To Outsource or not to Outsource?

Expenditure on IT services is likely to grow during 2002, however this change is expected to be driven by corporate companies seeking to outsource not-critical and non core activities to suitable providers. This trend will blossom as IT purchase decision makers strive for faster return on investment.

The outsourcing service provider model is beginning to mature and with the help of improved SLA definition and delivery that should build trust between providers and customers. ASP services covering the use of software or the provision of managed services are expected to come into their own during 2002 as enterprises move away from investing in IT hardware and software and look to improved flexibility and ROI gains by shifting the burden of migration and network management to a company that has the core competencies to offer these services. The global services market will continue to grow with particular importance placed on information workflow as enterprises handle ever-increasing amounts of data, increasing mobility of enterprises and enterprise security. The global services market is expected to top 680 billion Euros in 2002.

Current market dynamics has made outsourcers realise that there are rich pickings to be obtained during uncertain times. IBM Global Services for instance is launching an outsourced CRM service. This is a bit of a gamble as it relies on enterprises seeking to outsource their CRM capability, in order to reduce costs during uncertain times. In addition, IBM also sees this as an opportunity for enterprises to deploy CRM solutions that have been unable to in the past as a result of lack of affordable solutions. However, there is a question mark over their ability to deliver CRM as an outsourced application, beyond simple solutions. This is an evolving environment and more complex outsourced CRM will need to be developed. This is why enterprises that have not utilised CRM can grow with the service provider as the solution is refined and developed to encapsulate more complex features. Other areas will also experience an interest from outsourcing opportunities as the boundaries of possibility expand and become more feasible and accessible. There will be a lot of push and pull in the outsourcing arena in 2002. More and more enterprises will seek to outsource more non-core activities, ones that are particularly capital intensive or expensive to maintain, support and evolve. From the push side service providers will seek to push their boundaries and deliver differentiated services to customers, or more one-stop capability. This year will be important for many companies staking their claim to the ASP market, the ability to deliver consolidated services and being first to market will also be important. For some enterprises it will be important for service providers to deliver consulting, implementation and outsourcing capabilities all in one.

Despite the attractiveness of outsourced solutions to enterprises there are many hurdles for outsourcers to overcome in order to alleviate the some times sceptical nature of the corporate market. One of the main concerns of outsourcing is the loss of control by the enterprise; this can include that over equipment, projects and strategy. Enterprises fear that if they loose control that they will be unable to quickly react to changes in the market and to business circumstances and they fear that the outsourcer may hold back faster change. Enterprises need to ask strong questions of their potential outsourcer:

How quickly will the outsourcer be able to react to changes?

Will they be able to add new processes?

Will they be able to add new features?

Can the enterprise walk away and transfer easily to another supplier?

Outsourcing has the added bonus of leaving the IT director to concentrate on more important matters of return on investment, developing long-term IT strategy or managing service providers rather than ensuring applications are updated on time or maintaining applications. The IT director will however need to develop a new set of skills to negotiate services with potential outsourcers and to understand the role of the outsourcer. Part of the negotiations includes the creation of SLAs between the enterprise and the outsourcer and this is the responsibility of the IT manager. In order to understand SLAs, IT managers need to better understand the needs of their business and the business environment in which their company operates. TekPlus has corporate Guidance available on SLAs and provides information on what to ask of service providers and what measurements should be included. Before enterprises can outsource applications and services, they must understand the technology the service provider envisages unleashing and the problems that are likely to face their company in the future. The enterprise needs to know what they must ask of an outsourcer before they can outsource.

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