O U T S O U R C I N G

B O R U T K O L M A N I Č , I T O U T S O U R C I N G S A L E S D I R E C T O R ,

S & T G R O U P

In outsourcing we are a partner, not

merely a supplier

S&T's outsourcing strategy is founded on what the market needs. Information

technology is changing – it is moving from on-site solutions towards generic solutions that

can be increasingly delivered as services. Large IT companies already offer such cloud-based

services and more and more companies are realizing that running their own IT

infrastructure can turn out to be expensive, complex and inefficient.

On the one hand, the cycle of technology change is becoming ever shorter, while on the

other hand, business needs are much more extensive than in the past, when technology

was used primarily to record transactions. Today, technology gives us analytical data to

support our decision-making processes and is used to measure business processes. “The

role of IT is changing and we see that more and more customers are looking for someone to

manage their existing IT infrastructure and services for them, freeing them up to focus on

their business needs. This is what the market wants and S&T group is responding to these

needs.

Outsourcing on the rise

The IT industry has matured to such an extent that outsourced services are just as high

quality as those delivered by internal IT departments. Outsourcing offers benefits in terms

of increased efficiency and improved access to skills and expertise. However, it requires

more flexibility from internal human resources. In Western Europe, one third of IT services

are delivered through outsourcing and companies decide to outsource some of their most

important IT activities. There are even cases of competing companies deciding to turn to

the same supplier. An example of this are Austrian banks that all use the same supplier. The

supplier delivers a great service and will be able to improve it further since they have

enough customers. This seems almost incomprehensible in Slovenia, where we continue to

focus on some perceived internal control over business processes. Companies often fail to

understand that they will continue to control their processes, even if they outsource them.

In fact, they gain more control, because they pay for it. When a company decides to

outsource its processes, it defines in detail what it wants and how much it would cost. They

can define the supplier’s responsibility towards the company and what the consequences

of their failure to deliver this service are. We need to establish these relationships and

clearly define the processes and services as well as the responsibilities of both parties. We

are at the very beginning of this process. In the IT industry we still spend too much time

talking about the optimization of technologies and not enough discussing process

optimization. Only when companies focus on process optimization will they be able to

begin thinking about outsourcing.

Processes, IT assets and people

When a company works with an outsourcing partner to define their processes, they first

need to answer several questions. One of them is whether it makes sense to keep their

basic IT assets. The answer can be found in the company's fiscal policy. The company has to

decide whether they want to keep IT assets on their balance sheets. Do the companies

know how to manage their IT assets? In practice, it has often turned out that S&T is better

at planning optimal assets that companies need to provide IT services. They often work

with customers to manage and optimize their assets – in short, they insure that their

customers invest optimal resources into their IT assets.

The second question that is often asked is the issue of the customer’s employees. What

do you do with the people, who have been providing IT support internally thus far? “Our

answer is pretty straightforward. We discuss the issue with each individual customer and

we often come to an agreement to employ them ourselves. We offer them a working

environment that is different from the one they've worked in so far. In S&T Slovenia they

can take advantage of certain benefits, which are especially attractive to those, who want

specialize in IT.

Of course, we cannot hire people indiscriminately. Knowledge transfer is very important

but it is subject to an agreement. People are not computers. This is a complex decision that

is tightly linked to further development opportunities and the skills we acquire. This is not

just about taking over the customer’s burden because it would serve no useful purpose. It

might even mean higher costs to our customers. These are delicate issues that have to be

dealt with carefully and by paying attention to people’s needs. Outsourcing is about

partnerships and long-term relationships, so we are not coming in just as a supplier but as a

partner. A part of operations that used to be delivered internally is taken over by an

external provider and the company's business becomes dependent on this provider. By

taking on external provision of services we become an important link in this chain and we

need to act like it. This means that whatever we do has to be useful to our customer and

make their business even more successful – whether we are talking about technology,

people, processes or services.

The snowball will start to roll

We believe that outsourcing will snowball in the next few years. They’ve noticed that

many of the largest Slovenian companies are increasingly considering entering international

markets as serious players. These companies come to us to help them design and build an

IT service delivery model that would efficiently operate in an international context. Even

smaller customers - those who were hardest hit by the economic crisis - are actively

discussing the benefits of outsourcing. Our internal discussions revolve around whether we

are able to deliver IT-services of the same quality at a lower price and whether we have the

ability to adjust our service prices upwards or downwards. These are interesting discussions

for the management. We believe that our business in Slovenia will quickly double, while we

are planning a 10-percent increase in outsourcing revenue at the regional level.

S&T’s starting point is not to be local provider. The group operates internationally and

plans to deliver its services at the same level. A company that operates internationally will

come to us and we need to provide a service, regardless of whether they are based in

Romania, Serbia or elsewhere. It is becoming a given to have the same level of service in

any location. You sign one contract with one supplier and this is our advantage on the

market.

The same level of service anywhere

S&T Group is working to offer the best level of service from the best locations.

Sometimes, this is decided by cost consideration and in other cases the service is delivered

by the most skilled people. Certain services will be delivered from Slovenia, where the

employees have the necessary references and experience in a certain area. Other services

will be delivered from Romania, because the services can be delivered at a more

appropriate price. We need to be aware that we are competing with the whole world. We

compete with suppliers such as Microsoft, IBM and others. These are large players and

price is becoming increasingly significant. Those, who operate in large markets and offer

their services to large customers, can deliver services at the same quality for a lower price.

The price doesn't affect the quality and this is an important challenge for us.

VDC is S&T's cloud

To ensure appropriate service price and quality, S&T has decided to offer outsourcing

services on the same platform, regardless of where it is available. This means that the same

processes are used to deliver the same level of service and the same approach to delivering

outsourcing services. This is the only approach that drives the delivery of a suitable level of

service to their international customers.

Building on this product strategy, S&T has already opened two international outsourcing

centers in Bucharest and Žilina. The former will be used to deliver infrastructure services,

while the latter will deliver application solutions. The third center, still under construction,

is the so-called Virtual Data Center (VDC), S&T’s cloud computing offering. Customers will

be able to turn to VDC to lease cloud infrastructure and get a highly standardized service

for a very low price. “VDC is a local cloud that offers infrastructure that is not in direct

competition with Amazon and other cloud service providers. Price for VDC-delivered

services is higher than the price offered by large providers of public clouds but significantly

lower than the cost of maintaining local on-site infrastructure.

Our advantage is the integration with the companies’ local environments. The company

may be thinking about outsourcing only a part of their services. In such cases, our cloud

comes to the fore. We are offering an infrastructure that costs much less than internal

infrastructure, even though it is more expensive than Amazon-type public cloud services.

This enables us to ensure control and provide integration. S&T cannot launch a large public

cloud because we are simply too small. However, we do not wish to remain limited to

private clouds. We are aware that certain companies will require private clouds because

they will not want to give up their processes, infrastructure and applications. S&T will offer

them the support they need to achieve their goals. Between public and private clouds we

see a lot of space that we address with our VDC offering. This is the space for those of us

that are today focused exclusively on support and will slowly evolve into service providers.

We will take what the companies have in-house, the services we offer, and components

from public clouds. We will merge all these components and offer it to our customers in a

consistent way and provide the appropriate levels of service, support and delivery.