Outsourcing Is Growing Up

Opinion: A CIO Insight survey takes the pulse of ambivalent IT pros; EDS' new client is the UK's Ministry of Defence.

Say the word "outsourcing" in a crowded room, and youll kindle opinions and heated passions. Say the word "offshoring," and youll pour gasoline onto the fire.

Most people have made up their minds about these topics and arent open to different points of view. Some people think outsourcing is a wonder of a free-market economy; others see in it nothing more than an immoral disregard for loyal employees.

In an effort to find out what people really think about this charged topic, CIO Insight, a Ziff Davis Media sister publication of eWEEK, has just completed its fourth outsourcing survey, the first since November 2003.

There must be something about filling out a questionnaire that generates a higher level of thoughtfulness—maybe its the confidentiality—but it looks like the survey caught IT pros in a reflective mood. Respondents clearly can accept the reality of outsourcing and see its beauty and its warts. It may just be that outsourcing and offshoring are showing signs of maturity.

At large companies, where you might expect the most outsourcing, outsourcing spending is growing 3.2 percent, which is slower than the overall increase in IT budgets of 4.6 percent. Could it be that large companies have reached an outsourcing saturation point? Spending on outsourcing by companies of all sizes will increase by 4.9 percent this year, the survey found.

/zimages/1/28571.gifClick here to read more about the growth of outsourcing in 2004.

Another finding is that 57 percent of IT execs are unwilling to outsource applications or IT activities where leadership or security is involved, such as project management, IT infrastructure design and security. Lou Dobbs notwithstanding, there is no hysterical march to outsource anything and everything that moves.

Only 20 percent said they outsource to gain a competitive advantage, while 68 percent said they do so to save money. And yet there was a balanced realism about dollar savings. Seventy-four percent of those surveyed said outsourcing is overrated as a cost-cutting strategy. Say hello to ambivalence—another sign of maturity.

In another example of splitting the difference, 49 percent of those who have sent work offshore said the move has permanently eliminated jobs in the United States. On the other hand, 51 percent said their use of offshore resources has not permanently cut jobs.

One longtime critic of offshoring, the IEEE, supports the notion that offshoring is cutting jobs, particularly for computer programmers. Citing the U.S. Department of Labors Bureau of Labor Statistics, the IEEE noted that the number of employed U.S. technical workers had fallen by 221,000 in six job categories between 2000 and 2004 and that the largest drops occurred among computer programmers.

But the IEEE also noted big job increases—from 228,000 in 2000 to 337,000 last year—for computer and IS managers, computer hardware engineers, and computer software engineers.

A year from now, will you be able to yell "outsourcing" and "offshoring" in a crowded room and elicit yawns? You will if present trends continue.

Out and About

Electronic Data Systems has learned its lessons from its Navy Marine Corps Intranet so well that it is now seeking to apply them to another military client—the United Kingdoms Ministry of Defence.

In a deal worth between $4 billion and $7.6 billion over 10 years, EDS will lead its Atlas Consortium of service providers to overhaul the ministrys IT networks, which serve 300,000 users in 2,000 locations.

/zimages/1/28571.gifTo read about EDS joint outsourcing venture with human resources consultancy Towers Perrin, click here.

"We can leverage the experience weve gained with NMCI," said Graham Lay, managing director of EDS Defence, U.K. "Were starting with a clear understanding of what has to be done, and where. Theres absolute clarity, including the service levels. That clarity didnt exist when we started the NMCI contract."

The U.K. MOD did its due diligence by visiting with the officers handling the NMCI contract, Lay said. "Theyve looked at what happened at NMCI, [and] theyve learned that there are some things the customer must do to act as an intelligent buyer," he said.

It will help that the MOD has only 500 applications; the NMCI started with 8,000, a number that has since been whittled down.

Executive Editor Stan Gibson can be contacted at stan_gibson@ziffdavis.com.

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