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Meta: Half of all companies still reluctant to outsource

Despite the cost benefits promised by IT outsourcing, many users still shun the practice as too risky. At a recent conference focused on the topic, one expert challenged outsourcing providers to build "micro-level" services allowing customers to tackle the process in smaller pieces.

Even though most organizations are looking to cut their IT spending, some 50% of all companies still refuse to consider outsourcing as a viable avenue for cutting overhead, according to research from Meta Group.

Speaking at the IT Infrastructure & Management Services Expo in Boston, Meta principal analyst Corey Ferengul said that outsourcing providers must redouble efforts to better integrate with customer needs, because users are still more focused on IT consolidation as a means to lower spending.

"Companies like the pay-for-use model of outsourcing, but they still dislike the uncertainty of losing control of management issues," Ferengul said.

According to the analyst from Stamford, Conn.-based Meta, organizations are beginning to realize the potential of new outsourcing strategies such as utility computing and Microsoft Corp.'s dynamic computing initiative. But many remain leery of negotiating tricky outsourcing agreements and the possibility of incurring new IT spending as a result of making a mistake.

One way for outsourcing providers to generate more interest among users is to create hosted Web services providers, but this sort of functionality is several years from reality, Ferengul said. A possible example of an outsourced Web services application could be an XML-based information sharing service linking partners and replacing traditional electronic data interface (EDI) technology, according to Ferengul.

Another way to make outsourcing more attractive is to "attack the process at a micro level," he said. This might involve addressing internal business unit functions and providing for enterprise IT demands -- such as server monitoring or help desk support -- through more specialized outsourcing services.

"If you can model the internal IT department as the outsourcing service provider to other departments, it becomes harder for those users to say no," Ferengul said.

According to the latest research from Meta, most organizations currently reside in a decision-making state regarding outsourcing as they wait for service providers to make better cases for their capabilities. In order to push these users closer to making a commitment to outsourcing, Ferengul advises that vendors market around addressing specific IT needs rather than defending overall performance capabilities.

Looking forward, Ferengul said that users are curious to see how high-profile IT vendors such as Hewlett-Packard Co. and IBM Corp. push the envelope for creating virtualization using outsourced utility computing applications. These vendors are already working to build loosely coupled applications into "federated services" that can allow users to re-deploy IT infrastructure to rapidly meet changing demands, he said.


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