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1.3 Introduction

By the end of this lecture, you will know and understand more about:
• Some types of IT services, specifically application development, application maintenance,
application testing and infrastructure management;
• Onshoring vs offshoring;
• The quality aspects of IT outsourcing;
• Some types of IT-enabled services, specifically contact centre services, financial and accounting
services, and supply chain services, etc.; and
• An overview of IT products.
1.4 Answer the question

All of these services can be described as IT services. The next slide will go into further detail.

1.5 Overview of IT and ITES and Related Services

1.6 An overview of IT and ITES

Notes:
• In the previous lecture, we established information technology as being divided into three main
areas: IT products, IT services and IT-enabled services.
• IT products: As per the definition in the Information Technology Infrastructure Library (ITIL), an IT
product is a configuration of resources that has the potential to co-create value with the user.
These include software products such as accounting software, computer games and mobile
apps. Software products can most easily be exported.
• IT services: IT services refers to the delivery of business and technical expertise to support
organizations in their management of IT or application of IT to their business processes.
• IT-enabled services (ITES): This refers to outsourcing of business processes to a remote service
provider who leverages technology to automate parts of those services and deliver them more
efficiently.
In this lecture, we will define these three areas in more detail.
1.7 An overview of IT services

To take the definition of IT services forward from the previous slide, these are the functions and tasks
related to the implementation and maintenance of technology and provision of support to users to
extract the full potential and value from IT products. These services can be performed by in-house IT
teams or outsourced to specialist IT service providers to meet the specifications defined by the client.
There are several areas that can be outsourced relatively easily, namely application development,
application maintenance, application testing and infrastructure management.
Each of these areas is presented in further detail below:
Application development
Application development consists of designing and developing IT products. These are tested before
being implemented or deployed. Application development is typically undertaken to address a
business requirement. Application development service providers develop new software systems,
using programming languages such as C++ or Java. It can also involve building a new website or
mobile application, or programming a new computer game. Since application development requires
resources with a wide variety of skills, it is usually outsourced to IT providers who have the domain
knowledge as well as skilled resources. First, providers must work with their clients to understand
clients’ business and technical specifications. Then they can develop the necessary product or
software.
Application maintenance
An organization’s goals and objectives are constantly evolving in response to the market and changing
end user requirements. The software that companies use must be able to swiftly respond. In addition,
the infrastructure supporting these software applications requires maintenance, such as upgrades and
patches. Another example of maintenance is product customization, e.g. localizing software for its
introduction into a new market.
Application maintenance typically falls under four categories:

• Preventive maintenance refers to changes made to protect systems from potential threats.
 • Adaptive maintenance relates to system modifications done in response to a change in market
requirements.
• Perfective maintenance includes system modifications to resolve new problems or incorporate
new technologies.
• Emergency maintenance is undertaken when a system breaks down unexpectedly or there is an
immediate requirement for change.

Application maintenance is a good candidate for outsourcing. Most of these services are highly
commoditized and can be delivered offshore with minimal supervision of client technology teams. Such
work is fairly simple for staff abroad to perform, since extensive documentation and a working product
are already available.
Application testing
Testing is always required when creating or changing a software application. The purpose of testing is
to check for bugs, which are errors in the software introduced during the design or programming stage.
To prevent disruption to the live production environment, testing should be performed in a test
environment. Although it is seldom possible to guarantee that a software programme has no bugs, a
good testing exercise will reduce the number of bugs and improve the likelihood that the software will
operate as intended in the production environment. There are several kinds of application testing, as
listed below:

• Unit testing: Testing an individual programme;

