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Past and Present Trends in IT Outsourcing

Monday, January 3, 2011   (0 Comments)
Posted by: Bill Schmidt
IT outsourcing dates back to the early days of computing, and grew exponentially over the last half century into a $400 billion industry. Industry analysts predict IT outsourcing will continue to grow well into the future.

Businesses outsource elements of IT for many reasons, including reducing costs, meeting increased business needs, focusing on core competencies and maintaining a competitive edge. IT outsourcing continues to play a major role for businesses that must adapt to increasingly changing technology and innovations in the IT industry.

In the '60's and '70's many organizations contracted accounting services and payroll processing to outside companies that offered specialized computer system services. Many businesses lacked sufficient computing resources to perform even basic business functions, so it was natural to outsource operational elements to outside companies that offered specific business services by means of early computer systems.

Many computer companies in the '70's and '80's offered proprietary business computer systems that required specialized high tech skills to operate, administer, maintain and support. In addition to training internal IT resources, many companies contracted with the proprietary vendors for access to specialists to gain full benefit from these revolutionary business systems.

Proprietary business system technology outsourcing trends were eventually derailed by the arrival of personal computer architecture standards, select operating systems and client/server technologies. Only a few large proprietary vendors survived the onslaught.

Computer consulting companies emerged during the '70's and '80's to offer IT staff augmentation to meet changing business and IT demands. Organizations contracted consultants to supplement in-house staff on short- or long-term assignments, or outsourced complete projects to consulting companies. This trend offered companies a flexible resource outsourcing model and remains a popular option.

Several enterprise computer companies offered management of large computer systems for businesses beginning in the late '80's. Organizations offloaded IT assets to outside companies to manage and operate. This trend typically included rigid, multi-year contracts with minimal service level agreements.

IT offshoring began in the '80's and gained momentum over the past several years. Offshoring provides companies with reduced labor costs and demand flexibility. This trend continues to grow for companies focused primarily on cost reduction of human capital.

The Internet changed the landscape of IT outsourcing in the 1990's, when Application Service Provider (ASP) companies offered core business applications from centralized locations securely through the Internet or private telecommunications networks. This trend became a popular option for businesses; however, many ASP companies could not deliver the services as promised. While this trend declined relatively quickly, it perhaps set the stage for other outsourcing trends.

Data center hosting is a trend that emerged during the time the ASP model declined and continues to gain popularity. Companies lease space or equipment in secure data centers that are typically higher quality facilities than companies have available on their premise.

Managed Service Providers (MSPs) entered the IT outsourcing scene within the past decade. MSPs offer remote (or combination onsite/offsite) management and support of elements of IT, ranging from single devices or business applications to the entire IT infrastructure or application portfolio of an organization. MSP's remain as an attractive option for companies to reduce costs and improve IT service delivery.

Cloud computing is the most recent development in IT outsourcing. In a nutshell, cloud computing is using essential business computing resources that are virtualized and accessed as a service. Many variations of cloud computing exist in the market today, and industry analysts predict this trend will continue to grow and likely transform IT outsourcing over the next decade.

While many past IT outsourcing trends typically aided enterprise organizations to a larger extent, current outsourcing trends offer substantial benefits to small- and medium-sized businesses. Another more recent trend is for organizations to multi-source elements of IT to gain increased quality, service and flexibility.

Businesses use IT outsourcing for several reasons, including:
  • Cost reduction
  • Ability to focus on core competencies
  • Flexibility to changing demand capacity
  • Predictable fixed costs
  • Reduced capital investments
  • Lack of internal resources
  • Access to IT experts
  • Economies of scale
  • Increased operational efficiencies.
An effective IT outsourcing strategy contains elements of measurement and control. In many cases, organizations outsource components of IT for the wrong reasons, and either fail to measure results or measure limited components. Cost is often the single primary impetus to outsource, but measuring cost alone is imprecise and will likely yield erroneous results.

The primary responsibilities for IT include providing quality service to the business and driving business value. To gain the most benefit from IT outsourcing, businesses and IT outsourcing companies must quantify quality, service delivery and the ability to drive business value - in addition to cost and other quantifiable criteria.

Future IT outsourcing trends are impossible to predict. But one thing is certain - businesses will ultimately demand that IT outsourcing vendors deliver more economical, efficient, scalable, transparent and flexible services - with quantifiable performance results.

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