One of the fastest growing service sector industries being outsourced is information technology (IT). This is also referred to as Information Technology Outsourcing (ITO). ITO has gained popularity in recent years as a cost-effective and efficient method for providing assistance in information technology areas such as systems implementation, operation, maintenance and security.
What is IT?
Information technology is defined by the Information Technology Association of America (ITAA) as “the study, design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware.” ITO involves computer or Internet related work, such as programming or troubleshooting to outside companies. The majority of ITO work requires more technical skills than typical Business Process Outsourcing (BPO).
More and More Businesses Turning to Outsourcing
A recent survey illustrates the increasing demand for IT outsourcing and the potential for this industry to expand greatly. According to EquaTerra’s 2Q08 Public-Sector Information Technology (IT), Business and Mission Support Service Provider Pulse Survey, it’s estimated that total U.S. public-sector spending on externally provided IT and mission-support services will grow about five percent in the next 5 years. That would be up from $66 billion in 2007 to approximately $90 billion in 2013. This increase reflects the public sector’s problems with reduced budgets, a difficult economy and loss of workers due to baby boomer retirements.
Collectively, the U.S. public sector industry is the second largest consumer of externally provided IT services, behind the U.S. financial services industry. Traditional business operating models, where work is performed internally on a unit-by-unit basis, is rapidly becoming obsolete because it is both costly and inefficient.
Stan Lepeak, managing director of research for EquaTerra states that “Most public-sector managers are struggling to get the job done with outdated technology, cumbersome business processes and loss of institutional know-how as senior staff retires. Many see outsourcing as the most viable way to cope.”
The outsourcing of IT services has become almost as controversial as outsourcing manufacturing. In such heated controversies, logic and reality often take a back seat to emotion. The reality of the situation is that outsourcing IT services often actually increases domestic jobs. For example, in 2003 Delta Airlines outsourced 1,000 jobs to India, but added 1,200 domestic customer service positions due to the $25 million in savings from outsourcing. Software giants Microsoft and Oracle have been able to increase both outsourcing and their domestic payrolls.
2008 IT Outsourcing Contract Examples:
Dutch airline Martinair has awarded Getronics and IBM a 5-year agreement to manage part of Martinair’s IT organization. The joint contract is worth 23 million Euros.- EDS has signed a 5-year, $1 billion IT Master Services Agreement with Royal Dutch Shell. EDS will manage Shell’s end-user computing services. This includes service desk, desktop, mobile information protection, on-site services and managed messaging services for 150,000 users in over 100 countries in their global operations.
- NXP, an independent semiconductor company founded by Phillips, has awarded a 5-year contract to international IT services company Atos Origin. This contract, coupled with a previous agreement, is worth 155 Euros.
As you can see by these numbers, there is tremendous growth potential for outsourcing in the IT service sector. The Pulse Survey found that 41% of IT outsourcing services expected demand for their services to increase in the third quarter of this year. Whether it is performed by a virtual assistant or a large IT service provider, Information Technology Outsourcing will continue to grow well into the next decade.
