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Analyst Watch: Quality, Cost, And Innovation

Ask not for whom the bell tolls--it tolls for corporate IT. A new study by IT research firm Meta Group finds that an average of 41% of new development activity is outsourced, up from 35.9% last year. Beyond the cost and financial-planning benefits of outsourcing, says Meta Group executive VP Howard Rubin, this trend is driven by lack of confidence in internal IT resources. "If you look at project management for organizations that do their own in-house development, in general it's pretty abysmal," he says. "Organizations can't really explain the value they provide."

Steve Sanazaro, an IT leadership partner with Tatum Partners, says much the same. In contrast to large commercial software developers, he says, "corporate IT has largely been very resistant to effective quality-control methodologies."

While Rubin notes that IT has been punished in 2002 more severely than any other cost-carrier within the business, the outlook isn't entirely grim. "The spending isn't going to continue to decrease at the rate that it's been going," he says. "In some cases, we're actually seeing a bit of an upswing in the next year." If so, can corporate IT find a way to demonstrate its business value as a driver of growth or profit to counter the lure of labor-cost arbitrage? Rubin is doubtful. IT spending, he says, has been focused on run-the-business activities rather than supporting growth and transformation. "It's going to be hard to shift organizations away from that," he says. "If businesses are looking at enabling some of the new capabilities they need to support the business, it's not clear that they're going to go back to IT."

Business innovation is being driven by process and opportunity, Sanazaro says: "Technology-process integration is the leading edge of innovation right now."

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