• System testing: Testing an entire system as a whole;
• Regression testing: Testing a new version of a system against the previous version;
• User acceptance testing: Allowing the system’s users to do their own testing for final acceptance
before going live.
Testing is a largely repetitive task and can be offshored fairly easily, especially unit testing. For control
reasons, managers often desire to keep later testing phases in-house in order to monitor product
quality. Testing services are offered as a standalone service as well as a separate activity (including
performance and mobile app testing).
Infrastructure management
Infrastructure management includes managing the performance of a client’s network environment,
monitoring and reporting network traffic and intrusion detection, managing firewalls and networks, and
optimizing internet traffic. By using offshore locations on different continents for infrastructure
management activities, it becomes possible for companies to provide 24/7 remote support to their
clients. Service providers can also provide management services for other elements of the client’s
infrastructure, such as computer servers, databases or desktop computers. Today, the use of modern
communication devices makes it unnecessary to visit clients directly in order to provide support to
them.
1.8 Onshoring vs offshoring vs nearshoring

In Lecture 1, we briefly discussed the concept of onshore, nearshore and offshore locations. Let us
now look at IT services that can be delivered from offshore or nearshore locations, and which ones
should remain onshore.
With the rising popularity of cloud computing and technology standardization, IT services have become
highly commoditized. Services are considered commoditized when there is very little difference in the
services provided across different firms. Since the services are commoditized, the main objective is to
procure them at the lowest cost. Therefore, commoditized IT services are best delivered from offshore
or nearshore locations. Examples of commoditized IT services are coding, testing and IT helpdesk.
These low-risk and low-cost services do not require niche skills. IT resources can easily move from one
company to another without the need for in-depth domain knowledge or upskilling. The key difference
between the decision to offshore vs onshore is the need for real-time service delivery. Services that
require little or no interaction with clients or their customers, like general accounting, expense
reimbursement, payroll and billing, etc. can be performed during non-business hours and can easily be
performed offshore. Low-cost nearshore locations are ideal candidates for customer services and other
services that require some level of interaction with clients or their customers.
Activities that tend to stay onshore (in client’s country) are those that require direct customer interaction,
deep domain knowledge or deep cultural familiarity. For example, requirements analysis, which is
performed early in the development cycle, is usually conducted onshore due to the need to be close to
customers - to meet with them and talk to them in their own language. Systems integration, which
comes at the end of the development cycle, is when the different pieces of a software programme are
brought together. This is also difficult to do from abroad.
There is also a hybrid model in which IT services are delivered from a mix of onshore and offshore
delivery centres. The complex and high-touch tasks (e.g. collecting and analysing project requirements,
high-level design, managing implementation and maintenance, user acceptance testing, client
interactions and reporting) are performed onshore and the routine/standard tasks (e.g. detailed
technical design, development, system/unit testing and maintenance) are done offshore.
Interestingly, the recent global COVID-19 pandemic forced many companies to engage with their
service providers remotely, even those that they had previously only worked with face-to-face. With
recent advances in collaboration systems, such as Slack, Zoom and Microsoft Teams, many
companies and service providers found that many activities that they previously performed locally
could be conducted remotely almost as easily. This offers a boost to offshore and nearshore service
providers, because, if a task can be done remotely, why not do it offshore or nearshore and enjoy the
cost savings?
Suggested video
A short clip explaining offshoring vs onshoring vs. nearshoring:
https://www.youtube.com/watch?v=6vd0BgdhCFA&ab_channel=OneMinuteEconomics
Example
Lebara, a mobile virtual network operator who outsourced developers from Ukraine:
https://www.youtube.com/watch?v=H3hav88Aj5I&feature=youtu.be&ab_channel=N-iX

