November 15, 1999

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Solution Series:
Outsourcing's Third Wave
Emerging companies turn to specialty and niche firms to implement growth strategies

ike child care and take-out food, getting outside help on critical IT projects is no longer a luxury or a last resort--it's a practical necessity. When time and resources seem to evaporate, and the constant demands on employee skills outpace even aggressive training and hiring programs, how else is the work going to get done?

As we enter the third wave of outsourcing, companies are turning to partnerships that fuel their growth strategy and let them focus on their core competencies. Increasingly, they are choosing from niche and specialty shops such as application service providers, Web hosting, and E-commerce providers, as well as network-integration experts. Although the options range from handing over your complete IT operations to pay-as-you-go single-application outsourcing, strong business ties are often forged between the two companies.

While partnerships can solve some workload issues, the biggest new problem they create is how to make these relationship more painless and more collaborative. That's why this Solution Series profiles a variety of best-practice outsourcing arrangements to walk you through the process. BMG Direct, Flash Electronics Inc., and the electronics Industry DataExchange Association (Idea) all needed different services, but each struggled with the same business issues as they searched for their outsourcing partners, says contributing writer Nick Wreden ("Outsourcing Flexes Its Muscle").

BMG Direct outsourced the hosting, maintenance, and support of its high-traffic site to Quadrix Solutions Inc., placing a premium on around-the-clock availability and the Web and networking skills that were hard to find in-house.

Flash Electronics partnered with Applicast to administer and support a SAP application. And an innovative outsourcing agreement between Idea and MCI WorldCom delivers a managed frame relay network to Idea members that lowers communications costs, establishes a common industry communications standard, and may offer more advanced applications in the future.

We also take a look at insurance and financial giant American International Group Inc. ("Financial-Services Firm Looks For Competitive Advantage"), and Honeywell Inc.'s Space and Aviation Control unit ("Outsourcing Lets Honeywell Stay On Course"), which have a lot in common when it comes to E-business outsourcing. Contributor Saroja Girishankar interviews IT executives at these firms to discuss the challenges they face making sound outsourcing decisions.

Steve Huhn, VP of Global Business Development of IBM Global Services, expresses his view of the fast-paced marketplace and concedes that IBM was slow with some of its initial offerings, but is now stepping up the pace of E-business services. ("IBM Global Services Takes On Application Outsourcing").

The array of choices doesn't make it easy for managers. If anything, it places a premium on selecting and managing vendors, negotiating detailed contracts, and mon- itoring ongoing performance--and that's another full-time job. Finding the right person in your company to serve as liaison to the outsourcer is one more consideration.

As another aid, in our story "ASP Market Rapidly Unfolds", we've provided a buyer's guide of application service providers--perhaps the most confusing marketplace right now--where companies are putting forth services at a furious rate.

Let us know your outsourcing concerns at the address below.

Paula Klein
Special Projects Editor
pklein@cmp.com

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Go on to the first story, "Outsourcing Flexes Its Muscle."

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