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Friday, September 24, 2004

Is Outsourcing On The Outs via Bweek

Are companies forced to take a closer look at outsourcing?It's an article of faith that corporations will gradually hand off ever more of their technology operations to big service providers. The J.P. Morgan move doesn't presage a major shift in the market. Still, many businesses are taking a harder look at how they handle their IT. To ensure they're getting bang for the buck, chief information officers are exerting more control over what they outsource, dividing the contracts among vendors according to specialty and, like J.P. Morgan, even ending contracts and bringing tech operations in-house. As a result, industry watchers see fewer multibillion- dollar deals and more pressure on tech-service companies' profits.Austin A. Adams, the former Bank One chief information officer who has moved over to that job at Morgan, considers technology strategic since it boosts reliability and efficiency -- crucial to improving service. "Having the majority of the work performed by employees gives us the best shot at technology being a competitive advantage," he says.Most of the newer deals have incentive clauses. If service providers don't meet goals for improvements in operations, they don't get paid. As part of a February, 2004, deal to provide Sprint's (FON ) customer-management services, for example, IBM is required to meet goals for the rate at which complaints are resolved in the first phone call, the customer churn rate, and even Sprint's customer-service rankings by J.D. Power & Associates. But if companies are demanding greater control and transparency, by and large they are sticking with outsourcing. A recent research suggested that of the thousands of companies that have off-loaded tech operations, only 3% later took them back.The drivers for outsourcing are so overwhelming, that enteprises by and large can not even think of avoiding it. Even in the J.P.Morgan deal , the economics is not clear - compensation to IBM, IBM says that it would continue to provide services in significant numbers to J.P.Morgan and costs associated with rehiring 4000 employees and what net difference this can make to J.P.Morgan.
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