1.9 The quality aspects of IT outsourcing

A framework to deliver the best practices in IT service management is defined in the Information
Technology Infrastructure Library (ITIL). It describes the processes and procedures that organizations
can apply to manage information technology and align it with business goals and objectives. The
current version of ITIL is V4, released in 2019. It defines four dimensions for IT service management:
organization and people, information and technology, partners and suppliers, and value streams and
processes. A good overview of ITIL <https://www.axelos.com/ITIL> can be found on the Axelos
website.
The Capability Maturity Model Integration (CMMI) has its roots in Carnegie Mellon University and is now
administered by the CMMI Institute, a subsidiary of the Information Systems Audit and Control
Association (ISACA). It comprises five levels and imposes structured, standardized development
processes that are repeatable, planned and optimized, bringing improvements that ensure cost
savings and reductions in error rates. Moreover, when working at a distance, the CMMI reduces
communication difficulties by introducing standard approaches that reduce the need for explicit
coordination. Leading IT providers such as Accenture, IBM, Infosys, TCS and Wipro have been
appraised at Maturity Level 5, the highest capability maturity level of this new CMMI process framework.
A good overview of CMMI <https://cmmiinstitute.com/> can be found on the ISACA website.
However, note that standards such as CMMI cannot fully address some of the major challenges of
working offshore (e.g. communication difficulties due to distance). Introducing the CMMI and receiving
certification is also an expensive endeavour that is difficult to achieve for smaller IT companies. Today,
there is a trend among smaller companies to invest instead in scrum and other agile methodologies,
which focus on fast, iterative development cycles that are responsive to changing customer
requirements. To adapt to this trend, the current CMMI version is more generalized, allowing it to be
applied to every area across any industry. It aims for companies to focus on quality rather than quantity
by establishing benchmarks to assess vendors/suppliers and minimize risks while resolving process
issues.
Examples of other quality standards that can be used by IT services and ITES include:
ISO 9001 - related to various aspects of quality management;
ISO 27001 - related to information security;
ISO 20000 - related to service management;
ISO 14001 - related to various aspects of environmental protection;
ISO 37500 - related to the phases in outsourcing.
The Lean Six Sigma methodology is another set of techniques and tools used for process improvement.
Several product-specific certifications also exist (e.g. Microsoft certifications, Oracle certifications and
certifications from many other technology providers), which are useful when service providers need to
provide evidence of their skills and capabilities.

1.10 Answer the question

Clients often fail to recognize the investment required to select and contract with the best-fit provider(s).
The selection process itself can take 3-12 months depending on client maturity. It requires a dedicated
team and/or the assistance of third-party sourcing and legal consultants. Clients may choose to travel
to the provider delivery centres to get a feel of their operations and quality of resources. Travel to
international destinations will come with a higher price tag.
Other costs include:
• Integration of provider technology and providing connectivity that may require making changes
to the existing technology environment, such as procuring new hardware or software;
• Retention bonus, severance pay and outplacement costs for critical employees required until the
provider assumes the responsibility of service delivery;
• Ongoing governance costs that are typically 3%-5% of the total contract value.

Key risks:
• Poorly executed transition: Transition of services from the client to provider that miss the
milestones and quality of deliverables result in a loss of faith and also force the client to carry the
cost of employees earmarked for outplacement.
• Value leakage: Studies show that poorly managed relationships can result in value leakage of
30%-60%. It is imperative that the relationship with providers be managed with a strong
governance organization and processes.
• Resistance to change: Change is difficult to embrace, especially if the services are going to be
delivered offshore. It is easier to sell the concept of outsourcing to stakeholders if services are
being delivered from the country of origin. Clients have to be prepared to manage the resistance
by establishing a robust change management programme.
• Business continuity: While most service provider agreements have a provision for business
continuity, no one anticipated the disruption caused by the COVID-19 pandemic. Going forward,
clients need to plan for such scenarios. Similarly, the risks of migrating services offshore must
be accounted for through strong transition and risk management programmes.
1.11 In-depth view of IT and ITES and Services and Products

1.12 Answer the question

All of these are examples of ITES. The various different types of ITES will be explained in the next slide.
1.13 An overview of IT-enabled services (ITES)

As discussed in Lesson 1, the term “IT-enabled services” refers to the outsourcing of business
processes to a remote service provider who leverages technology to enhance automation and deliver
services more efficiently. Some common ITES are discussed below.
Contact centre services
Contact centre services involve customer interaction services in which the service provider is in direct
contact with customers. These front office services are mostly provided by telephone, and sometimes
by the web, e-mail or chat services. As wages account for a high proportion of contact centres’ costs,
these are among the most important ITES to be performed in low-cost locations.

