supplier

relationship is a key. It was once considered

good business practice to simply specify mutually

agreed upon deliverables and metrics across a

five-year plan. Attaining or exceeding

Figure 2: Tendency to Outsource (Source: IDC)

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Outsourcing: A must for the Telecom Industry

deliverables was considered excellence. However,

this approach is no longer adequate. Static terms

and conditions cannot support rapidly changing

requirements created by market dynamics and

technological advances. The challenge today is to

create long-term and flexible service relationships

that are engineered to adapt to volatile telecom

industry. The outsourcing relationship must align

with these new expectations and should be fluid

enough to adapt to the business environment. In

just the wireless space, while service providers

are struggling to get their networks to support

3G services, OEMs want to ensure that their node

elements are interoperable with third-party

components, application developers are time-

pressed to launch killer-applications before the

competition and handset manufacturers are

challenged by the multi-vendor environment and

changing customer-preferences. Designing a

long-term outsourcing agreement has to

anticipate that the telecom world will become

even more dynamic – technology innovation will

continue to accelerate, as will the unanticipated

business challenges and opportunities that result.

"Partnering" thus with a specialist to absorb the

shocks of technological changes and business

dynamics.

HSS suggests four parameters to be

considered for successful outsourcing

partnership. These parameters are based on HSS'

designed matrix (Figure-3), which is used

internally by the organization to gauge the

partnership synergy with the outsourcing partner.

The following elements are critical to the

selection process in order to establish and

maintain a successful relationship with an

offshore provider:

Flexibility in offerings from development services to maintenance

This parameter is of paramount importance.

The outsourcing supplier should prefer a partner

who can offer full-spectrum services. While

timing pressures might force telecom OEMs to

outsource the new product development services

to an offshore vendor, its worthwhile to evaluate

the vendors not only on their product designing

and development expertise, but also on their

proficiency to test the system, establish its

interoperability with other network elements,

integrate the product in the field, offer bug-fix

support and enhancement services to the OEM.

The outsourcing firm should also give strong

consideration to the flexibility of the offshore

provider in meeting their needs. Does the

offshore provider have the ability to ramp up

required skill set resources to meet delivery

needs? Does the offshore provider have the

flexibility to provide a mix of on-site, off-site,

near-shore, and offshore resources to

accommodate changing client needs and

preferences? Does the offshore provider have the

ability to change this mix when necessary to

mitigate risks or meet escalated project

deadlines?

Quality Processes and Metrics driven

Most of the mature offshore outsourcing

firms have demonstrated commitment to quality

and continuous improvement by their dedication

to achieving the highest levels of ISO and CMM

certifications. Quality certifications have become

a hygiene factor in an outsourcing agreement, so

much so that quality-certifications cease to exist

in supplier vendor-evaluation forms lately. Buying

organizations should however ensure that this

commitment to quality is not only resident in far-

away offshore facilities, but also is delivered

locally with each project engagement. Further

the offshore vendor should be flexible enough to

adhere to customer specific quality management

system if required and define common quality

and process-metrics. Besides the quality focus,

the vendor should be process and metrics driven

for all of its business operations. It is this

inherent commitment to process, methodologies,

and metrics management that forms the basis for

a true partnership.

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Cultural and Process Gapsbetween partners

Cost associated with Outsourcingproject execution

Qua

lity

Proc

esse

s &M

etri

cs d

rive

n

Flexibility in offerings-developm

ent tom

aintenance

Low Medium High

Low Medium High

Low

Medium

High

Low

Medium

High

HSS’ RecommendedOutsourcing zone

Figure 3: HSS matrix for Outsourced Project

selection selection

Cost associated with Outsourcing project execution Cost associated with Outsourcing project execution

Cost containment and cost cutting have

always been major push-factors in favour of

outsourcing. The supplier should take into

account all the cost-implications associated with

outsourcing including intangible parameters,

which have an important bearing on the

outsourcing decision, and are often ignored. The

organization must take these qualitative factors

into consideration while evaluating the decision.

The parameters, which fall in this category

include- cost associated with assigning a

dedicated outsourced-project manager;

management time cost; intellectual capital costs-

this is the expense associated with recruiting and

retention of employees’ etc. While some costs are

to be borne by the supplier, some costs get

shifted to the supplier. Hence, no matter how

cliched it may appear, an outsourcing decision

must be based on a sound cost-benefit analysis.

Cost containment and cost cutting have

always been major push-factors in favour of

outsourcing. The supplier should take into

account all the cost-implications associated with

outsourcing including intangible parameters,

which have an important bearing on the

outsourcing decision, and are often ignored. The

organization must take these qualitative factors

into consideration while evaluating the decision.

The parameters, which fall in this category

include- cost associated with assigning a

dedicated outsourced-project manager;

management time cost; intellectual capital costs-

this is the expense associated with recruiting and

retention of employees’ etc. While some costs are

to be borne by the supplier, some costs get

shifted to the supplier. Hence, no matter how

cliched it may appear, an outsourcing decision

must be based on a sound cost-benefit analysis.

Cultural and Process Gaps between partners Cultural and Process Gaps between partners

Successful partnerships require trust,

openness and a 'we are in this together' work

culture. Since many outsourcing firms do not

have significant experience in managing diverse

team interactions, it is important to look for an

outsourcing partner experienced in helping to

bridge this gap. Outsourcing firms who most

successfully bridge this cultural gap have a

strong global delivery excellence, across-

continents project management presence, can

utilize local on-site resources to gain sensitivity to

a client’s culture and unique project

requirements, and follow a strict methodology for

knowledge transfer. Some of the best practices

that can be adapted to bridge the culture-gaps

include- cultural training programs, cultural-

awareness initiatives, team-building workshops,

collaborative development processes etc.

Successful partnerships require trust,

openness and a 'we are in this together' work

culture. Since many outsourcing firms do not

have significant experience in managing diverse

team interactions, it is important to look for an

outsourcing partner experienced in helping to

bridge this gap. Outsourcing firms who most

successfully bridge this cultural gap have a

strong global delivery excellence, across-

continents project management presence, can

utilize local on-site resources to gain sensitivity to

a client’s culture and unique project

requirements, and follow a strict methodology for

knowledge transfer. Some of the best practices

that can be adapted to bridge the culture-gaps

include- cultural training programs, cultural-

awareness initiatives, team-building workshops,

collaborative development processes etc.

5

Outsourcing: A must for the Telecom Industry

Summary and Conclusion outsourcing as the preferred path, the

journey cannot be smooth unless the partner

selected share the same business goals. It is here

that the partner-selection becomes the key. The

outsourcing firm should give serious

consideration to establishing and maintaining a

relationship with a partner with flexibility in

service-offerings and which exhibits expertise in

bridging quality-gaps and cultural and process

gaps between the partnering organizations

The volatility that telecom organizations face

today undoubtedly brings about business issues

and decisions that will require companies to take

action. Outsourcing is one strategy that makes

the company more flexible and adaptable to

rapidly changing business and market conditions.

But the challenge doesn't end here. While the

uncertainty in the environment dictates

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Published: At Hughes Software Systems. Plot-31, Sector-18, Electronic City, Gurgaon Haryana- 122015 India Phone: +91-124-2346666

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through its strategic outsourcing services spanning full-spectrum services- new product development to maintenance

services

© Copyright Hughes Software Systems, 2003

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