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3/26/2003
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Outsourcing: A 50-50 Proposition

A Gartner study says half of this year's outsourcing projects will be labeled as losers by top decision makers for failing to deliver on bottom-line promises.

Half of this year's IT outsourcing projects will be tagged as losers by senior decision makers for not delivering on bottom-line promises, Gartner says. Outsourcing is prone to failure because of breakdowns in communications between outsourcing providers and their clients, the research firm adds.

Gartner's analysts says outsourcers must do a better job of communicating with clients and become more accommodating. But the blame isn't all one-sided.

Parties should "commit to regularly scheduled, formal meetings to review the progress and achievement of objectives," says Linda Cohen, a managing VP at Gartner. "Failing to do this, the relationship can be seriously compromised because corrections are not made in a timely fashion."

Cohen and her co-analysts released the study at the ongoing Gartner Symposium/ITxpo 2003, which wraps up Thursday in San Diego. The symposium and exposition draws an audience of about 10,000 IT professionals from companies around the world.

In 2003, Gartner says, fewer than a third of companies will have formal plans for managing relationships with their chosen outsourcers, contributing to the perceived failure rate by executives. Companies outsourcing some or all of their IT needs can buck the odds and prove the worth of their deals by putting plans in place, especially ones which recognize that technology and business needs are constantly in flux. Mechanisms for renewing and modifying contracts can catch problems before they bring down an outsourcing arrangement.

"Long-term arrangements with outsourcers must be built for change, rather than built to last," Cohen says. "Flexibility is the key to successful long-term service supplier and buyer relationships."

Enterprise-level outsourcing is on the rise and is one of the few upbeat areas in the current global IT market doldrums. Companies such as IBM and EDS have struck major outsourcing deals during the last several months, in some cases acquiring all of a client's IT assets and staff, then managing them for the client. And increasingly, companies are exploring moving some operations overseas, where costs are lower. That, of course, can put some American IT workers' jobs in jeopardy.

As IT outsourcing becomes more common, Cohen suggests, companies will be faced with a decision: Should they hire a single provider for all their needs or go with multiple outsourcers? Companies that can manage one, albeit complex, contract but lack the capabilities to stay in close contact with numerous providers should steer for the single-source strategy, she says. But "multisourcing," in which a company brings in several outsourcers, will continue to remain dominant.

Those companies can turn to a prime or general contractor to oversee the numerous other providers.

Says Cohen, "As the enterprise's understanding of multiple suppliers increases, as well as the processes to manage and integrate them, a prime- or general-contractor approach is beneficial for obtaining a mix of suppliers without the job of managing the suppliers directly."

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