PracticeConsultingAnalysts predict bad year for outsourcing

Analysts predict bad year for outsourcing

This year will be a 'record year for signing bad outsourcing contracts', according to Gartner Group. Robert Brown, senior analyst services at Gartner, argues companies are resorting to outsourcing for the wrong reasons and seeking quick ways to cut costs.

Brown feels this is bad for developing a good partner relationship. At the same time, outsourcers are still trying to sell services on a technology basis, which may appeal to the CIO but not to the CEO or CFO.

‘No company can say where its business is going to be two years from now,’ said Brown. ‘If you want to sell a five-year contract, you had better make it flexible,’ he said. ‘CEOs are saying cut costs, which leads a lot of companies to sign outsourcing contracts. But if you are focusing on cost alone, you are not including strategy. Signing for the wrong reasons means you will regret it later.’

To cut costs, Rover and Jaguar bundled their IT resources into a joint department in January.

Matt Cadieux, the newly-appointed infrastructure manager, said he got twice the responsibility of two predecessors overnight.

‘With a common infrastructure, you can be more effective and cut costs,’ said Cadieux.’But it is hard to realise – we are struggling with the pace to force things together without disrupting business.’

One of the first things Cadieux did was sign an outsourcing deal with Sun Managed Services, to replace three hardware support contracts with non-disclosed suppliers. He said the new service contract provided on-site flexible support, better breakdown response time, proactive maintenance, reduced management effort and reduced costs.

In addition, he intends to replace his server cluster for one of Sun’s super servers to reduce the operational effort and bring in future applications. ‘Lots of nuts and bolts are broken and before we can move on, we need to fix the basics,’ he said. ‘But the new infrastructure will offer a natural opportunity to start doing things differently. Then we are going to look at more outsourcing.’

Gartner’s Brown believes the future service market will mature by 2010. He predicts it will evolve from a dedicated partner model to shared resources in a hosting model.

Application development, he predicted, will develop toward mass customisation, according to the 80/20 rule.

‘It is expensive to pay for entirely customised products’, he explained. ‘Eighty percent of products may be built from standards, while 20% need customisation, to take into account business strategy.

‘ Commenting on costly government outsourcing failures, such as the Inland Revenue project, he said: ‘My gut feeling is that the 80/20 rule was not deployed.’

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