Monday, April 12, 2004

Outsourcing — "The Silver Bullet for Business"

There are new powerful forces driving the outsourcing of IT services. Savings on operational costs and information services flexibility have traditionally driven outsourcing. Companies are also outsourcing for more strategic reasons, such as keeping up with cutting-edge technology and building stronger security measures. Outsourcing has become critical to a company's survival and ability to adapt to meet the new economy's eBusiness dynamics. As a business tool, outsourcing allows companies to focus on their core competencies, thus increasing efficiency and competitive advantage.
Analysts firms, including Gartner and Giga Information Group, have recently authored reports citing booming revenue opportunities around the outsourcing business. In fact, Giga recently estimated that about 75 cents of every dollar spent on IT services is used for managing and enhancing existing systems, not building new ones. According to International Data Corporation (IDC), worldwide spending on outsourcing information technology services will nearly double by 2005, driven by competitive strategies and not just cost cutting. Outsourcing has become the silver bullet for big business.

Getting Behind the Wheel of Outsourcing
In the infancy of technology outsourcing, businesses called in experts to manage their data centers. Businesses retained these experts because they promised to manage information technology with greater efficiency and at a lower cost than the businesses themselves could achieve. For each technology requirement there was a different vendor with different suppliers. From this foundation, the drivers for outsourcing have changed in the past two years primarily because of the new eBusiness economy.

These are the current drivers for outsourcing in the marketplace:

1.Inability to adapt and adopt new technology
2.Adoption of eBusiness to eBusiness practices
3.Increased competitive pressures from new players with lower cost operating structures and intense global competition
4.Business reconfiguration from mergers or acquisitions or staff cuts
5.Scarcity of internal resources and IT staff focused strictly on core competencies
6.Untimely access to data/unreliable Systems
7.Need to increase revenue sources
8.Need to decrease expenses

Developing a New Business Process
Mid-sized companies and those enjoying rapid growth are turning to Business Process Outsourcing (BPO) of non-core functions. In BPO, the supplier not only takes on the responsibility to take over the IT function or business process, but it also reengineers the way it is done. BPO's momentum continues to grow as the factors that force companies to focus on core competencies, such as deregulation and global competition. Non-IT executives throughout the industry are quickly waking up to the idea of outsourcing non-core functions.
BPO also has been driven by the lack of skilled staff to deliver all IT services in areas such as HR and finance. In many cases it would take a company much more time than time to market permits get the same solution from a supplier. While companies can duplicate the investment required for a process, it is not possible to shorten a learning curve. Learning how to do a process is something every company must find out for itself.

BPO has emerged as one of the most important ways to increase shareholder value with the cost savings of outsourcing and a seamless solution for day-to-day business needs.

Security is Always a Concern
As the complexity of information technology has increased, so too have the dangers and opportunities for breaches of the network. The new managed security outsourcing model is rewriting systems integration rules. For all the millions of dollars invested into eBusiness infrastructure many ventures remain unsecured and more companies are looking for expertise from a managed security provider (MSP). Analyst projections estimate $10 billion in revenue for MSPs by the year 2004. (Source: MSP Association)

Lacking internal personnel with the skills to monitor security including firewall activity is a common problem for eBusiness companies. On the other hand, outsourcing security to a managed security provider does not appear to have an obvious return on investment (ROI) for most companies. When you compare loss of service to attacks on a firewall the ROI for security becomes more obvious.

According to Forrester Research, companies will triple security spending to $19.7 billion by 2004. The Forrester study also found that although most companies preferred to have internal security solutions, a lack of money and time are forcing many of them to outsource security services.

An Endless Resource
Outsourcing providers offer a richer and more varied career path than companies whose employees work in internal IT departments that support the core business. With today's shortage of skilled resources, outsourcing providers are able to offer more numerous and attractive career opportunities. At an outsourcing firm, the employees immediately become a revenue generating asset, moving from the expense side of the balance sheet. As their work makes a real difference to the firm's fortunes. Outsourcing providers tend to invest a greater amount in their people. With an endless resource like trained IT staff, companies are choosing outsourcing over training their own internal staff. It also increases shareholder value in the company when choosing a BPO or standard outsourcing model for IT services.

When properly implemented, outsourcing allows a business to focus on its core competencies and not to try to master technologies that are both exasperatingly complex and ever changing. Today's eCompanies must be built upon strong core functions and with a scalable IT infrastructure. Outsourcing gives companies the opportunity to compete in the global marketplace without being hampered by day-to-day business operations.

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