Shift to outsourcing will be slow

The handoff of information service operations by large businesses to third-party outsourcing providers continues and might well lead many Canadian IS professionals to wonder what the future holds for their internal IS departments.

Will, for example, the multitude of IS department employees currently working to maintain the IT of corporations ultimately be moved to the rank and file of those outsourcing firms that are hired to take over IS operations for large business?

Well, for some this scenario has, and eventually will be, the case. IS outsourcing companies often like to suggest that many corporate professionals who’ve been transitioned to IS service firms welcome the opportunity to work for these more IT-savvy organizations. It’s typically reasoned that there’s much greater opportunity within the service organizations of IBM, EDS, CGI and the like than those which exist within corporate IS departments.

Canadian businesses are definitely intrigued by IS outsourcing. A recent panel on the subject at July’s Comdex Canada trade show in Toronto, for example, was attended by business executives, many of whom were looking to seriously explore the value they might achieve from IS outsourcing. They were also interested in discovering more about the challenges they might face in handing over internal IS departments to an outsourcing service provider.

Corporations are generally still many years away from an en masse handover of internally provisioned operational aspects of IS. Still, there are plenty of examples of large businesses that have made the leap.

Latest word has it that Proctor and Gamble in the U.S. is poised to turn its massive IS operations over to one of two service providers. In Canada, Hydro One, Canada Post, Nortel Networks and most of the country’s banks, among others, have turned over all or significant parts of their IS to third-party service providers.

Not surprisingly, externally provided services in the self-preserving eyes of some corporate IS departments are seen as insidious and that perception is among the great inhibitors to IS outsourcing adoption. The fact is that the IS outsourcing evolution itself is rather slow. In Canada, revenue growth is at a relatively conservative single-digit rate and there remains reluctance by most to entirely abdicate the responsibility of IS to outsiders.

In Canada, the reasons are not so subtle. Most businesses are loathe to bring in outsiders and still consider the day-to-day operation of IS and the responsibility for IT advancement as a core endeavour. Canadian businesses adhere to old tried and true ways. In-house IS staffs have existed since the dawn of computing time and Canadian businesses have grown comfortably accustomed to doing IT themselves. For that reason, corporate leadership here sleeps better at night knowing that business computing is in the good hands of their own rank and file.

Contrast that, however, to Canada’s business neighbours to the south. The U.S. accounts for nearly 50 per cent of worldwide spending on IS outsourcing and suggests strong validation of American business recognizing the necessity of IS services to augment and/or replace in-house efforts and realization of value achieved in IS outsourcing. American business for many years have understood and embraced the notion of focusing internal resources on activities which generate the greatest value, and hiring external service providers to more efficiently manage and take responsibility for non-core business functions – from operational IS to manufacturing and a range of business processes and functions. It’s application of a general rule that suggests, do what you must and outsource what you can.

History has shown Americans blaze many trails that others follow. In IT particularly, the U.S. has defined the industry, and outsourcing along with other IS/IT services in general play an increasingly important role in both streamlining and refining business operations.

Where are Canadian businesses on this learning curve? Slowly but surely companies here are realizing value in IS outsourcing and many contract renewals include expansion in activity scope and overall IS responsibility assumed by service providers. Satisfaction of those who do outsource IS is generally high and most Canadian businesses that currently outsource IS plan to stick with their current providers. It’s validation of value achieved by customers and good work rendered by service providers.

But it’s relatively early in the external service adoption game for most Canadian businesses. Fact is that IDC Canada research shows less than 20 per cent of large Canadian businesses will look in 2002 to purchase IS services from outsourcers and other providers. Most of the services to be purchased will be application- or process-specific – things such as Web development, storage solutions and application development.

So do IS staffers within Canadian corporations need to ponder whether their days as gainfully employed professionals within those corporations are coming to a near end? It’s certainly conceivable that the wholesale handoff of many operational aspects of IS to third-party service providers could happen someday, but for most businesses in Canada, probably not anytime soon.

McLean is director of outsourcing and IT utility research for IDC Canada Ltd. in Toronto. He can be reached at [email protected]

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