Cost cutting may spur IT outsourcing deals

by Julekha Dash

April 16, 2001 —

The cooling economy may prompt firms to outsource more IT for cost-cutting reasons, according to analysts. But technology users said the economy hasn't had much impact on their outsourcing decisions yet.

Though an outsourcing deal doesn't automatically guarantee cost savings, users will examine their IT budgets more closely and shift their priorities to put cost cutting among the top drivers for any technology decisions they make, said Lew Hollerbach, an analyst at Aberdeen Group Inc. in Boston.

According to a survey of 150 American and European companies released last month by The Conference Board Inc. in New York, cost cutting was the top benefit of outsourcing, cited by 39% of respondents. Having access to experts came in second among respondents, with 38%.

"In boom times, outsourcing tends to be focused on time-to-market issues, and in down times focused on cost savings and restructuring," said Peter Bendor-Samuel, CEO of The Outsourcing Center Corp., a Dallas-based consultancy.

But David Doney, director of information services at Blue Cross/Blue Shield of Michigan, said the economic downturn didn't influence his company's decision to sign a five-year, multimillion dollar deal last month with Compaq Computer Corp. Under the agreement, Compaq will provide IT services such as help desk and desktop support, as well as asset management.

Doney said the Detroit-based insurer began looking for another vendor when Alpharetta, Ga.-based outsourcer Inacom Inc. filed for bankruptcy protection in June. But Doney expects the new deal to "contain costs and stay within budget," he said.

Companies that have already deployed the latest technologies may not find IT outsourcing to be a sound business decision. Gerry Geisler, senior vice president of Chubb Group of Insurance Cos. in Warren, N.J., said that from time to time his company has discussions with third parties that offer expertise in areas where talent is scarce.

"If you have a mature IT operation and gotten good at it, you've developed service levels [that are] tough to beat" by an outsourcer, he said. "We never really found anyone who could save us money."

Computerworld