Three IT outsourcing models, none complete
By Staff -- Manufacturing Business Technology, 9/1/2004 12:00:00 AM
A study by Boston-based AMR Research says few companies are getting the expected benefits from turning their IT operations over to outside contractors.
The study, which included a survey of 220 companies using outsourcing services, found that less than a third were satisfied with the savings. Only 13 percent of the companies said outsourcing arrangements were producing continuous improvements to their processes.
"If outsourcing is to become something more than this year's IT fad, then providers better start delivering more value to their customers," wrote Lance Travis, an AMR VP, in a recently published report summarizing the study results.
Travis attributed the poor results to the business models of the three types of companies, which offer IT outsourcing services. The players include consulting companies such as Accentureand BearingPoint, outsourcing companies like EDS and IBM Global Services, and new offshore companies, particularly India-based companies like Infosys and Wipro.
Each group has its strengths and weaknesses, but Travis says none of them currently have the complete gamut of capabilities required to give users full value for their outsourcing dollars. Typically, the consultants are experts at fine-tuning business processes, while lacking the ability to manage ongoing IT operations. They also tend to charge high fees, Travis says.
Meanwhile, the traditional outsourcers—who also have high fees—know how to run IT operations but generally are not as good at shaping business processes. Finally, the offshore companies usually have lower fees, but they are the least likely to have expertise in a customer's specific vertical industry.
Travis says companies have the best shot at getting the value sought from IT outsourcing by setting the terms for the customer-contractor relationship in advance. "Companies can get significantly better value when they base their relationships with service providers on long-term process improvements rather than on one-time savings," he says.
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