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'Selective' IT Outsourcing Takes Hold

Apr 15, 2003
By

Colin C. Haley






Hewlett-Packard's sweeping outsourcing contract from Procter & Gamble commanded headlines Friday but others are more cautious, according to experts at this week's IT Infrastructure & Management Conference & Expo, in Boston.

"You will still see a few big multi-billion dollar deals here and there," said Corey Ferengul, a vice president at the IT research firm META Group. "But most companies are looking at the micro level."

Companies are interested in pushing many non-core tasks to third-party providers. Examples range from call center systems to Web hosting to data storage management.


Some speakers at the two-day show called this "selective outsourcing," which weighs the cost savings of farming out work with concerns about surrendering security and control.

"Selective outsourcing can revolve around specific locations, or applications," said Peter Weber, president and CEO of SevenSpace, an IT outsourcer for mid-tier clients. "You gon't have to give up your entire operation."

Weber, and other members of a panel, listed several suggestions for companies or organizations considering outsourcing: ask for references; assign someone in-house to oversee the project; and be sure the system works with your existing systems and can be expanded.

Hank Marquis, vice president of Opticom, a maker of software to measure IT performance, said analysis was important when negotiating contracts. By knowing statistics such as uptime and network traffic, service shoppers can build incentives into their deals. And when it comes time to renegotiate, they can verify the information from the outsourcer.

"Trust but verify," Marquis said. "Make sure you are getting what you are paying for."

It's still very early in the evolution of outsourcing to make solid predictions and differing definitions of what constitutes outsourced services complicate the matter.

Most speakers agreed that the practice now accounts for between 10 percent and 25 percent of corporate IT budgets. In the private sector, there is no easy profile that these users fit.

Weber said the state and federal governments, which are under severe pressure to cut costs and waste, are big outsourcing customers.

One of the largest concerns about outsourcing is the loss of high-paying IT jobs to China, India and elsewhere. While there is no doubt companies are sending a record amount of work overseas.

"It depends on how much labor is involved," said David Schatsky, the conference co-chairman, and a senior analyst at Jupiter Research. "If an executive is saying that 25 percent to 30 percent of IT work must be done offshore that can be a perplexing mandate. There may be no rational business reason but that's the number that gets thrown around."


 

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