IT sourcing reflections

Abstract

For more than a decade, the authors have studied the best, worst, and emerging information technology sourcing practices in 543 large and small organizations world-wide. From an initial focus on cost reduction in the early 1990s, the authors found that customers now expect many business advantages from IT outsourcing, including better service, infusion of new technology, transformation of fixed IT budgets to variable IT budgets, improved business processes, and even increased revenues. In short, customers expect IT outsourcing to transform IT functions into lean, dynamic groups that respond quickly to business needs and opportunities. But how do customers actually achieve such business advantage? Customers must become adept at managing four continual processes to successfully exploit IT outsourcing:

• Assess the in-house IT portfolio to determine which activities are best outsourced

• Evaluate market options for the best sourcing models and best suppliers to achieve customer objectives, ranging from simple ASP provision to the creation of customer-supplier joint ventures

• Craft contracts to align customer and supplier expectations and incentives; and

• Continually manage supplier relationships.

Major supplier lessons are also identified, which call for superior supplier integrity in selling, negotiating, and delivering IT services. The overall lesson is that outsourcing can achieve significant results, but it requires new management capabilities.