Today, enterprises of all sizes want to expand their reach to new customers, to contain or reduce their costs, or to bring new products and services to market more quickly. Increasingly, they are looking to information technology (IT) to help accomplish all these goals. These needs created an estimated $1.3 trillion marketplace for IT products and services in 1996. That’s about $2.2 million spent per minute or 20 percent of the US Gross Domestic Product!
Moreover, IT is growing increasingly complex. To create efficient IT systems that support business objectives, enterprises must grapple with a wide variety of IT services vendors and an even broader array of hardware and software platforms, and network technologies. Then there’s the Internet, with its potential for altering the way information is shared between businesses, institutions and individuals.
One key trend that has helped fuel the growth of the services industry overall has been outsourcing, where companies turn over part or all of their internal information systems management to an outside contractor.
Employing outsourcing to open new frontiers of opportunity for IT services providers has become a worldwide megatrend. According to a US International Trade Commission report, the global outsourcing market is expected to reach $99 billion in revenues by 1998. This burgeoning growth is only part of the story.
Outsourcing is changing quickly and dramatically in ways that have important implications for both companies that outsource and for IT service providers.
The modern era in “full-scope” outsourcing — where organizations outsource their complete IT systems — began with Kodak’s ground-breaking agreement in 1989 for IBM to manage the company’s entire IT infrastructure. With the Kodak agreement, outsourcing changed fundamentally, moving from a cost-cutting tool based mainly on data center management to a proactive management strategy.
Driving this evolution was a changing customer environment characterized by increasing competition, constrained growth opportunities, changing marketplaces (often global), shareholder expectations and technology management complexity.
Consequently, most enterprises today consider outsourcing as a way to leverage IT to make their business operations more efficient and competitive. These organizations want service providers to exploit the potential of the latest technologies so that they can compete more effectively concentrate on their core business, whether that is clothing, publishing, financial services or manufacturing.
Even as the traditional full-scope outsourcing shifts and reshapes to meet marketplace needs, the scenario is changing once again to create another frontier. Outsourcing is evolving from data center management and full-scope outsourcing — primarily targeted to large companies — to outsourcing a full spectrum of IT services for both large and small companies. This expanded range of services includes systems integration, network and distributed systems management, as well as short-term projects such as a specialized software implementation and platform migration.
Because this new approach to outsourcing gives organizations greater flexibility in selecting specific technology services to meet their needs, it is commonly referred to as “selective outsourcing.” The key point is that selective outsourcing can supplement a company’s IT staff and skills, enabling the IT function to achieve objectives which may otherwise have been well beyond internal capabilities.
A hallmark of the new era in selective outsourcing is the ability of service providers to offer complete outsourcing solutions for small, medium and growing companies. For example, IBM Global Services offers a comprehensive menu of IT services that can be mixed and matched to suit the needs of virtually any customer. This has widened the outsourcing arena beyond megadeals with huge global corporations to include small and medium-sized businesses which can now benefit from services formerly not available to them.
Looking ahead, one thing is clear. Most companies no longer want IT service providers just to take over their data centers. They want technology partners who can revitalize their entire enterprise. The global business environment is more challenging than ever, and large and small customers need the competitive edge that only state-of-the-art information technology can deliver. By leveraging technology to provide vital solutions toward that end, enterprises can not only survive but thrive in the days ahead.
Lessons from the Outsourcing Primer:
- Full-scope outsourcing is moving beyond its traditional role as a cost-cutting tool to establish technology partnerships.
- Outsourcing now is available to small companies as well as large organizations.