The new world of information technology outsourcing

The nature of IT outsourcing is changing in significant ways and the strategies and options that managers can pursue are becoming more diverse and varied. W HEN Kodak outsourced major components of its information technology (IT) function in 1989, the information systems (IS) world viewed it as a watershed event, one that resulted in a robust and thriving outsourc-ing services industry. Seven years later, the U.S. market exceeds $10 billion annually and is growing at a rate of 16% per year. Outsourcing arrangements once considered large are being dwarfed by recent deals such as those signed by Xerox and Hughes Aircraft. As the market matures, it is apparent that numerous companies are routinely outsourcing large components of their IS activities. Increasingly, the conventional rationale for outsourcing-cost savings and performance improvement from vendor economies of scale and specialization-is becoming less convincing as large and successful IS organizations outsource. Indeed, a closer examination reveals that many recent outsourcing arrangements are strikingly innovative. Tony DiRomualdo of CSC Index and I examined more than 50 outsourcing deals from around the world in a study for CSC Index's Foundation research service on IS management. These deals display a stunning diversity in their objectives and in their structure, varying in scope, size, duration, and contract. While there has been a flurry of activity, there is a dichotomy of deals-many continue to follow the traditional model, and a few companies are blazing new trails. Strong examples of these innovative companies-pushed the IT outsourcing envelope in new directions. British Home Stores is using its outsourcing contract to enhance the value of IT to the business by extending its impact on its operations. British Petroleum Exploration , on the other hand, continues to focus on improvement in its IS activities in its selective outsourcing arrangement, but has adopted an innovative approach to managing its multiple vendors. BTI Americas, recently formed through the merger of U.S. Travel Systems and Business Travel International, is taking U.S. Travel Systems' IT out-sourcing relationship with EDS to a new level, partnering with the IT service firm to develop the next generation of travel agency point-of-sale systems. When Delta Air Lines outsourced its IT operations, it did so by spinning off its systems department, in which AT&T Global Information Solutions took a 50% stake. The new company, TransQuest Information Solutions, will not only provide outsourcing services to the airline, but also attempt to leverage its …