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In Depth: Customers Analyze Outsourcing Vendors And Strategies

An InformationWeek Research survey reveals that saving money has regained the top spot as the prime motivator for outsourcing.
Mistakes Were Made
Pete Romfh, technical manager for messaging services at Continental Airlines, found out the hard way that it's not just a company's outsourcing partner that needs technical expertise--the knowledge must extend to the subcontractors they use. Through EDS, Continental's outsourcer, Romfh tapped Avaya India to install a new phone network at the airline's base in Delhi airport in India. "It was a total mess," he says.

chartAvaya India, a subsidiary of Avaya Inc., assigned to the job people who were inexperienced in telecom work, Romfh says. "I had to fly over there and show them how to do it," he says. Buyers of outsourcing services need to hold their service provider accountable for all work done by subcontractors. "If you're on a Continental flight and we screw up your meal, we can't go into a lengthy explanation of how the caterer messed up," he says. "Our customers won't accept that."

As tech professionals spend more time with outsourcers and evaluate the partnerships, a surprisingly high percentage reverse their decisions. One out of five companies has reeled in a major project, and an additional 26% report bringing a minor one back.

In many cases, such a move can be costly. Companies usually have to pay a penalty to the vendor if they terminate an outsourcing agreement early without good cause. For that reason, Romfh says, businesses need to work hard to make their outsourcing agreements work, even if there are some rough spots. "Too many times people want to just charge into court without really trying to make things work. But it's like a marriage--you have to work at it," he says. Romfh concedes "there's been times I've wanted to strangle the guys from EDS ... but then we work it out and go have a beer."

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At CSC, the big "For Sale" sign could be having an effect on sales and operations at a vendor known mostly for its high-level IT outsourcing and integration work in the federal and defense sector. In April, chairman and CEO Van Honeycutt said the company had retained Goldman Sachs to help it explore "strategic alternatives," leading to a possible sale.

CSC last month reported revenue of $14.62 billion for fiscal 2006, a 4% increase over the previous year. For the current quarter, it expects revenue to drop 2% to 5%. The company had been on the block unofficially for several months before Honeycutt's announcement. Despite that, CSC continues to win some key contracts, including a five-year, $1.9 billion renewal from BAE Systems announced in May.

Survey respondents give CSC its highest mark, 6.0, for its ability to adhere to internal standards--not surprising for a defense IT specialist. Its lowest mark, 3.9, is for innovation. CSC's average score is 4.9.

Illustration by John Sledd

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Customers Rate Their Outsourcers