Gartner Says Smaller I.T. Outsourcing Providers to Have Greater Opportunities in 2004
Announcement posted by Gartner 20 Feb 2004
The future of outsourcing deals is trending toward smaller agreements with specific business objectives and away from the full service, 10-year, multi-billion dollar deals that have prevailed for many years, according to Gartner, Inc. Gartner estimates that the number of enterprises overall that enter into new outsourcing relationships will increase by 30 percent in 2004.
The trend toward smaller contracts has important implications for large and small vendors that compete in the growing market for external service providers (ESPs). "If deals are smaller and there are more of them, this opens up the market, creating new opportunities for more vendors," said Linda Cohen, managing vice president for Gartner. "Smaller vendors, especially, will have new opportunities to compete in specialized niches." To respond effectively, large ESPs will need to focus on marketing their core service offerings and differentiating their business value, according to Gartner. For example, they should propose more risk-based pricing, such as performance contracts in which the total payment is dependent on business results rather than measurements of how technology performs.
"Many first-time outsourcers will look at outsourcing a set of applications first, and then move to outsourcing more processes," Cohen said. "Some enterprises will be outsourcing for the first time to tap into a vendor's global sourcing option."
Although more enterprises will outsource operations this year, not every enterprise is adequately prepared to manage and execute these programs successfully. Gartner research has found that C-level executives should collaborate and develop a consensus on specific business objectives before signing outsourcing contracts. Outsourcing programs change the operating model of an enterprise, a step that should involve the commitment of all senior business executives.
"Outsourcing requires an ongoing relationship that has to be managed proactively and measured to achieve what is expected," Cohen said. "This is the responsibility of the C-level executives. They have to collectively define and manage expected business results in any new management model that results from outsourcing. Outsourcing is hard work, and it takes a lot of preparation."
Outsourcing functions such as IT, human resources (HR), customer care, finance, accounting and procurement will continue to be the main segments for growth in 2004. These functions used to be considered core competencies. However enterprises are re-defining what technologies and processes must be managed in-house vs. accessed via external sources to create economies of scale and enable growth.
"Processes, such as IT, HR and customer care, are increasingly being classified as support services that can be delivered by an ESP," Cohen said. "Once enterprises outsource, few of them take operations back in-house. Satisfactory outsourcing relationships encourage enterprises to analyze the longer-term benefits of outsourcing. This often leads them to pursue these benefits in other operations."
Additional information is available in the report "Predictions for Outsourcing in 2004." This report identifies and examines the top trends in outsourcing in 2004 and gives action recommendations for enterprises considering outsourcing this year. This report can be purchased on Gartner's Web site at www.gartner.com/DisplayDocument?id=418504ref=g_search.
Gartner analysts will provide additional analysis on outsourcing trends at Gartner Symposium/ITxpo 2004, to be held March 29April 1 at the San Diego Convention Center in San Diego, California. Gartner Symposium/ITxpo is the IT industry's largest and most strategic conference, providing business leaders with a look today at the future of IT. For more details or to register for Gartner Symposium/ITxpo 2004, visit www.gartner.com/us/symposiumwest or call 1-800-778-1997. Members of the media can register for the event by contacting Maria DiMasi at 212-699-2734 or e-mailing GartnerEvents@middleberg.com.
About Gartner
Gartner, Inc. (NYSE: IT and ITB) is the leading provider of research and analysis on the global information technology industry. Gartner serves more than 10,000 clients, including chief information officers and other senior IT executives in corporations and government agencies, as well as technology companies and the investment community. The Company focuses on delivering objective, in-depth analysis and actionable advice to enable clients to make more informed business and technology decisions. The Companys businesses consist of Gartner Intelligence, research and events for IT professionals; Gartner Executive Programs, membership programs and peer networking services; and Gartner Consulting, customized engagements with a specific emphasis on outsourcing and IT management. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, and has 3,700 associates, including more than 1,000 research analysts and consultants, in more than 75 locations worldwide. For more information, visit www.gartner.com.
The trend toward smaller contracts has important implications for large and small vendors that compete in the growing market for external service providers (ESPs). "If deals are smaller and there are more of them, this opens up the market, creating new opportunities for more vendors," said Linda Cohen, managing vice president for Gartner. "Smaller vendors, especially, will have new opportunities to compete in specialized niches." To respond effectively, large ESPs will need to focus on marketing their core service offerings and differentiating their business value, according to Gartner. For example, they should propose more risk-based pricing, such as performance contracts in which the total payment is dependent on business results rather than measurements of how technology performs.
"Many first-time outsourcers will look at outsourcing a set of applications first, and then move to outsourcing more processes," Cohen said. "Some enterprises will be outsourcing for the first time to tap into a vendor's global sourcing option."
Although more enterprises will outsource operations this year, not every enterprise is adequately prepared to manage and execute these programs successfully. Gartner research has found that C-level executives should collaborate and develop a consensus on specific business objectives before signing outsourcing contracts. Outsourcing programs change the operating model of an enterprise, a step that should involve the commitment of all senior business executives.
"Outsourcing requires an ongoing relationship that has to be managed proactively and measured to achieve what is expected," Cohen said. "This is the responsibility of the C-level executives. They have to collectively define and manage expected business results in any new management model that results from outsourcing. Outsourcing is hard work, and it takes a lot of preparation."
Outsourcing functions such as IT, human resources (HR), customer care, finance, accounting and procurement will continue to be the main segments for growth in 2004. These functions used to be considered core competencies. However enterprises are re-defining what technologies and processes must be managed in-house vs. accessed via external sources to create economies of scale and enable growth.
"Processes, such as IT, HR and customer care, are increasingly being classified as support services that can be delivered by an ESP," Cohen said. "Once enterprises outsource, few of them take operations back in-house. Satisfactory outsourcing relationships encourage enterprises to analyze the longer-term benefits of outsourcing. This often leads them to pursue these benefits in other operations."
Additional information is available in the report "Predictions for Outsourcing in 2004." This report identifies and examines the top trends in outsourcing in 2004 and gives action recommendations for enterprises considering outsourcing this year. This report can be purchased on Gartner's Web site at www.gartner.com/DisplayDocument?id=418504ref=g_search.
Gartner analysts will provide additional analysis on outsourcing trends at Gartner Symposium/ITxpo 2004, to be held March 29April 1 at the San Diego Convention Center in San Diego, California. Gartner Symposium/ITxpo is the IT industry's largest and most strategic conference, providing business leaders with a look today at the future of IT. For more details or to register for Gartner Symposium/ITxpo 2004, visit www.gartner.com/us/symposiumwest or call 1-800-778-1997. Members of the media can register for the event by contacting Maria DiMasi at 212-699-2734 or e-mailing GartnerEvents@middleberg.com.
About Gartner
Gartner, Inc. (NYSE: IT and ITB) is the leading provider of research and analysis on the global information technology industry. Gartner serves more than 10,000 clients, including chief information officers and other senior IT executives in corporations and government agencies, as well as technology companies and the investment community. The Company focuses on delivering objective, in-depth analysis and actionable advice to enable clients to make more informed business and technology decisions. The Companys businesses consist of Gartner Intelligence, research and events for IT professionals; Gartner Executive Programs, membership programs and peer networking services; and Gartner Consulting, customized engagements with a specific emphasis on outsourcing and IT management. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, and has 3,700 associates, including more than 1,000 research analysts and consultants, in more than 75 locations worldwide. For more information, visit www.gartner.com.