Thursday, April 08, 2004

Optimizing Through Outsourcing

IT managers demand that their outsourcing vendors help them innovate and make strategic changes, not just run the back office

When Blue Cross Blue Shield of Massachusetts inked a 10-year, $320 million outsourcing deal with EDS in December, CIO Carl Ascenzo made it clear he wanted the service provider to do more than just keep his servers running and his help desk humming. The health insurer was looking to automate key administrative services--such as member-eligibility verification--and deliver more of the self-serve applications that benefits recipients demand. "EDS has to help us deliver value to our customers so that we maintain our business competitiveness," Ascenzo says.
Businesses for years have farmed out IT and routine back-office functions such as payroll processing and call-center operations. More and more, CIOs and department heads say they want outsourcers that can help them drive strategic change throughout their companies. They want to achieve goals such as giving customers real-time information and self-service. Businesses need to respond to more-agile global competitors on budgets that have grown little since the economic downturn, and that's why this year will bring more growth in IT and business-process-outsourcing services.

To respond, vendors are pitching richer offerings that combine IT, back-office, and business-consulting expertise--services that some label business-transformation outsourcing.

Sales of business-process-outsourcing services will increase 8% this year to reach $131 billion, research firm Gartner predicts, and they're expected to hit $173 billion in 2007. The demanding business environment is driving that growth, says Gartner analyst Linda Cohen. "The whole idea is to transfer ownership of assets and get access to a capability I don't have today," she says. InformationWeek Research's first-quarter Priorities survey of 400 business-technology executives finds 35% say their companies will spend more on IT consulting and outsourcing services this year, while 15% expect to spend less. Three in 10 say they'll engage in some form of business-process outsourcing.