Application outsourcing strikes a chord in Canada

Executives are more likely than ever to consider outsourcing back office applications, and Canadians are benefiting from this trend in more ways than one, according to a panel of experts that met recently in Toronto.

Representatives from several outsourcing providers gathered earlier this month to discuss the merits of their services at a seminar sponsored by the SMART Toronto Technology Alliance.

Just how far an outsourcing relationship goes depends on a variety of factors, including client nervousness. Once those jitters are overcome, it’s simply about letting someone with superior resources handle a job when it no longer makes sense to keep in-house, the speakers agreed.

With software bugs costing the business community an estimated US$60 billion a year, and a general lack of workers who can support aging technologies, “smooth-running applications are absolutely key,” said Peter Thompson, president and CEO of Toronto-based RIS Resource Information Systems Inc. “They’re the key to this whole business.”

The desire to cut costs wherever possible and free up the CIO’s time to focus on the bigger picture are other drivers behind outsourcing, he added.

RIS specializes in the handling of legacy and mid-life applications, the type that are crucial to day-to-day operations, but which typically contribute little to business innovation, Thompson said. As such, they make prime targets for application outsourcing.

Representatives from IBM Canada Ltd. and Hewlett-Packard (Canada) Co., however, advocated a much deeper and, according to them, rewarding outsourcing relationship.

With 2,800 employees dedicated to application outsourcing, Mark Langlois, application outsourcing professional at IBM Canada, said this sector of the IT business is the company’s fastest growing worldwide. He talked about IBM’s ability to not only take on the responsibility for running applications, but to absorb client employees as part of larger partnership agreements, and even to arrange to send work offshore to such low-cost centres as India.

“But the nirvana is when we actually start doing applications on demand,” Langlois said – in other words, using IBM outsourcing facilities as alternative customer deployment centres.

He also speculated that in the future, IBM could tie its outsourcing fees to the financial success of its clients, accepting that they will rise or fall according to fiscal performance.

Scott Collinson, national business development manager with HP’s Managed Services practice, said not only can outsourcing clients hand over their applications, but that HP operates data centres that turn Canada itself into an offshore service provider, primarily to U.S.-based firms.

He said last year’s deal to repatriate Intria-HP, the company’s joint venture with CIBC to provide the latter with a variety of IT services, as well as to provide services to other customers, made available two advanced data centres to its enterprise clients. These are being used to help attract outsourcing contracts from outside Canada.

“With them has come a lot of capability that was under-utilized,” Collinson added.

All three panelists agreed that the fear associated with the loss of control is what tends to inhibit outsourcing. They suggested companies visit data centres before committing, as well as become familiar with other outsourcing arrangements.

Management perceptions

Research firm IDC predicted that Canadian organizations would spend $3.6 billion to outsource information systems in 2002.

In a 2002 poll, Accenture found that 75 per cent of polled executives felt outsourcing radically changes the nature of an entire organization, and 80 per cent agreed it requires a new management approach.

Accenture also found that cost-cutting is the number-one factor driving companies to outsource IT functions.

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Jim Love, Chief Content Officer, IT World Canada

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