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Story URL: http://www.silicon.com/research/specialreports/sme/0,3800004380,39127698,00.htm

Cash-squeezed mid-size firms turn to IT outsourcing
But beware the pitfalls, warns research

By Andy McCue

Published: Tuesday 08 February 2005

Pressure to cut costs is increasingly forcing medium-sized companies to outsource their IT operations, according to new research.

The IDC survey, sponsored by WCI, found that 48 per cent of firms have already outsourced their desktops and 39 per cent have outsourced their data centre.

Over three-quarters of respondents (77 per cent) stated that cost savings were the key business pressure for going down the outsourcing route.

The survey was conducted among 46 senior finance executives and CFOs at UK companies with revenues between $100m and $1bn.

The ideal outsourcing deal length is three to five years (70 per cent of respondents) but medium-sized firms also favour tough penalties for supplier failures. Almost half (48 per cent) said the outsourcer should pay three times the annual contracted revenues as compensation.

And while mid-size companies are increasingly looking at IT outsourcing, they still remain sceptical of full business process outsourcing (BPO). Most perceive the procurement cycle for BPO to be too long and 60 per cent said they would only pursue BPO if there were guaranteed cost savings of at least 10 per cent.

WCI's advice for smaller firms looking to outsource is to look for a long-term partner but take it slowly.

"It’s more productive to grow into a relationship, shaping it according to your changing requirements. Start with a three-to-five-year marriage that you can re-negotiate when your partner has proved their compatibility," the report said.