On the Leading Edge | Article

rushing man on keyboardTony Macina, general manager for global service delivery for IBM Global Services, says that one of the most significant developments in the world of outsourcing for 2000 is that the motivation for outsourcing is changing. In the early 1990s IT was a mechanism to make business process more efficient. “In the mid 1990s, client/server had not really made good on its promise, and companies were in chaotic situations,” he says. “The motivation for outsourcing then was for a partner to provide the service level and cut costs.”

When technology started moving fast with networks in the1997-1999 time frame, the motivation was acquiring skills and technology fast enough. IT was still seen as supporting a business. “Now the motivation has changed to wanting an IT partner to tell its customers how to use technology to remain competitive. IT is now integral to what is going on,” he says.

How Outsourcing is Changing

The outsourcing world of 2000, as Macina sees it, is a much more fragmented environment. “Several movements are churning right now and changing the face of outsourcing,” he says. One thing IBM has noted is an increased use of out-tasking. “There is a reluctance to just dump it over the wall,” he says. “Since IT is integral to their business processes, they are a little bit afraid to give it up entirely.” Basically they want to retain the application development. “They may, for instance, have a level-two help desk that has skills they don’t want to give away because they multiplex those skills, and that is their intellectual capital. They want you to set up the front end of the help desk and then interface to their level two. When it comes to the Web world, they want you to run their operations from a web hosting standpoint, but they want to retain their applications.” This is a very difficult environment to manage, he points out.

Macina explains another current model. “I think Harvard Business Review characterized it as cannibalization. As some businesses move into the Web world, they are letting it grow up independently in other parts of their organization. The cannibalization comes when they actually allow that unit to vie for customers with their base structure. We saw this in a few banking situations where they were allowed to compete for banking customers that would typically use the brick-and-mortar banks.”

There are also companies that view their applications base as something they are willing to outsource in order for their key people to be able to build new applications. This is bringing more outsourcing of application maintenance into play. It has not been the entry point in the outsourcing market in the past, he says, but now many customers are leading their outsourcing requests with this function.

Web Delivery

Macina says that about 18 months ago IBM recognized that its customers would want Web delivery and would, over time, want the web-hosting systems interfaced with their legacy systems. “So we actually invested and built in our service centers what we call universal server farms–high-end, high-availability web environments. Web hosting is an ideal entry point for outsourcing. Many companies really can’t afford to make the bandwidth and asset investment–nor can they get the skills—so we actually bring them in this way and, over time, take them to the full level of outsourcing.

There is, however, a market that is not interested in outsourcing their web environment. Companies such as Qwest and Exodus, he notes, provide an environment for this market. In the co-location model, customers actually put their people inside the outsourcing facility and bring their machines in. What is provided is a level of monitoring, the interface into the Internet, and the back end activity. Macina says that in 2000 we will see IBM address that market with multiple points of presence and some partnering.

In e-commerce, Macina says the tremendous growth will happen in the business-to-business arena. “It seems to be going a lot slower and has a lot less hype than e-commerce today, but that’s where we are going to see the major changes that will actually change corporations,” he says.

Impact of Networks

“The outsourcing market over the next five years is going to change drastically,” says Macina. He explains that the typical outsourcing arrangement today handles a customer’s environment or provides service to a customer out of a single location or, perhaps, multiple locations tied together but very centralized. With the advent of the Internet, extranets, business-to-business communication, more and more content is moving out of data centers into networks.

“This is the caching model that you hear people talk about,” he explains. “When you look at that from an outsourcer’s viewpoint, suppliers are going to have be able, over time, to manage a very distributive environment.” It will be driven by the need to get the content to the end users (shoppers, or customers in the banking industry, for example) very fast.

The impact here is that the interconnectedness needs a close relationship with telecommunications companies. Suppliers will have to be able to outsource and manage the entire network through command centers. There will also be a need to build tremendous redundancy, he points out. “The expectation today in the Web world is 100% availability–which is impossible in a single threaded system. There is no time for preventive maintenance–99.9% is not enough.” Managing a network world, as opposed to a data center, requires a different set of tools, processes, and different security issues. “That’s what we are working on now,” says Macina. “When we look ahead, that is the target environment that we will have to manage.”

“I have been in this business 31 years now, and I’ve never seen a more dynamic and exciting time,” says Macina. “Technology is changing fantastically, and all industries are changing very rapidly. It is an exciting time to be looking for solutions.”


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