Introduction

The outsourcing of services is currently a hotly debated political topic, but one that has actually been a part of the business landscape for many years. Many of the frothy articles in the popular press are deliberately vague about the definition of job outsourcing, either out of ignorance or because the subject is actually very difficult to discuss in clearly delineated terms. This paper specifically examines the business practice of job outsourcing delivery of Information Technology services, which we define as including data center management, help desk staffing, desktop and desk-side support, network management, application hosting, and Application Service Providers (ASP’s). We first examine the historical context of outsourcing and its use in business and then examine the current political environment. Our discussion then shifts to the tactical execution steps necessary to successfully engage in and manage an outsourcing relationship. The paper concludes with a brief examination of some trends which we expect to grow

over the next 5 to 10 years in the IT outsourcing environment.

Modern information technology outsourcing, that is, the business of sending work outside your company to be done by specialists either because you don’t want to do it or can’t do it, easily dates back to the mid-1950’s when IBM began serving a variety of business applications job outsourcing needs. Through its Service Bureau Corporation, IBM fulfilled many corporate functions with its iconic mainframe computer, the IBM 360, and in doing so spawned dozens of legacy information systems over the years.

By the 1960’s, several large companies had been created for the purpose of delivering job outsourcing of one kind or another. ADP, which stands for Automatic Data Processing, began by specializing in a particular business function, payroll processing, before expanding across a range of employer services. EDS, Ross Perot’s company, focused on meeting the IT needs generated by the Social Security Act of 1965 and the Medicare and Medicaid Title XVIII programs that came out of it. EDS became the first IT services company to organize by industry and it would go on to become one of the largest health-care claims processors in the world. The founders of Computer Sciences Corp. leveraged their technical expertise in the aerospace industry to become a major supplier of IT systems software for the U.S. government successfully managing a range of administrative and mission-critical functions for NASA, for example, including all of the information processing and command & control operations at the Kennedy Space Centre. In its early days, IT outsourcing focused on managing data that came in a variety of different forms – hardware, software development, operations, selected applications or entire IT and ancillary functions. For small to mid-size companies, IT work was typically sent off-site to data processing centres equipped with large, mainframe computers. These largely transactional services addressed the business processing and storage needs of customers who needed information more quickly and efficiently than they could possibly achieve with their own resources. For larger organizations with ample resources like corporations, universities and government agencies, IT services often included the design of specialized, complex software for use in conjunction with the in-house computer systems.

The rise of IT outsourcing has its roots in the powerful economic trends and rapid technological innovations of the late 20th-century. Following the prosperity and productivity growth that marked the post-WWII period of the 50’s and 60’s, the U.S. economy went through a transitional phase in the 70’s and 80’s. During this period, forces were emerging that would profoundly transform the economy from a post-industrial model characterized by the ownership of physical resources to a dynamic, service-based model characterized by the ownership of information resources. By the end of the 20th century, evidence of the dramatic changes was everywhere.

In the 1970’s, the IT industry found itself poised to expand into rapidly growing new markets in the wake of a the tidal way of information processing needs. Outsourcing firms experienced unprecedented demand for an enormous range of services that offered every possible combination of personnel, applications and infrastructure. Technically, IT was evolving from the centralized model of the 1960’s to the distributed model of the 70’s and eventually, to the decentralized, personal computing environment of the late-80’s. Each evolution added to the accumulation of legacy systems and the maintenance and upkeep on these systems alone became a significant source of revenue for many IT firms. Enabled by innovations in computing power, information storage capacity and transmission capabilities, IT outsourcing continued to add to its value proposition by enhancing access to and analysis of information and improving business decision-making capabilities for its customers through the use of technologies such as relational databases. More on job outsourcing on the next past page.