Outsourcing
Financial Times, 9/20/02: Executives rethink their attitudes: The focus shifts beyond short-term cost savings in IT networks
by Andrew Fisher:
Even the most ardent advocates of outsourcing have not generally viewed it as a key element of business strategy. Companies have outsourced IT and other operations to cut costs and improve efficiency in specific areas. They have not necessarily thought about changing their businesses.
But, in today's volatile conditions, executives are rethinking their attitudes. The most innovative are looking beyond cost-savings and other short-term gains to the strategic advantages offered by outsourcing in a way that allows them not only to hand over the running of key operations but to benefit from continuing technology advances.
"Organisations are starting to integrate IT strategy and enterprise strategy," says Ian Marriott, an analyst at Gartner Group, the IT researchers.
"Instead of seeing information technology as a supportive function, they see it as an essential part of their strategy."
As executives look deeply into their businesses, they become increasingly aware that many activities previously thought unsuitable for outsourcing - such as logistics, procurement, personnel, accounting and other business processes and applications - can be handed over to outside experts.
British Airways, for example, has outsourced its booking systems to reduce costs.
By shedding responsibility for operations previously regarded as core to the business, companies can focus on what really makes them different.
"Outsourcing has matured as a strategic tool," says Les Mara, executive director of the outsourcing division at Cap Gemini Ernst & Young. Previously, it was "a blunt instrument to get to grips with cost control and service quality".
Now, more clients expect their outsourcing providers to deliver solutions that enhance value and are flexible enough to cope with rapidly shifting market conditions and competitive pressures.
This more sophisticated approach is called transformational outsourcing, though its exponents are still in the minority.
Mr Marriott reckons they account for no more than 5 per cent of the European market. Among them are companies in volatile sectors, such as financial services, telecommunications and energy.
According to a study by IDC, the IT analysis group, for Cap Gemini, these tend to spend almost twice as much on outsourcing as the average business. It is being seen increasingly as a tool for survival rather than just a tactical means of solving specific problems.
"Businesses are viewing outsourcing in a whole new light," says the report, by analyst Jessica Goepfert. "The decision to outsource is moving to the boardroom and is becoming a strategy used by companies to transform their businesses."
In an unstable business environment, outsourcing can help to provide agility and enable companies to be more innovative and effective. This is especially true when it comes to running IT operations.
But entering into deeper partnerships with outsourcers involves a level of trust often lacking in traditional outsourcing where cost savings have been paramount. Now, says Mr Mara, a more flexible, open and adult relationship is required. After all, outsourcing deals can last for between seven and 10 years.
The client expects to save money, become more innovative and to benefit from a flow of advanced technologies. The outsourcing company wants to be rewarded for any extra value that may accrue from its efforts. The days of heavyweight contracts with every aspect nailed down in advance, and both sides keen to win an advantage over the other, are ending.
Now, the emphasis is more on dialogue and co-operation. It is not just about the wording of a deal but the willingness to make it work, allowing both sides room for manoeuvre.
"You don't sign a contract and expect a conveyor belt of benefits," says Gilbert McLung, technology director at KLegal, the law firm associated with KPMG, the consultancy. "You've got to work at the deal and live it."
This more sophisticated approach means the outsourcing companies - the biggest of which are IBM Global Services, EDS, Accenture and Computer Sciences Corporation (CSC) - need to provide a much broader mix of IT management and consultancy services. As a result, the market is changing considerably.
IBM has just bought PwC Consulting to strengthen its offering, a move which will put pressure on its rivals.
"Theoretically," says Giga Information Group, "this acquisition is a blockbuster that gives IBM everything it needs to be the ultimate IT and business process service provider."
But the deal will also have a dramatic impact on the IT services landscape, Giga adds. As big clients demand their outsourcing companies provide a comprehensive service, there will be more consolidation in the market.
The outsourcing market is "pretty buoyant", says Guy Hains, head of CSC in the UK. "Boards are considering outsourcing on a wider scale than before."
