OUTSOURCING 2002: ROLLING WITH THE CHANGES

by Eric Buel

As we move forward in the 21st century, the landscape for delivering technical solutions to business continues to change, and the concept of outsourcing IT products and services continues to gain momentum. In fact, more companies are using outsourcing than ever before. Traditional IT outsourcing -- such as product development, application support, and staff augmentation -- is now just another way of doing business.

Many of the traditional reasons for considering outsourcing are still driving today's sourcing decisions. Business drivers -- such as the need to accelerate product delivery, reduce operating costs, and share risks -- continue to create the need to utilize external resources to help support the delivery of technical solutions. And, more than ever, the desire to infuse specific skills and technologies is driving the decision to outsource. Staying competitive in the e-business world has created an environment where the ability to deliver Web-based solutions is critical to corporate success. Most companies simply cannot leverage many of today's emerging business models, including the external hosting of corporate Web applications, by using only internal resources. The acquisition of outside skills and technologies has become instrumental to IT success.

Successful outsourcing relationships continue to be based on sound business and technical practices. The establishment and ongoing maintenance of commonsense capabilities -- such as a shared customer/provider vision, a linkage to corporate strategy, rigorous measurement of performance and user satisfaction, and frequent and effective communication -- continue to provide the basis for successful ongoing relationships. More tactical capabilities, such as effective vendor management, skilled contract governance, and ongoing cost justification of the outsourcing process, are often also necessary to ensure a fruitful relationship.

So, What has Changed? 2002 Results

In our continuing analysis of outsourcing trends, Cutter Consortium survey results have shown that more than 50% of companies surveyed are spending greater than 15% of their IT budget on outsourced projects. This represents an increase from 47% in 2001. Likewise, 28% of companies surveyed are spending more than 25% of their IT budget on outsourcing, up from 24% a year ago. These results indicate a growing dependency on outsourcing to supplement inhouse resources in the delivery of IT products and services. They reflect responses from small, medium, and large companies that produce an outsourcing volume ranging from less than US $100,000 to more than $100 million, with an average dollar volume in the range of $10 million, as shown in Figure 1. In other words, companies of all sizes are using outsourcing, and they're using it more than ever before.

Figure 1 -- In US dollars, what is the value
of your organization's IT outsourcing contracts?

However, many companies are not obtaining the outsourcing benefits they had originally anticipated. The reasons for this include deficiencies in strategic alignment, communication, and/or measurement and extend to items like picking the wrong vendor, ineffective contract management and governance, and a failure to establish shared objectives between the customer and provider. Like anything else, successful outsourcing benefits from operating within a well-articulated strategy and through the use of sound practices and highly qualified personnel.

--Eric Buel, Senior Consultant, Cutter Consortium