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META Group - August 4, 2004
Eighty percent of organizations will
outsource at least one function by 2005, according to research by META
Group, Inc. While 70 percent of that group will renew their outsourcing
contracts, many will reduce both the scope and the duration of the
original agreement. Downloadable executive summary.
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"Vendor performance may factor into the decision
to cut back on existing outsourcing arrangements, yet the trend is really
driven by the need for organizations to regain control of their IT
strategy and architecture," said Dane Anderson, a senior research
analyst at META Group. "The growing popularity of asset-leasing
arrangements and the increased focus on business and IT alignment are
also playing important roles in the decision to curtail outsourcing
engagements."
Despite the reductions in scope and duration of
outsourcing, META Group believes that outsourcing will continue to grow
as a viable option for organizations seeking to remain competitive during
the next decade. However, companies will not realize a return on their
investment unless significant attention is paid to five factors at the
outset of any outsourcing relationship:
- Expectations:
Enter into the outsourcing agreement with the correct expectations.
- Objectives: Articulate the
primary objectives of outsourcing and the risks associated with
various options.
- Vendor Selection: Select a
capable outsourcing vendor who is motivated to meet primary
objectives.
- Service-Level Agreements:
Negotiate contracts with service levels that align with primary
objectives and equitable pricing (ideally, with elements of value
pricing).
- Management: Implement a
strong team to manage the outsourcing vendor throughout the
contract.
Companies must also understand that not all outsourcing
relationships are created equal. According to META Group's 2004
Outsourcing Pricing Guide, the five functions traditionally outsourced --
mainframe computing, midrange computing, desktop services, networking
(voice and/or data), and help desk -- differ significantly in terms of
contract complexity, service parameters, and cost structures. For that
reason, organizations should research market pricing for specific
steady-state operations prior to entering any outsourcing relationship.
"Although outsourcing is clearly a strategic
decision, the tactical and operational implementation of an outsourcing
agreement often neglects many of the fundamental elements required for
success," said Anderson. "By leveraging the framework
established by these five critical factors and understanding pricing
benchmarks, IT organizations can create the structure and foundation for
a flexible, cost-effective, and successful outsourcing
relationship."
The information presented in the Outsourcing
Pricing Guide is based on META Group research in the areas of outsourcing
and price benchmarking. Each profile provides an overview of what to
expect when considering an outsourcing arrangement in that area,
including basic services and pricing.
META Group's proprietary pricing benchmarking
methodology represents a unique offering available nowhere else in the
industry. Leveraging the company's unparalleled access to a client base
of thousands of IT organizations, META Group has developed a proprietary
approach to benchmarking services and pricing based on market dynamics.
This high-impact, high-value assessment method has been successfully
employed in analyzing services and pricing for many major corporations
within the context of sourcing decision making.
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