Much of this is a result of the current business climate, which has focused corporate minds more strongly on both return on investment and the search for new profit opportunities.
"Businesses are focused on transforming and improving their activities and they are looking for someone to support them," says Frank Kern, general manager in Europe for IBM Global Services.
While this is especially true in advanced outsourcing markets like the US and UK, outsourcing is also gaining ground in the Asia-Pacific region - where he sees an "explosion" - and in continental Europe.
However, there are legal, cultural and other obstacles to the spread of outsourcing in Germany, France and other European countries, though the Nordic and Benelux markets are responsive.
This makes it hard, though not impossible, for global companies to outsource operations internationally. Solutions that work well in the US or UK do not necessarily translate elsewhere; cross-border outsourcing has to be done carefully and sensitively.
"There is a huge prize when you consolidate on a global stage," says Paul Dyson, a member of the management group at PA Consulting. "But it is very hard to make it work."
Often, more than one vendor will be required to make outsourcing work across different markets.
It is not surprising, therefore, that the number of global outsourcing contracts is still fairly small.
"Multinational deals are probably the hardest," says Ian Whatmore, UK managing partner at Accenture, the consultancy group. "They involve multiple cultures and legal jurisdictions."
But the most challenging deals are often the most rewarding, whether international, regional or local. This makes it vital for companies to know just what they want from outsourcing - and to be aware that market conditions and business needs can change dramatically over the life of a contract.
"A lot of companies establish long-term relationships based on short-term drivers," says Gianluca Tramacere, also a Gartner analyst. "So they lose the strategic impact and focus only on savings." If that happens, "contracts can become like cages".
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Desktop Management
Giga, 9/19/02: Benefits and Risks of Wake-on-LAN Technology for Desktop Management
Wake-on-LAN technology allows IT administrators to access and manage PCs during off hours, even if the systems have been shut down. It also provides a preboot environment for managing OS installs, and can be used in conjunction with desktop management and software distribution tools such as Novell ZENWorks, Tivoli Configuration Manager or LANDesk. IT can roll out automated changes off hours, run virus scans and perform other vital management functions with less disruption to the users. However, inadequate security policies, as well as poor planning and communication with the business about desktop management can pose some risks.
[more]
Remote Access
Giga, 9/19/02: Check Point’s Addition of SSL-Based Access Portends a VPN Sea Change
Check Point Software recently added a so-called “Clientless VPN” capability to its IPsec-based Internet VPN gateways: users can now remotely access some applications using only a browser as the VPN client, with encryption based on the Secure Sockets Layer (SSL) technology built into most commercial browsers. This puts Check Point squarely in competition with a growing number of startup vendors, including Neoteris and Array Networks, that have touted SSL VPNs as cheaper, easier-to-manage alternatives to IPsec VPNs.
[more]
Security
Giga, 9/18/02: Identity Management Architecture
Identity management is not any single product but an architectural framework for maintaining a person’s complete set of identity information spanning multiple business contexts. Identity management unifies a person’s disparate identity data to improve data consistency, data accuracy and data and systems security in an efficient manner. Identity management requires both the integration of technologies such as directories, single sign-on (SSO), provisioning and delegated administration, as well as coordination with business processes surrounding the management of user information, access rights and related policies.
[more]
Giga, 9/19/02: Pros and Cons of .NET PKI
The public key infrastructure (PKI) capabilities embedded in Microsoft .NET at no extra cost are becoming an increasingly important factor in the PKI market. While a chief concern during the last year or so has been the more general uncertainty regarding the release date for .NET (see IdeaByte, Windows PKI: Getting Closer, but Not Here Yet, Jan Sundgren), the approach of the actual release means that customers should begin evaluating more seriously the pros and cons of this solution. On one hand, it is much better than the Windows 2000 PKI. On the other hand, the new PKI capabilities still fall short in certain respects. These shortcomings may not be very important for some types of deployments, but they may represent significant factors in others.
[more]
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