Cost and margin pressures force companies to direct funds toward projects that generate immediate revenues instead of investing in IT system upgrades.
The cost of maintaining and upgrading legacy processing systems is driving the shift to outsourcing, according to Chris Evans, former managing director of UK life and pensions company Abbey Life (Lloyds TSB subsidiary).
Presenting a paper on outsourcing entitled Fashion or Necessity?, Evans said the company had 15 different IT systems and a further 13 legacy systems from recent acquisitions, which forced Abbey Life to assess the outsourcing option.
The decision was between combining 28 systems and investing in a serious upgrade or signing a 10-year outsourcing deal with Unisys to simplify its business model.
The company chose the outsourcing option, which, Evans said, allowed it to "avoid investment in upgrading systems" and provided a 10-year, fixed-cost formula.
"However, tactical outsourcing is not just about reducing costs in the short term, it should address where you want your company to be in 10 years time," he said.
"It's about combining what you can do in-house with what you can buy-in; when we moved into the mortgaging business we got someone else to administer it." Evans was speaking at a Unisys conference in France with the theme: Leaders, Lemmings or Laggards?, and believes that in the current economic climate, CEOs are opting to make bad decisions rather than no decision at all.
"If you're not changing something, people want to know what you are doing," he said.
"These days it's impossible to be a laggard so there are plenty of lemmings following everyone else; lemmings may deliver but they really have no strategic direction." When times are tough, Evans said, companies focus on exploiting core competencies, which has been central to the trend toward outsourcing in the past five years.
"Those who don't consider outsourcing risk becoming dinosaurs," he said.
* Sandra Van Dijk is a guest of Unisys at its international management centre in Saint Paul de Vence in France