The Hindu Business Line : Blend of best practices

Credit risk management company Radian Group has signed an outsourcing deal with iGate Global. In recent times, iGate has talked of its iTOPS business model where it aims to bundle software services and transaction processing offerings for the customer. While the recent deal focuses on application maintenance for now, Lawrence DelGatto, chief information officer for Radian, does not rule out asking for an integrated solution later. Excerpts from the chat he had with eWorld:

What typically goes into IT outsourcing decisions? Please elaborate on the decision to choose iGate as your outsourcing partner.

I come from EDS and we had extreme success on the outsourcing front well beyond wage arbitrage — in terms of productivity and enabling the business. That experience in IT and BPO is what has propelled this. This partnership with iGATE is highlighted by certain best practices from both sides. Radian will no longer always have the burden of delivery and risk in engaging IT partners.

When I came on board, I found that millions of dollars every quarter were spent with providers with no risk, no service levels and no burden on anyone but Radian.

With iGATE, in Phase 1 - help desk, desk top with a new service model. And now, applications, application maintenance and information management.

This partnership is an exponential jump for us. iGATE's culture aligns well with ours — openness to taking risk, the flexibility they offer and their focus on innovation. They are very mature in process and very disciplined. Today, we don't have a CMMI level rating. This is a huge leap for us.

First, there is culture, two, we have a huge leap in capability — that capability gives us a couple of points: On all the key things we are going to do on information management, iGATE will drive a lot of that through a more capable model. iGATE is going to be an important part of how we manage data and information.

Third, this aligns very well with our international business — Hong Kong and the UK.

I have two choices — I could follow the sun and build extensive operations that function across the globe with 3-5 of our own people working round the clock in these geographies. Or when I close, they can open. They can enable Hong Kong and take UK calls. They can manage the entire appetite of our International arm in one leap.

In terms of international and business enabling capabilities and culture, there is a great fit. This is much more than just wage arbitrage and efficiency. And that is very refreshing from an outsourcing partner. CIOs are under such pressure that wage arbitrage is the No: 1 factor for many. In our relationship with iGATE, that is not an attribute that prioritises as number one deal intent.

What is the efficiency in cost savings? Is 40 per cent savings the norm?

About that. In terms of efficiency, we achieve a significant decrease in expense to the current provider. iGATE provides us with better people, better capabilities and a management team that is well and truly aligned with where we are.

How did you arrive at pricing?

There are two portions to the arrangement:

Service based: There is a base line period for application maintenance and support with metrics that allow us to take the entire portfolio of non-discretionary work. We will have service levels, penalties, earn backs and there is significant `at risk' clauses.

Then there is project-based work, with a fixed-price approach.

And there is a bit of staff augmentation.

About 30-40 per cent is base support with significant penalty on, about 30-40 per cent that is project based and the rest could be staffing. There is a series of earn backs by which they can actually have upsides — early delivery on services, uptime availability across the first two categories above.

Is there a mix of both IT and BPO?

iGATE has shown the propensity to push and evolve their capability in insurance and mortgage. One of the things that broke this to come clearly above big Tier 1 players was iGATE's curiosity and interest in this business sector. Then iGATE had a commitment and made a series of financial moves that aligned well with us.

We are in the mortgage, insurance and credit enhancement business. And in mortgage and insurance disciplines, it has made a commitment. If there are two players who are edging each other dollar for dollar, I will go for the guy who has invested in this space.

In the last 12 months, there has been talk of a slowdown in the US. But IT companies have, in the last 2-3 quarters, announced robust growth. There seems to be a disconnect. What is your view?

I think you will see contraction in the lending, real estate business and building world. So they may all have less volume. In those environments, as you look over the past 20 years, the players who have succeeded invested in the down time. This is the time to take advantage. I see a push on efficiencies and a flat line in lending on investment in technologies. The efficiency gain they get will be reinvested in revitalising their platforms to a more efficient rate.

From a service vendor perspective, is there cause for concern?

No, there is not. I think telecom and real estate are slowing down. But Financial Services companies are growing their discretionary IT spend 2-3 per cent.

Is China on your radar at all?

Over time, we will look at it. However, in the next 12 months, we do not want any distractions. Our focus is on getting this partnership right.

What is the kind of work iGATE will do?

We are looking at all their capabilities. They have BPO, infrastructure management, application development, support and data management.

Is it an exclusive outsourcing relationship?

Yes, iGATE is our only outsourcing partner. We will see how this goes over the next year or two.

There was a `phase 1' pilot where they went deep down into our legacy applications to prove themselves. We have already done several hundreds of thousands of dollars of business in phase 1.

What does a vendor need to prove before you choose him?

The vendor not only needs to demonstrate capability but also has to get through a negotiation stage.

What is the onsite:offshore component?

There is 30 per cent onsite and about 70 per cent offshore.

What is your IT budget?

It is in the range $60 million to $80 million.

bharatk@thehindu.co.in

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