EDS: Outsourcing still a money spinner

While the economic upswing may have not yet arrived, Electronic Data Systems Corp.’s (EDS) US$1 billion E-Solutions division is singing a positive tune with predictions that it could grow by as much as 20 per cent this year.

IT folklore says large enterprises were scared off commitments to huge e-business-based contracts, but EDS believes that was just a passing phase.

“I’d say there was a speed bump in the road with the e-services pure plays,” said John McCain, president of EDS’ E Solutions in Plano, Texas, during an interview with InfoWorld. “Outsourcing has weathered the storm very well in the last few months.”

According to McCain, while his consultants’ billable hours have not grown over the last six months, the pipeline of projects and long-term deals expected to close across its government, manufacturing, finance, and communications customer segments is on the rise.

In particular, EDS’ consulting business with governments around the world has proven more robust than other areas, with security, privacy, ERP (enterprise resource planning), Web-enabled tax filing, and e-learning projects are the key drivers. “They still do the big deals,” McCain said.

As for other customer segments such as finance companies, he said the trends indicate large e-business-style projects are coming back into vogue as enterprises seek to unite diverse systems in a secure, reliable fashion. He explained services companies such as EDS are finding themselves focused not so much on the consulting side of the business as the ongoing operations and hosting.

From the technical side, McCain identified Internet applications, ERP, EAI (enterprise application integration), CRM (customer relationship management), and analytics as areas of significant focus as the year unfolds.

Analysts agree, noting that in 2002 the outsourcing market will help companies trim costs around non-core business requirements, squeezing the most efficiency out of systems and applications already bearing an investment.

“Companies right now are being so pragmatic in looking for opportunities where they can outsource and save some money and reduce internal headcount,” said Laurie McCabe, industry analyst for Boston-based Summit Strategies Inc. “Across the board, you see complex applications they depend on now (such as) ERP, (as well as needed) upgrades, maintenance cycles, programming, and DBA database administration requirements.”

In particular, McCabe said she has noticed increasing activity and interest that offer supply chain logistics solutions, such as Logistics.com and Elogex, which just signed on grocery giant Shaw’s Supermarket as a customer.

Although the far-reaching partnership arm and professional services reputation of IBM Corp. Global Services makes Big Blue attractive in many customers’ eyes as being a “safe choice” and having “room to play” for customers’ hosting needs, McCabe says clients could become leery of receiving a full range of services from IBM.

“(As an outsourcing customer) you want to have some way to say, ‘If I’m not happy with this relationship I can get out and have an alternative.’ And nobody likes a monopoly either, that’s why there’s good room for competitors in this market,” such as EDS, she added.

McCabe said if a favorable relationship and hosted arrangement occurs, there is little incentive to bring back outsourcing deals in-house once the down market rebounds.

EDS Canada in Toronto is at http://www.eds.ca/

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