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Enterprises Outsourcing Operations and Applications Total <$100M $100 $999M >$1B Revenue Revenue Revenue Yes 73% 65% 70% 88% No Increase in 2005 over 2004
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EXHIBIT 7.1
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27% 4.9%
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35% 3.5%
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30% 7.7%
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12% 3.2%
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Outsourcing Spending Prevalence
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offshoring or outhosting or insourcing or some combination of these Perhaps first and foremost, is any form of outsourcing what you really need In a recent survey by CIO Insight magazine summarized in Exhibit 7.1, nearly three-fourths of surveyed companies spent money outsourcing in 2004, and they expected their IT outsourcing spending to increase by almost 5 percent in 2005.2 The same survey asked how the monies would be spent across a wide range of categories with application and Web development, application and systems integration, and application and Web hosting (including e-mail hosting) at the top of the list (see Exhibit 7.2).3 For the most part, enterprises that use outsourcing are satisfied with the return on their investments, and they plan to continue to invest at more or less the same spread as in the previous year.4 This is very good news for the outsourcers, too. For every outsourcee there is an outsourcer ! Because the heart and soul of CIO responsibilities is rooted in defining IT resources in terms of business goals and strategies, let s be clear about the definition of these two important terms:
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Outsourcee The entity contracting-out with another entity to accomplish specified goals and/or objectives (deliverables). Outsourcer The entity that works to accomplish the specified goals and/or objectives (deliverables) of the outsourcee entity.
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There seems to be no limit to what CIOs are willing to outsource, but the patterns speak volumes. When asked if they were willing to outsource strategic IT functions and applications, 43 percent of CIO respondents were willing to do so meaning that 57 percent thought otherwise. What
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Satisfaction for Outsourcing Operations and Applications
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Outsourced in 2004 Application & Web development Application & systems integration Application & Web hosting (including e-mail hosting ) Help desk/end-user support Network/telecom management Training and education Data Center Infrastructure design/build-out Project management Security Storage management Plan to ou tsource in 2005 Very Satisfied Somewhat Satisfied Diss atisfied
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64% 47% 38% 40% 31% 25% 28% 21% 20% 16% 15%
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56% 43% 38% 35% 30% 27% 25% 22% 17% 16% 16%
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37% 31% 45% 48% 44% 48% 48% 38% 50% 57% 43%
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45% 52% 35% 37% 39% 35% 39% 43% 38% 30% 49%
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18% 17% 20% 15% 16% 18% 13% 20% 13% 13% 8%
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Source: Adapted from The Perfect Pursuit of Platform Trend 8: Outsourcing Will Get Bigger, But Not More Critical, accessed at http://www.cioinsight.com/article2/0,1540,1909298,00.asp, December 15, 2005.
EXHIBIT
O u t s o u rc i n g Sp e n d i n g Pa t t e r n s
drives outsourcing choices in the minds of these CIOs It is not solely cost savings 74 percent of respondents believe that outsourcing is overrated as an IT cost-cutting strategy. Other drivers include 24-hour/365-day coverage and development and skills availability (see Exhibit 7.3).5 In fact, 51 percent of the CIOs said they had not cut full-time IT jobs when they outsourced to an offshore partner, and about two-thirds said that fear of losing jobs to outsourcing did not have a disruptive effect on their organization. This may well be the result of the person to whom different CIOs report: CIOs who report to people higher up in the company are more likely to have the necessary support they need to manage their budgets and resources in a way that optimizes the enterprise s objectives rather than the objectives of a particular function within the enterprise.6 Although CIOs increasingly report to COOs, the vast majority reports to the CEO (see Exhibit 7.4).7 Taking this preliminary outsourcing analysis farther into the future,
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consider the outsource
Outsourcing Strategic Operations and Applications Willing to outsource strategic IT Total <$100M $100 $999M >$1B Revenue Revenue Revenue functions & applications Agree Disagree Cost-cutting is overrated as a rationale for outsourcing Agree Disagree 43% 57% 74% 26% 49% 51% 71% 29% 41% 59% 76% 24% 39% 61% 76% 24%
Source: Adapted from The Perfect Pursuit of Platform Trend 8: Outsourcing Will Get Bigger, But Not More Critical, accessed at http://www.cioinsight.com/article2/0,1540,1909298,00.asp, December 15, 2005.