Most IT companies to adopt outsourcing by 2005

Stamford-based META Group Inc. predicts that most information technology companies will adopt outsourcing by 2005.

META Group said spending for IT outsourcing is rarely discretionary, and the outsourcing market is growing at 15 percent to 20 percent annually.

"Outsourcing often involves

mission-critical operations, and vendor evaluations are often based on the comfort level of executives with vendors' reputation and proven performance," said Dean Davison, vice president with META Group's service management strategies service. "Outsourcing can enable business to move faster, become more efficient, or sometimes reduce support costs, but vendor choice and contract structures must be carefully calculated and negotiated."

METAspectrum, a new methodology designed to help IT executives navigate the changing IT vendor landscape, has been hailed in user demonstrations as the industry's most rigorous approach for assessing IT software, hardware and services vendors.

The outsourcing services METAspectrum evaluates are vendors that provide a full range of technology services for IT organizations, primarily within Global 2000 corporations. Outsourcing services often comprise a combination of missioncritical operations and backoffice capabilities.

Key findings

Size is not everything. While the leading vendors are also the largest, vendors with niche offerings or targeted geographical coverage can perform at levels close to those of the leaders.

Performance criteria are usually more important than presence as an indicator of results, because outsourcing vendors provide mission-critical operations. The level of performance across vendors included in this market is high compared with the outsourcing market at large. Being an "average" vendor in this analysis indicates a vendor capable of meeting the operational requirements of most IT organizations.

By 2005, nearly all IT organizations will outsource at least one mission-critical technology operation, making successful outsourcing partnerships (or decisions) a core competency for IT organizations.

Outsourcing leaders stand out in technology performance and business practices. They also have a strong presence that includes boardroom relationships and strong brand awareness.

Webcast event

As a larger percentage of IT dollars are allocated to outsourcing partners, it is critical to understand how to gauge the price and service competitiveness of outsourcing arrangements. To show companies how to effectively value IT outsourcing services and select the right benchmark for their sourcing strategy, META Group will present a How To Webcast, "How Do I Value IT Outsourcing Services? Using Benchmarks to Control Costs and Improve ROI," on Sept. 18 at 11:30 a.m. (www.metagroup.com).

Key issues to be addressed include how companies can select the right type of benchmark for them, what level of benchmark to use (e.g., full, indicative, market overview), how to leverage benchmarking to get a better deal without destroying an existing relationship with an outsourcing partner, and what comes after benchmarking.