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Information Technology Outsorcing Transaction - Halvey K.J.

Halvey K.J. Information Technology Outsorcing Transaction - Wiley Publishing, 2005. - 649 p.
ISBN-10 0-471-45949-6
Download (direct link): informationoutsourcingtransactions2005.pdf
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5. See, for example, Des Dearlove, "Hiring people to take care of your people," The Financial Times, June 8, 2004, at 29.
Preface xxi
relationships entail. Managing an outsourced relationship involves having the right contract governance and management procedures in place, using effective communication, and dedicating the time, resources, energy, and commitment to leveraging the most from the outsourced relationship. Only through this process will companies realize the advantages of leveraging the outsourced model.
This new edition of Information Technology Outsourcing Transactions hopes to bring the reader up to date with changes and developments in outsourcing transactions and the process of doing outsourcing transactions in the past ten years. During this time, outsourcing has evolved from the last hope of broken IT departments to the solution of choice for the enhancement of an increasing number of business processes for an increasing number of Global 1000 companies. The practice of outsourcing has evolved in step with this movement from back office to front office and is now more complex, more challenging, and potentially more rewarding for all those involved. As with the previous edition, this book is not a substitute for legal, technical, financial, or accounting advice but, instead, serves as a guideline to effectively manage an outsourcing transaction.
CHAPTER
OVERVIEW OF THE IT OUTSOURCING INDUSTRY
1.1 BACKGROUND 1 1.3 IT OUTSOURCING DEALS 6
1.2 IT OUTSOURCING INDUSTRY 2
1.1 BACKGROUND
Outsourcing—the assumption of management and operational responsibility for a noncore business function or functions by a third party—is at the forefront of strategic considerations by corporate and government information technology (IT) professionals. Virtually every Fortune 500 company in this country, and an increasing number of companies throughout the world, outsource some significant portion of their IT services. Meta Group, an analyst of the IT outsourcing industry, estimates that 70 percent of companies outsource and that all companies will embrace the model by 2006.1 It is easy to understand, therefore, how IT outsourcing has become a $536 billion worldwide marketplace.2
Whereas, a decade ago, most companies engaged in a “build and maintain your own” strategy with respect to their IT infrastructure, corporate cost-cutting and the ever-increasing pace of technological innovation has spawned a generation of IT managers who accept—if not embrace—the underlying principles of outsourcing. The economies of scale that can be achieved by an outsourcing vendor, coupled with the ability to financially engineer the fees associated with outsourcing to achieve a desired goal with respect to payments, have given outsourcing an almost populist following.
Clearly, cost-cutting and financial engineering have been significant factors in fueling the outsourcing fire. In recent years, however, companies are also coming to view outsourcing as a means of transforming their IT operations without losing step with their competitors on a day-to-day basis. Transformational outsourcing is typically a two-step process—with the outsourcing vendor first taking responsibility for the outsourcing customer’s existing (or legacy) systems
1. "We'll All Be Outsourcing by 2006," Computing, July 10, 2003.
2. Gartner Dataquest forecasts that the $536 billion worldwide IT services industry will grow through 2007 to reach $707 billion, with a compound annual growth rate of 5.7 percent. Worldwide IT Services Market Forecast, 2002-2007 (Executive Summary).
1
2 Ch. 1 Overview of the IT Outsourcing Industry
and processes and then taking responsibility for implementing new, state-of-the-art systems and processes (thereby “transforming” the customer’s environment) in a shorter time frame than would be possible if the customer implemented the changes itself and with greater resources than those available within the customer’s organization.
Given the financial and strategic magnitude of the decision to outsource even a portion of a company’s IT operations, more and more IT professionals seek to understand the process and intricacies of outsourcing. This typically entails determining precisely what to outsource and the best way to manage the process of structuring and negotiating an outsourcing relationship. In this regard, this book is intended to be a guide to structuring, negotiating, and implementing IT outsourcing transactions. As such, it does not, and could not, address all issues that may be germane to any given transaction. The examples given in the book are strictly hypothetical, taken from the various experiences of the authors’ work in this area over many years. In reviewing and using this text, it is important to note that each industry approaches outsourcing differently and that each company must determine for itself the optimal method of achieving the results it seeks from entering into what is typically a long-term relationship with an outsourcing vendor.
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