The new and more cost effective approach is a managed services contract where support for all the computers in the organization is covered under a fixed monthly contract. Some IT companies (like AIO) include additional features such as antivirus protection, system monitoring, software and hardware updates, computer maintenance, and remote backups in the monthly fee. This is unlike the traditional T&M arrangements where nothing is included and everything is billable.

So why do companies opt for the T&M approach? It’s simple; just adding up the annual costs of the T&M support doesn’t paint the full picture. You have to add up all the costs associated with poor performance and down time (including the underlying costs such as lack of employee productivity). A computer network runs more efficiently and has far less down time when all the pieces are managed and maintained proactively; as they would be covered under a managed services contract.

Below is a real example of a recent T&M customer encounter. We have highlighted the issues found and the time it took to resolve them:

A T&M engagement like this would have cost the customer an estimated $1,900 for almost a half a week’s worth of labor hours in addition to the cost associated with the 2+ days of down time. The down time could have been even more depending on the availability of the tech. This would, in turn, increase the total cost based on based on the average revenue loss that computer represents.

The same laptop covered under a managed services agreement would only cost the customer between $100/month and $150/month (depending on the Service Level Agreement); much less than this one T&M engagement represents. Add to this a Service Level Agreement (SLA) – a guaranteed response/resolution time – something managed service companies provide for in their contracts – and you also get a quicker resolution resulting in far less downtime.

The real cost to the business is the downtime and poor performance which are variables few organizations actually take into account. Managed services clients prosper from the fact that their systems work efficiently and downtime is minimized.

A managed services contract is similar to taking your T&M support costs and spreading them over time while at the same time reducing the amount of possible downtime by increasing the amount of proactive maintenance on the computers and adding additional features such as monitoring, maintenance, and remote backups. It becomes a win for the end user as well as for the customer’s bottom line.

For a long time, Egypt wasn’t even on the radar for IT outsourcing. But recently, it made Gartner’s top 30 list of countries best suited to providing outsourcing services.  Egypt is marketing itself aggressively, and big US companies are starting to sit up and take notice: Intel has announced it will open offices in Egypt.

Karnik graduated from the Indian Institute of Management and was the president of Nasscom, a global trade body based in India with more than 1200 members.

Satyam has secured bank loans to tide it over through this crisis that it is apparently fully expected to weather, given the bank’s confidence in it and the government’s willingness to step in and appoint a new board instead of letting the chips fall where they may. The shoring up of Satyam points to the importance of the outsourcing industry in general, and of Satyam itself as an integral part of the business operations of its clients.

Businesses can take a lesson from this incident and be sure to fully investigate potential outsourcing companies for any sign of impropriety. Critical operations  turned over too hastily can result in great difficulties down the road.

Deserted Satyam booth at trade show

Beleaguered outsourcer Satyam has been working to become the go-to organization for WHO, the World Health Organization, controlling its Staffing, procurement, and a great deal of the rest of that entity’s operations, according to a report by Fox News. But Satyam’s relationship with WHO has been fraught with missed deadlines, bungled testing, and overbudget expenses, or so say the results of an audit of WHO (PDF file) from 2006-2007.

The Fox News report turns up some interesting information about Satyam’s entanglements with the UN and several of its agencies that seem to indicate that there will be even more revelations about Satyam’s escapades over the coming months.

And just in, the National Australia Bank has canceled the second phase of a “massive” outsourcing project, saying it would be too risky to continue with Satyam. Expect more of the same from other clients, soon.

Satyam founder Raju

Reuters reports that Satyam gained some fifteen new outsourcing contracts last month. This was despite the news that Satyam’s founder cooked the books to make it look like the company was doing better than it actually was, and in addition to Satyam’s claims that very few of its existing clients were opting to back out of contractual agreements.

A Satyam spokesperson told Reuters that only State Farm Insurance had decided to relieve Satyam of its outsourcing duties.  “Our executives are reaching out to clients around the world, and at this point, well over 90 percent of our clients have committed to continuing with Satyam,” the spokeswoman said to Reuters.

Suitors

Dow Jones Newswire is reporting that The Hinduja Group is the latest to come courting with offers to purchase Satyam, whose founder is in jail on charges that he falsified records, creating  “fictitious” profits that existed only on paper.

“There are a lot of synergies between Satyam’s business process outsourcing business and our information technology arm, and we are very much interested in it,” its spokesman Jayaram Ramanathan told Dow Jones Newswires.

Other companies looking to get a piece of the action are Larsen & Toubro Ltd., which currently holds a 12% stake in Satyam, U.S.-based iGate Corp. (IGTE), Indian software firm HCL Technologies Ltd. and B.K. Modi-led Spice Group, the article says.

Interesting tidbits:

Satyam means “truth” in Sanskrit.

Satyam once claimed a full third of the Fortune 500 as clients.

Satyam says that only about 10% of its clients are ditching them as a result of the scandal. No wonder suitors are lining up.

B. Ramalinga Raju

B. Ramalinga Raju is nothing if not imaginative. He wanted John Deere’s business so badly, he told them that if they didn’t like it, they didn’t have to pay for it. Then he proceeded to do a mock outsourcing setup to show Deere executives that he could serve them well, all the way from India. It worked. Deere hired him.  Raju’s company, Satyam, was the first Indian company to be traded on the NASDAQ.

Now Raju and others who helped him found the company are in jail, because of fraud. Satyam fell behind its competitors because, while Raju had the imagination to capture business, he didn’t have the vision to change and grow with the industry he helped to create. So other, younger companies were pulling ahead of Satyam, and in desperation, Raju started inflating profits and cooking the company’s books to make it look like they were still making money. Raju confessed last week, and now faces fraud charges.

Read more about this scandal:

The Hindu Business Line

Forbes.com

Bloomberg.com