Outsourcing is a hot topic at the moment, as firms are increasingly passing the management of some of their activities to other companies. Reasons for outsourcing may include the desire for more predictable costs, difficulties in finding in-house staff with appropriate skills, the desire to free managers to concentrate on core business, or simply the possibility of savings.
Outsourced functions are often peripheral activities, such as some aspects of accountancy or security, but the scope of outsourcing is growing.
According to Richard Holway of analyst firm Ovum Holway, outsourcing is currently the fastest growing area of European software and IT services. His annual Holway Report shows that the sector grew 15 percent last year, and he is predicting continued growth. He estimates that outsourcing will account for nearly 30 percent of sales of European software and services by 2004.
Major deals
This year has seen some significant outsourcing contracts. EDS, for example, won a deal worth over £1bn with Rolls-Royce, while IBM won a similar-sized contract from pharmaceuticals firm AstraZeneca.
For IT, outsourcing often involves service providers that use a confusing variety of acronyms, such as management service providers (MSPs), application infrastructure providers (AIPs), and storage or security service providers (SSPs), depending on the specific services they provide.
Analyst firm Meta Group predicts that some 40 percent of IT outsourcing will involve managing and running business functions that are not related to e-business. It believes firms will use MSPs to run more and more core business operations, not just the new e-business applications that can often be separated from day-to-day IT functions.
The MSP model is not entirely new, of course  it is just another version of outsourcing. What is new is the implementation. Rather than an outsourcer taking over a complete IT installation and operation, including staff, hardware, applications and management, MSPs offer a range of discrete services, managing specific functions of the IT system remotely. The functions themselves can either be retained at the customer site, or moved to the service provider.
However, if firms use multiple MSPs, the advantages of outsourcing could be reduced  dealing with various MSPs, and the need for compatible technologies, can itself become a management headache and costs may rise as a result. This is one reason why firms may prefer to sign large outsourcing deals with single suppliers.
To overcome this difficulty, and provide an integrated end-to-end service for customers, there are signs that MSPs may increasingly work together and support and sell each other's services. This is the approach being taken by a number of MSPs that recently came together to form the Global MSP Network. Though these MSPs are mostly based in the US, the initiative may indicate a future pattern for services in Europe.
The Global MSP Network has 17 member companies and intends to use standards to offer integrated services. Martha Young, research director of the Enterprise Management Association, noted that to attract corporate customers the MSPs will need to provide a full suite of services, including remote monitoring and management, as well as on-site support.
Consolidation
The Global MSP Network initially intends to provide services for small and medium-sized businesses, and the branch offices of larger firms. The Global MSP Network aims to provide a consolidated resource and reassure users about the security and reliability of MSPs. This could be attractive to companies because it would reduce the difficulties of dealing with a number of different suppliers providing or managing IT infrastructure, applications, security monitoring, and other services.
The organisation is also supported by leading technology providers, including Intel and Trend Micro. Intel's interest in the consortium comes from the growing use of its LanDesk Management Suite by MSPs. LanDesk has been redesigned so that it can be used across firewalls.
Despite the poor sales figures from many IT suppliers in recent months, there is some evidence that IT outsourcing is bucking the trend  and there is even the possibility that it will be encouraged by the difficult economic conditions, if firms turn to outsourcing in an attempt to cut costs in the short term. Lawrence Weinbach, chief executive of IT supplier Unisys, is among those who are upbeat about the future of outsourcing. He said that Unisys will be able to ride out the current downturn because of its increasing concentration on outsourcing. He predicts double-digit annual growth in that sector of the company's business, which last year produced US$1.2bn of the firm's $6.2bn total revenues.
The growth in outsourcing and services revenues is also attracting the interest of software vendors. Oracle, in particular, has spent much of this year stressing that it is a one-stop-shop not only for databases and related applications, but also for a wide range of other services. However, there is a risk with this strategy, according to Ian Wesley of analyst firm Ovum. He argued that Oracle is in danger of upsetting some of its business partners by telling customers that they do not need the services of external consultants or systems integrators.
This could affect the IT provision of a number of companies. The results of such initiatives  in terms of services and prices for corporate IT buyers  are still unclear but IT managers are likely to keep a keen eye on such developments.
