CIOs use outsourcing more, analyst says

Instead of simply managing in-company resources, most chief information officers (CIOs) nowadays are dependent on one or more external service providers. The trend is likely to continue, and CIOs should use outsourcing as a weapon in their management arsenal, according to Rolf Jester, Asia-Pacific director at research company Gartner.

"CIOs now have to broker and manage external services, and those services are changing rapidly, and in unpredictable and unsettling ways," he said at the Gartner Summit here Thursday. "Deciding on how to do this is very important for their businesses."

A survey of 480 IT managers and CIOs last year showed a strong trend towards outsourcing, according to Jester. The survey findings included:

-- all of the CIOs said they cannot meet all their IT needs internally.

-- 73 percent of the CIOs rely on outsourcing to deliver new technologies.

-- 36 percent of the CIOs intend to create "virtual companies" which concentrate on their core competence and outsource all their IT functions.

-- 18 percent of surveyed companies, particularly fast-growing ones, do not want to own technology and will outsource in order to shed assets.

As the computer market has matured, reasons for outsourcing have changed, according to Jester. In the mainframe era, the aim of outsourcing was cost reduction; in the PC and client/server era, the main reason for outsourcing was for IT expansion into new areas and new applications; and in the Internet era, the main reason for outsourcing is to improve speed to market and scalability, Jester said.

"The major differentiator between companies now is in their agility -- their ability to create value quicker than their competitors," he said. "This may be the only differentiator in future, as every other innovation can be copied."

Outsourcing is now more complex than the choice of build or buy, according to Jester. End users can now selectively forge joint ventures with outsourcing partners, or pursue "insourcing" -- hiving off their in-house IT departments to become separate divisions or ultimately separate companies.

The added complexity and new technology environment means that CIOs must avoid the trap of regarding outsourcing as a static process, according to Jester.

"Outsourcing is not about saving money, but about creating a competitive advantage. CIOs should use outsourcing to create an engine for change, to deal with inevitable change, to deal with real life," he said.

The Gartner summit continues through Friday.

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