Mar, 2002 : Mega Outsourcing on Rebound: Yankee Group
📅 - A recently-released Yankee Group (yankeegroup.com) report byCarrie Lewis heralded the rebound of "mega outsourcing" and outlined itsimpact on the market.
As an example, the report outlined IBM Global Services' recent signing of aseven-year, $4 billion scalable outsourcing contract with American Express,one of the biggest IT users U.S, with over 1 billion transactions a day forcredit card and travel companies. IBM will operate Amex's data centers, hostits website, and provide help desk support.
"Mega outsourcing deals are on the rebound, but their structure is changingradically," said the report. "First-tier players such as Accenture, IBM, andEDS have all announced mega contracts since the start of this year."
These contacts tend to be shorter in duration, as much as 50 percentshorter, running three to seven years with annual reassessment procedures,as opposed to 10 to 15 years. Involved parties do not want to get lockedinto deals that become quickly obsolete as technological innovations makethe contract metrics irrelevant.
Contracts are also more flexible both in the scope and volume of services.Traditional contracts usually cover wide areas of a user's data environment,but tightly controlled breadth of services delivered within thatenvironment. Today, outsourcers are allowing users the opportunity toconsume as many services as desired, using the utility computing orpay-as-you-go model.
Pricing is also becoming more variable, with fixed monthly charges(calculated from peak computing demands) being replaced by variable monthlycharges based on actual consumption rates. "The dynamic allocation andreallocation of resources in line with business changes is the nextinnovation in outsourcing," Lewis wrote.
Although IT cost savings is still the main driver of current megaoutsourcing deals, but flexibility of contracts and pricing has become thesecondary driver. Lewis predicted that the coexistence of cost savings andflexibility will soon become the standard in outsourcing.
"Business and IT strategy alignment has become a critical end-userpriority," said the report. "Dynamic, self-provisioning technologies thatenable end users to retain strategic control over their outsourced ITinfrastructure and business will increasingly be demanded. Vendors withthese capabilities are the ones that will win tomorrow's outsourcing deals."
As an example, the report outlined IBM Global Services' recent signing of aseven-year, $4 billion scalable outsourcing contract with American Express,one of the biggest IT users U.S, with over 1 billion transactions a day forcredit card and travel companies. IBM will operate Amex's data centers, hostits website, and provide help desk support.
"Mega outsourcing deals are on the rebound, but their structure is changingradically," said the report. "First-tier players such as Accenture, IBM, andEDS have all announced mega contracts since the start of this year."
These contacts tend to be shorter in duration, as much as 50 percentshorter, running three to seven years with annual reassessment procedures,as opposed to 10 to 15 years. Involved parties do not want to get lockedinto deals that become quickly obsolete as technological innovations makethe contract metrics irrelevant.
Contracts are also more flexible both in the scope and volume of services.Traditional contracts usually cover wide areas of a user's data environment,but tightly controlled breadth of services delivered within thatenvironment. Today, outsourcers are allowing users the opportunity toconsume as many services as desired, using the utility computing orpay-as-you-go model.
Pricing is also becoming more variable, with fixed monthly charges(calculated from peak computing demands) being replaced by variable monthlycharges based on actual consumption rates. "The dynamic allocation andreallocation of resources in line with business changes is the nextinnovation in outsourcing," Lewis wrote.
Although IT cost savings is still the main driver of current megaoutsourcing deals, but flexibility of contracts and pricing has become thesecondary driver. Lewis predicted that the coexistence of cost savings andflexibility will soon become the standard in outsourcing.
"Business and IT strategy alignment has become a critical end-userpriority," said the report. "Dynamic, self-provisioning technologies thatenable end users to retain strategic control over their outsourced ITinfrastructure and business will increasingly be demanded. Vendors withthese capabilities are the ones that will win tomorrow's outsourcing deals."
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