Contact centres perform a range of inbound and outbound activities, including:

• Customer service, such as responding to inquiries or handling complaints;

• Technical support, which includes help desk, otherwise known as the service desk;
• Outbound telemarketing and direct response to inbound leads;
• Collections, such as contacting consumers or businesses who are late in paying bills.

British Telecom was one of the pioneers of leveraging a low-cost location in India for its contact centre.
Over time, the Philippines has become a highly favoured destination for contact centre services. With a
large English-speaking population, Jamaica is leading in the Caribbean with 36,000 call centre
resources, and it is expected to touch 100,000 by 2022. Countries such as Mexico, Nicaragua and
Colombia offer services to Spanish-speaking American customers, while African countries such as
Morocco and Tunisia are host to French-speaking call centres.
With the rise of ITES, contact centre firms have rushed to embrace its new standard performance
management system, Customer Operations Performance Center (COPC).
Business process services
Various business process services (sometimes referred to as back office services) such as internet
search projects, market research, insurance claims processing or transaction processing (e.g. airline
and hotel reservations) are performed in developing countries. It started with simple low-end
transaction-based services and has slowly graduated to high-end services such as financial reporting
and tax preparation. Business process services outsourcing is seeing a lot of changes due to the
introduction of automation, analytics and cognitive technologies, etc. As per a study published in May
2020, the market is expected to grow worldwide and reach $230.2 billion by 2027. In addition to
Fortune 500 companies, medium and small businesses are also outsourcing their business processes.
India leads the business process services destination worldwide, followed by China, the Philippines,
Brazil, Malaysia and Mexico.
The National Association of Software and Services Companies (NASSCOM), founded in 1998, is
comprised of more than 1,200 members, of which more than 250 are global corporations from
countries in the European Union, the United States, the United Kingdom, Japan and China. NASSCOM
has played a key role in promoting the growth of the business process outsourcing (BPO) and IT
outsourcing industry.
Digitization services
Digitizing is the process of converting texts, images, video or records into digitized forms, often through
manual data entry. The advantages of digitization include the long-term preservation of documents, the
archiving of all documents in a single location and easy access to the information within the documents.
It is a labour-intensive activity and ideally suited to be performed in a developing country. Digitization
does not require a high level of computer literacy, nor does it require strong language or functional
skills. It also requires very little interaction between the customer and the offshore provider.
Geographical information services (GIS)
Geographical information services are increasingly used by commercial and governmental
organizations. Geographical information is often stored on paper maps, which need to be converted
into electronic format to make them easier to analyse and maintain. This is where GIS come in. Most
GIS costs are in data collection, interpretation and conversion, which make outsourcing an attractive
option. Major GIS users are utility companies, telecommunications providers, cable TV companies and
providers of navigation systems. For example, Polosoft Technologies is an India-based service provider
that offers GIS services for a variety of industries, including healthcare, forestry, mining, transportation,
utilities. Learn more on the Polosoft website <https://www.polosoftech.com/gis-services/>.
Animation services
Film and television companies continue to have a high demand for animation services. Even when
computers are used, production activities are labour intensive, and several parts of the production
process can be effectively outsourced. These include the creation of scenarios or storyboards, the
drawing of character models and backgrounds, the intermediate process of making a layout, animation
celluloid, scanning, colouring and composition. The final process, which includes the recording of
music, sounds and characters’ voices, is usually performed onshore at the customer’s location.
Countries such as India and the Philippines are well known for offering animation services. North Korea
produces animations for French, Italian and Spanish companies.
Graphic design services
Graphic design services encompass a broad area and are related to digital and print production
services. They involve photo editing, webpage design, catalogue design, package design, clipping,
logo design, banner design and advertisement design. For example, GraphicPeople, an ITES company
in Bangladesh, provides print production services for Dell along with digital print and production
support services to Microsoft, HSBC, Colgate, Pfizer and many other global brands. Learn more on the
GraphicPeople website https://www.graphicpeoplestudio.com/
Medical transcription services
Medical transcription services are the process of transcribing healthcare providers’ voice recordings.
These recordings include surgery notes, chart reviews, diagnostic imaging reports and discharge
summaries. Resources employed by this sector must have an understanding of medical terminology
and be familiar with the requirements relating to personal health information (PHI), the US Health
Insurance Portability and Accountability Act (HIPAA), and Health Information Technology for Economic
and Clinical Health Act (HITECH). TranscriptionStar https://www.transcriptionstar.com/medical-
transcription/ is one such service provider that offers medical transcription services.

