In the late 1990s, at the height of the dot-com boom, organisations had one major gripe – lack of access to up-to-the-minute, affordable technology skills. Now, mid-recession, they face the same problem. Although there are thousands of IT workers without jobs, the skills they possess are frequently out of date and tagged to legacy systems.
This has led to a major change in the way organisations outsource their IT operations. Whereas traditionally, outsourcing more mundane IT work such as data centre management,
call centres or desktop support has accounted for the bulk of deals, an increasing number of IT managers see the benefit of outsourcing more cutting-edge projects – such as web services development or mobile applications – that are difficult to manage in times of reduced headcount and tight budgets.
“The infrastructure side of outsourcing is very mature,” explains Ian Marriott, an analyst at research group Gartner. “We’re now seeing a move towards more applications areas being externalised, for example by outsourcing development offshore.” By doing this, he says, businesses can make project costs more predictable, eliminate the element of risk that is frequently associated with new technology projects, and also gain affordable access to skills.
Outsourcing these newer skills can also improve time to market and enable organisations to use more leading edge technology. The fact that outsourcers work on multiple projects across a wide span of companies mean they can normally get up to speed with new technologies while they are still in the early adopter phase.
In the case of web services projects, for example, Forrester analyst David Metcalfe believes that organisations are safer approaching external experts than tackling development in-house.
“European companies will need expert help to deploy web services in large-scale projects,” he says. “2002 was the year of the web services trial project – in 2003, web services will impact the business. But building the right business interfaces requires outside expertise.”
Similarly, as more and more employees work from home or remotely, an increasing number of organisations are deciding that the management of complex wireless technologies across potentially hundreds of employees is a task that they would rather hand over to a service provider.
UK financial services company Friends Provident, for example, has outsourced the management of its remote sales force’s laptops – from back-up to back-office integration. It estimates that the move has reduced IT costs by around one-third.
Although such cost savings are very welcome, many organisations say that a more important consideration is their inability to source people with the right skills to carry out projects, or a desire to have the ability to scale IT resources up and down as required.
That is particularly true for smaller companies, which not only find it difficult to justify full-time, specialist IT staff, such as DBAs, but also find it difficult to hold on to them. The best IT people generally want to be in an environment where they are constantly learning, working on new projects and developing their skills. It is very difficult for smaller organisations to provide that kind of opportunity.
“Generally, outsourcers have a pretty good depth of skills,” says John Whitworth, a former CIO and consultant who is now marketing manager at BT Ignite. The larger outsourcers have capacity and expertise in a wide range of areas and can bring in partners for the more specialised skill sets that they don’t cover. Because of their size, he says, they can frequently aggregate services from a portfolio of suppliers and shield the cost of managing these contracts – typically between 3% and 7% of the overall deal size – from their customers.
That is not to say that organisations should steer clear of smaller, specialist providers. However, outsourcing consultants such as Morgan Chambers and TPI warn that niche companies should be used on a project-by-project basis. For example, security specialist Aventail produces its own virtual private network system that runs on SSL – a potentially high-risk project that requires highly specific security development and management skills that a larger outsourcer may not be able to provide. Customers can approach Aventail directly, or go through its far larger partner IBM Global Services.
Equally, some specialist outsourcers exist purely to provide and even showcase cutting edge technologies and skills. Microsoft and Accenture together founded Avanade to develop applications based on Microsoft’s .Net application development platform. “We often take part in Accenture’s outsourcing deals,” says Avanade’s VP of strategy, Mick Slattery. “Some companies do have fantastic people, but we have a broad experience of business across the globe and a range of ‘premium skills’.”
Finally, one of the greatest challenges of running new technology projects is ensuring they come in on time and within budget. Since outsourcers have to run any number of technology projects concurrently, these are skills they have in abundance.