Getting Smarter About IT Outsourcing
By Samuel Greengard
A number of recent reports indicates that IT outsourcing is maturing and many organizations—along with their CIOs—are beginning to look at it in a different way. A new study from market intelligence firm Information Services Group (ISG) indicates that as a growing number of outsourcing contracts expire, businesses are being more aggressive about renegotiating the terms.
Organizations are also turning to a greater number of service providers. ISG notes that a growing number of IT executives are attempting to renegotiate outsourcing contracts before they expire in order to take advantage of short-term cost savings.
Meanwhile, some organizations are scaling back from ambitious outsourcing initiatives. Last year, GM embraced an ambitious insourcing program and announced it would build a 500-person "innovation center" in Austin, Tex. Later, the company announced additional new facilities in Chandler, Ariz., Roswell, Ga., and Warren, Mich.
Some companies—GM is one of them—say they hope to attract talent by bringing operations back in-house. As a result, these organizations often locate facilities near universities and IT talent pools. But in other cases, CIOs are looking to better manage processes and improve quality. Forrester Research found that half of the respondents to a 2012 IT services survey indicated that "poor service quality is a factor" in outsourcing decisions.
The problem? For one thing, many organizations never developed a cohesive strategic plan for IT outsourcing and they have never been clear about their core competencies. For another, a lot of IT executives had unrealistic expectations, particularly those that based business decisions primarily on cost considerations. This eWEEK slideshow can take you down that rabbit hole.
There's also the cloud, which has created a more flexible hybrid model, notes David Nichols, Americas IT transformation leader at Ernst & Young. In many cases, cloud computing is leading CIOs to a greater number of niche providers that address specialized issues and problems.
Nevertheless, Gartner reports that the worldwide market for IT outsourcing grew by 7.8 percent in 2011 and worldwide ITO revenues now top $246.6 billion. In other words, IT outsourcing isn't disappearing anytime soon.
For CIOs, the challenge is to develop a coherent business strategy that focuses on insourcing, outsourcing, multisourcing and cloud computing in a comprehensive way. Somewhere along the path to enlightenment and success, there's also a need to build more accountability and ownership into sourcing operations. The task of managing IT environments is only going to become more complex during the next few years.