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Arriving shortly: IT outsourcing boom

INFORMATION technologies require a significant start-up investment, both in terms of equipment and expertise, making it a natural activity to outsource.

INFORMATION technologies require a significant start-up investment, both in terms of equipment and expertise, making it a natural activity to outsource.

Slovak companies that outsource their IT generally use basic hardware and support services. Insiders expect that as time goes on, however, this will change, and companies will take advantage of the full range of IT solutions that providers deliver, including application hosting and management.

"IT outsourcing - specifically in the US and Western Europe - has been around for several years," Accenture Manager Jozef Kokoška told The Slovak Spectator. He added that IT outsourcing has become one of the top priorities on the agendas of CIOs and CEOs.

"More and more companies are using IT outsourcing to reduce costs and increase the quality of their non-core functions. As a result, we are seeing a greater number of international and local providers specializing in IT outsourcing," he said.

Miroslava Lhotáková, communications manager at IBM Slovensko, describes how the IT services sector has developed in Slovakia.

"Several decades ago [before the Velvet Revolution], it was normal that data lived in centralized IT centres. Later, as companies differentiated themselves, each one wanted its own strong IT department. The current trend, which started in the 1990s, is to rely on external suppliers to a larger extent," Lhotáková said.

According to an IBM survey, 57 percent of companies in Slovakia outsource selected areas of IT. The survey showed large potential for outsourcing, as more than two-thirds of respondents felt a shortage of qualified workers and more than one-third wanted to pay only for services used by the company.

Kokoška explains that there are different types of IT outsourcing services. Traditional IT outsourcing means that a service provider takes over the ownership and responsibility for managing all or part of the client's infrastructure and operations. These are broad engagements that typically include responsibility for systems, networks, applications, data centres and hardware. Another form of IT outsourcing is managed services, where applications and specific infrastructure services, such as Web hosting, is outsourced.

"Traditional IT outsourcing may mean that assets (people and technology) are transferred from a client to a service provider. In the case of managed services, the assets are usually not transferred," Kokoška said. Lhotáková of IBM says that companies most frequently outsource the administration of their servers, hardware and networks. However, she sees the outsourcing of business processes as the future of the industry.

Accenture's Kokoška emphasized that effective IT outsourcing helps a company manage IT in the most appropriate way, providing the best services in the most cost-effective way.

"Sometimes this means maintaining existing systems and slowly introducing new ones. Sometimes it requires a complete change of existing applications and systems. It is necessary to analyze the situation and define the best strategy in every case. The main indicators are the level of service provided by existing systems versus the potential benefits achieved by a new service level and the cost of maintenance of the old system compared with the cost of implementing a new one," Kokoška said.

Apart from cost it is essential to evaluate other factors, such as the company's strategy (focus on core/non-core processes), culture (willingness of the management and staff to outsource a process, flexibility of the organization's structure and flexibility of people to transfer to a new company, experience to work with a third party) and as well as the organization's willingness to share confidential information.

From a global point of view, IT outsourcing very often exceeds international borders. Lhotáková of IBM used call centres and software development firms in India as an example. Slovakia, she said, has great potential to expand its services across borders.

"Slovakia has a chance to offer near-shore outsourcing to Europe and North America, providing advantages like highly skilled and educated labour, language facility and close cultural proximity.

Kokoška agrees that Slovakia is well positioned for international IT outsourcing. He cites favourable labour costs, a flexible labour code, a skilled and educated workforce, a developed infrastructure and an appropriate level of foreign language skills within the IT professional community, specifically English and German. Membership in the EU, he says, also helps.

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