Make or Buy IT Solutions?

In today’s world of extreme competition IT has been acting as a game changer and is helping in creating success stories all over the world. But this success doesn’t come free of cost. Creating an IT enabled environment in a company may cost a fortune to it. Also the success of doing such a BPR activity inside an organization is not guaranteed. This leaves the companies with very few alternatives – Whether they should form an IT department and handle all the IT activated through it or whether they should outsource their IT activities to other companies which have been operating in the IT domain since ages.

Gone are those days when companies used to have an in-house IT team which used to work on developing systems which were unique in nature and helped them to drive their top line by automating their processes. High capital expenditure was a mandatory for such companies because they had to operate and maintain a large number of servers, software, hardware and human resource.

Today, we are witnessing a world of outsourcing – a world of specialization. We are living in a world where acute competition is eating into the revenues of companies. In order to minimize their operational costs companies have started to outsource the non essential activities to other companies which are having some expertise on the same. C. K. Prahalad’s theory of core competency also talks about it. It says a company should concentrate on the thing which it does best and should outsource the other activities. For eg most of the telecom majors of India like Airtel and Idea have outsourced their IT activities to IBM.

Companies today focus more on proper branding and marketing of their products. They rely heavily on three things –

1) Finding a gap in the market

2) Forming an impression of their product on the prospects mind

3) Ensuring that proper quality initiatives are taken up by the vendors which further leads to good quality products

So our mantra for various companies (especially SME’s) is that they should back their area of expertise by focussing its resources on it and should let go of the activities which do not add much value to its product.

Upcoming Trends in Telecom

Businesses all over the world are dominated by either the IT goals or by the business goals. Telecom is the only sector in which these two set of goals overlap each other; this is because of the acute competition existing in this domain which has lead to a freefall in the ARPU of the industry. Today, Telcos have started aligning their business goals towards sharing of resources so as to reduce their cost of operations. Indus Towers is one such initiative taken up by the top 3 giants of the Indian telecom industry namely AirTel, Vodafone and Idea.

Telecom industry operates in a very unique manner, it behaves like a FMCG till the point of sale (think of a nearby mom and pop store selling both a Coca Cola and an IDEA recharge voucher or a SIM card) and as a service industry because the minute a SIM card is sold the user is registered with the telecom operator and the operator starts providing the user with the required airtime.

Operating in a cluttered environment (more than 14 players exist in Indian market) has made the life of Telcos very difficult; therefore even a small glitch in the service can cause a loss of customer.

Many initiatives are being taken up by the telecom operators to remain profitable in the current environment. These initiatives can be broadly divided in to two categories –

a) How to increase their market share?

b) How to bring down the operation (network) cost?

Various trends are shaping up in the market to take care of these questions. One such trend is that many operators have now started to study the usage of their customers and are offering them with various innovative offers based on their profile. Such initiatives from the operators side ensures that the customer does not switch and remain loyal to them. Other trend which can be derived from the market is that Telcos have started joining hands in order to lower their network costs by sharing their resources with other operators. In future we may see such sharing in 3G also because none of the operator has 3G license in all the 22 circles.

Telecom is a sector which is changing with the pace of light. The time has come when these companies should get together and work on an altogether different concept of ‘Sharing and Caring’ because already the ARPU in India is one of the lowest in world and if it continues to fall then it will be very difficult for these telecom operators to generate profits.