Most Companies Will Outsource Some IT by 2005

Analysts say you should focus on performance criteria when selecting a service vendor.

Almost all North American IT organizations will outsource some mission-critical technology by 2005, according to a study from Meta Group. Successful IT operations will depend at least in part on whether IT managers can find the right vendor, create an optimal contract, and maintain healthy outsourcing partnerships. For the study, researchers analyzed 11 large outsourcing service providers that offer a full range of technology services for IT organizations, mostly within Global 2000 firms. They concluded that the market for outsourcing services is growing 15 to 20 percent annually.

These services typically include a combination of mission-critical operations and back-office capabilities. In the near term, outsourcing will typically involve managing applications, although the market will shift towards industry-specific services

The Meta Group suggests the biggest vendor won't necessarily be the best option for companies comparing service providers. Although the top providers are also the biggest, those offering niche services or with limited geographical coverage can perform as well as their larger competitors.

In addition, customers should focus on performance criteria for the vendor, rather than the vendor's "presence," when making their decision. The vendor's presence should be that of a broker, not a commissioned salesman, based not on affiliations with manufacturers but on the clients' needs. These criteria serve as a better indicator of results, Meta says, because outsourcing typically involves mission-critical operations.

"Vendor evaluations are often based on the 'comfort level' of executives with vendors' reputation and proven performance -- it's difficult for a vendor to overcome negative market perception," says Dean Davison, vice president with META Group's Service Management Strategies service. "Outsourcing can enable business to move faster, become more efficient, and reduce support costs, but vendor choice and contract structures must be carefully calculated and negotiated."

Source- Software Advisor
September 2002