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Firms to turn to IT outsourcing for global growth in economic recovery

IT outsourcing is poised to resume growth later in 2009 as enterprises look to globalize and pursue expansion strategies. Here's how.

New data on IT outsourcing indicates that enterprise organizations are looking past the recession for ways to grow their businesses globally and expecting IT outsourcing to play a big role in that effort, a new study shows.

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The report, " State of the Outsourcing Industry in Mid-2009: Activity to Resume With a More Cautious and Global Focus," released last week by AMR Research Inc., shows that application development, hosting and IT infrastructure outsourcing will resume growth later this year. It also shows that enterprises are turning to outsourcing not only to cut costs, but also to operate more effectively at a more expansive, worldwide level. Some 63% of respondents said the desire for more effective operations at a global level was a driving factor of their contracts.

"There's clearly an impetus in the industry to move into these global models," said Phil Fersht, research director in AMR's global business and outsourcing services division, and co-author of the study. "Close to half are looking to transform or re-engineer their processes, and do things a little bit smarter in their organization."

An executive at IBM, which recently signed a five-year global IT services agreement with American Express Co., agreed with that trend. "Clients are looking for ways to be innovative around operating more efficiently, and things that can help them redesign and refine business models to run their market," said Carolyn Maher, vice president of IBM global technology services.

American Express, she said, was specifically looking to be better positioned for growth with the contract, which focuses on systems management processes in a global environment. "They're thinking about where they want to be three or five years from now," Mayer said. "This starts to help them in that strategic journey." American Express declined to comment for this story.

IT outsourcing activities recovering

The AMR report, based on 700 survey responses, projects modest contract growth in the third quarter of 2009, "with a notable spike in new contracts and existing contract augmentation" in the fourth quarter of this year and first quarter of next year.

IT outsourcing contracts dropped sharply in the third quarter of 2008, and new IT outsourcing activities remained fairly stagnant as organizations focused on critical management decisions around business focus and company stability.

There's clearly an impetus in the industry to move into these global models.
Phil Fersht
research directorAMR Research Inc.
The initial disruption and up-front investments are the biggest impediments to new IT outsourcing adoption in both midmarket and enterprise firms, the study finds. In evaluating providers, companies are seeking smaller-scope engagements focused on lower up-front capital expenditures and supported by low-cost offshore and nearshore resources.

The IT outsourcing trends were largely consistent across the disciplines of application development, hosting and IT infrastructure management. Roughly the same percentage of companies will increase their amount of IT outsourcing or keep it the same (40% each), while about 10% of companies are either outsourcing for the first time or decreasing their use of IT outsourcing.

The report states that these areas are resuming with a similar uptake to the pre-recession era. Other areas seeing a pre-recession surge include finance and accounting business process outsourcing (17% considering it) and human resources outsourcing (12% examining it for the first time).

Let us know what you think about the story; email: Rachel Lebeaux, Associate Editor

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