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CIOs in turf wars over business process outsourcing

Business process outsourcing is the fastest-growing segment of the outsourcing market -- and that spells trouble for CIOs.

ORLANDO, Fla. -- CIOs had better take charge of business process outsourcing or be prepared to clean up the messes made by their proactive but dangerously uninformed business-side peers.

That was one of many warnings from Gartner Inc. analyst Linda Cohen, who spoke about the current state of outsourcing at the Gartner Symposium/ITxpo and offered tips for being successful in a rapidly evolving marketplace.

IT has to get in the middle of this -- now!
Linda Cohenanalyst, Gartner Inc.

Business process outsourcing is the fastest-growing segment of the outsourcing market, increasing 9% over last year, compared with 7% for infrastructure outsourcing, according to Gartner research. And that can spell trouble for CIOs. Not only is business process outsourcing growing, but the expansion is being driven not by CIOs but by business executives of other departments.

Cohen gave the example of two large utility companies that had just merged. During a meeting of top business executives with their respective CIOs to discuss options for internal outsourcing, it came out that a business unit at one of the companies was about to outsource human resources on a PeopleSoft Inc. platform. But that company was "totally wedded" to SAP AG.

"The business unit had no idea this would matter," Cohen said. "IT has to get in the middle of this -- now!"

Kevin Tackaberry, chief administration officer at Triad Financial Corp., a subprime auto finance company based in Huntington Beach, Calif., was on a fact-finding mission. Triad does not do any outsourcing yet, but he said he believes the technology people would be "very involved" in the decision.

"I think it is really important that the technology people are business people first. You have to have an integrated approach for IT to create value in the organization." He took to heart another bit of advice: that companies rigorously analyze the cost and benefit of changing delivery models before jumping on the outsourcing bandwagon.

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Most of Cohen's talk was based on research from a Gartner global outsourcing survey, the largest the Stamford, Conn.-based research firm has undertaken to date. Here are some of the survey findings on the current state of outsourcing, and Gartner's advice for going forward:

  • Companies will be outsourcing more, not less, in the future, but most deals will still be structured around cost. Gartner believes companies should seek suppliers that can facilitate growth, speed and agility, the three attributes it says companies now need to compete in a global marketplace. Cohen said deals done for cost reasons alone tend to "lose their luster" after two or three years, because needs change and the contract lacks provisions for dealing with those changing needs. Gartner recommends that you outsource for flexibility and scalability. Recommended analyst report: "Contracting for Flexibility," by Gartner analyst Bill Maurer.
  • "Compulsive, tactical outsourcing to solve a problem" is still the norm for most companies. Gartner advises companies to start developing a formal strategy that will mesh with their business objectives. Again, deals that focus on the "problem of the minute" go sour pretty quickly.

    Companies still demand customized outsourcing services. The market, however, is moving toward standardized "factory-type" services that can be delivered more reliably. Outsourcers will return to customized services if companies do not go along with this trend, but expect costs to go up.

  • Companies typically begin their quest with geography, by choosing a country. Gartner advises that you consider the work first, then figure out whether that work is best delivered from onshore, near-shore or offshore. Mortgage companies looking for fast transactions, for example, might be best served by a "follow-the-sun" approach to outsourcing.

Let us know what you think about the story; email Linda Tucci, Senior News Writer.

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