Outsourcing on the Rise

More and more companies will be outsourcing IT services in the near future, but with that decision comes risks. By 2005 nearly 70 percent of enterprises will use more than three sources for service delivery in key areas. However, fewer than 10 percent will have the appropriate processes and governance structures to effectively manage the multiple external service providers (ESPs) that contribute to common enterprise objectives, according to a recent report from Gartner. "As companies move from delivering IT services internally to outsourcing more and more services, that eliminates some technology management issues," says Chris Ambrose, research director at Gartner. "But this brings on contract administration, relationship management, and other management issues." Ambrose warns that companies have not put the right organizational structure in place to adequately handle all of these different service agreements. He adds that most companies who look to the ASP model for business processes like CRM and ERP can fall into the same situation if they do not actively manage those systems themselves--even if the technical side is being outsourced. Gartner's new Executive Report, "Successful IT Outsourcing: Strategies, Tactics and Management Approaches for Effective Strategic Sourcing," provides insight regarding the implementation plans and best practices that enterprises need to develop successful outsourcing strategies. As enterprises outsource more strategically, they are using a wider mix of ESPs, in addition to internal service providers. "The landscape is complicated, and competing interests among external and internal sources often create an environment that encourages minimum effort over best effort," Ambrose says. "Many enterprises have not focused on creating the agile, responsive, flexible organization necessary to effectively manage the multisourced environment, leaving them vulnerable to low return on service value." Ambrose says that enterprises should examine and quantify the value lost due to poor multisourced-environment management practices, should identify where gaps exist in their own management, should gain executive commitment to change, and should develop a structure to manage relationships, not just service delivery. Additional topics addressed in this Executive Report include developing an effective sourcing strategy and selecting the right relationship model to achieve outsourcing goals and building the outsourcing business case and evaluating risk in outsourcing engagements. Also, tackling the human capital and organizational issues posed by outsourcing and managing workforce-related risks, conducting a thorough and effective ESP evaluation and selection processes, and applying best practices in managing ESPs through outsourcing contracts and service-level agreements.