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IT Outsourcing's In
Don St. John
If the results of a couple of recent surveys pan out as expected, we can expect plenty of IT outsourcing over the coming year-and on a pretty massive scale.
Is the pace of outsourcing slowing down? Quite the opposite, in fact. If the results of a couple of recent surveys pan out as expected, we can expect plenty of IT outsourcing over the coming year-and on a pretty massive scale, too.
That's the main conclusion of a survey released this week by Technology Partners Inc. (TPI), which examines deals in the pipeline. TPI says that 18 to 20 "megadeals"-ones it defines as contracts that exceed a billion dollars-could close by the end of the year. The market-research firm adds that the second quarter of 2004 saw a 35 percent increase in the value of IT-outsourcing contracts over last year's second quarter, meaning that wider scale outsourcing of IT is already on the rise. The apparent comfort level with moving IT out-of-house is borne out by the findings of a recent survey by Indian outsourcer Patni, which says its clients aim to continue sourcing IT and business functions, even in light of the upcoming U.S. presidential election, in which offshoring is expected to remain a high-profile issue.
TPI's findings, if accurate, basically confirm a recent trend toward long-term, full-scale shifting of enterprise-IT services from companies to outsourcing providers, complete with transfer of IT staffs to the service provider. Sprint, Hallmark, and the BBC are among firms of late who have signed off on major, nine- or ten-figure contracts to take most or all of their IT services out of the building for good. Those companies say they expect to see savings back in the tens of millions per year, and add that getting IT matters off their plate will enable them to concentrate on their core missions and strategic thinking.
Service providers are reacting in kind. The likes of IBM, Hewlett-Packard, Accenture, and EDS are expecting more and more of their yearly revenue to come from the services arena, and they are moving quickly on strategies to bolster their ability to compete for mega-contracts. An emphasis on IT utility computing and on-demand services is high among such strategies. Development of that market could eventually usher in a new wave of service providers from the likes of Yahoo, eBay, and Amazon-all companies that already have plenty of on-demand experience. A decade from now, will the in-house IT department at large enterprises even exist?
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