Suggested videos
Understanding tech-enabled services:
https://www.youtube.com/watch?v=nMSruMA0Ggw&ab_channel=IBPAP
Understanding the benefits of automation:
https://www.youtube.com/watch?v=sbW_q930v3Q&ab_channel=BythonMedia

1.14 Case study

Please watch the below video about a company in the Philippines, offering finance and accounting
services:
https://www.youtube.com/watch?v=qqkKbS-ZhsY&ab_channel=D%26VPhilippines

1.15 An overview of IT products

Exporting software products is attractive because, when successful, it can be far more profitable than
exporting IT services or IT-enabled services. The reason is that, once the software is developed for the
first customer, there are very low marginal costs in selling copies of it to additional customers. The
same can be said for any digital product, such as electronic publications. However, exporting IT
products is also quite difficult. Software packages can be quite complex and require a high level of
initial development investment. In addition, marketing software products internationally is usually more
difficult and costly than marketing IT services. Competing in the international market for software
products requires domain knowledge, highly skilled technical labour, and managerial and marketing
skills.

Despite these challenges, there is one way in which it has become easier to get into the software
development business. That is, it is much easier these days to gain access to a sophisticated IT
development infrastructure. Cloud computing services such as those provided by Amazon AWS,
Microsoft Azure, and Google Cloud have made development environments available worldwide at a
low cost with a pay-as-you-go model, lowering the upfront investment.

Most developing nations still have limited success in exporting software products. This is even the case
for India, which is still doing much better in exporting IT services and ITES compared to IT products,
even after decades of intensive knowledge transfer from abroad. Although there are firms from
developing nations that successfully export software products, these are anecdotal, and do not
represent more than the success of an individual software company.
One problem that sometimes occurs is that companies from developing countries attempt to market
software products that are not well suited for industrialized nations. Their knowledge of client needs
may be limited, which is an huge disadvantage since, in most cases, IT products require specific
adaptations to make them desirable to specific markets. In addition, competing products with the same
functionality are often already available in these markets, meaning that, even if a developing nation’s
offering has a good price-to-quality ratio, it will require a large marketing expense to sell it. As such,
regional markets can often be more suitable for developing countries than the Western European or
American markets.

Promoting mobile apps for a global audience is often easier due to the existence of online
marketplaces, such as Apple’s App Store and Google Play. However, it must be noted that, given the
large number of apps already available online, additional marketing activities still need to take place in
order to register good profitability with a software product offering.

1.16 Answer the question

When offshoring application development, projects can be delayed due to unclear specifications or
miscommunication. Additionally, the software produced might not work according to the client’s
specifications, or the cost may far exceed the budget due to constant changes.
1.17 Key points

• There are various opportunities for internationalization.

• Companies can offer IT services related to application development, application maintenance,
application testing and infrastructure management.
• Alternatively, companies can offer IT-enabled services, such as contact centres, administrative
services and digitization services.
• Although it can be more difficult, companies can also sell software products.
• Some services require low levels of computer literacy and do not require strong language or
functional skills. Other services are much more complex and, in most cases, only offering low
prices is insufficient. A quality service or product is also required.