senior analyst, IDC Canada

With the wake of the tech bubble burst starting to pass, companies are beginning to look for more flexible outsourcing and managed services as firms move away from mere cost cutting to long-term growth.

Phil Weaver, CEO and president of Ottawa-based Nuvo Network Management Inc., says companies have moved away from the monolithic, long-term outsourcing deals that once characterized the early days of outsourcing. Instead, companies today are looking for deals that are more flexible and often of a shorter term than before.

“Companies are moving to what I call ‘selective’ outsourcing, going with an outsourced contract for service or technologies that make sense for a particular project,” Weaver added. Rather than taking on very large scale outsourcing contracts that may include infrastructure, business processes and applications, what we are seeing is a move to looking at specific areas within IT like specific business outsourcing.Jim Westcott>Text

Weaver’s take on the market echoes a recent Deloitte report, “Calling a Change in the Outsourcing Market: The Realities for the World’s Largest Organizations.” The study looked at 25 large organizations with a combined US$50 billion in outsourced contracts. The study found while cost savings remains a major reason for companies to turn to outsourcing contracts, companies are now taking a more strategic approach to outsourcing, letting go of only those processes that can sensibly be done through an outside contract. “We are seeing that in spades,” Weaver said. “As a company, we are focused on the non-glorious pieces of what goes on in a company — the things that are easily automated, standardized and a lot of things your technical staff does not really want to spend a lot of time doing.”

Jim Westcott, senior analyst with IDC Canada in Toronto said companies are looking for outsourcing contracts that are highly customizable, able to be changed quickly if the direction of the business changes or a new project is started up.

“They are designed to meet the requirements of an individual company,” Westcott said. “Rather than taking on very large scale outsourcing contracts that may include infrastructure, business processes and applications, what we are seeing is a move to looking at specific areas within IT like specific business outsourcing.”

What companies are now looking at from outfits like Nuvo and Fusepoint are contracts that are not just flexible but sometimes of shorter duration.

Robert Offley, president and CEO of Fusepoint Managed Services in Mississauga, Ont. said companies in the early days of outsourcing often tried to use outside firms to help lay down an IT infrastructure and systems that would take the company forward over the next five years.

“Outsourcing in its traditional sense, where the company gives up the keys to everything, is daunting and companies have not been very happy with that kind of decision,” Offley added.

Instead, companies are looking at outsourcing contracts as short as 90-120 days, aimed at very specific business cases. These might include wanting to free up staff to work on new projects and business directions, or give that same staff the tools, applications and support services needed for a project that are not available within the company.

“(A company) can now take their technical staff and put them into things like direction, vision and architecture and focus on what the business is trying to do,” Weaver said. “The key to this is the outsource organization needs to be flexible with the company. If the company adds more offices, changes product lines or adds new businesses and directions, what needs to be supported and operated by the outsourcer needs to change.”

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Related links:

Don’t export security when outsourcing

Outsourcing and productivity

Selective outsourcing on the rise: report

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