More Service Provider Partnerships for Outsourcing Deals

Officials from Shell Group recently announced a major outsourcing plan which involves combining outsourcing services from AT&T, Electronic Data Systems Corp. (EDS), and T-Systems Enterprise Services GmbH.  In other news, a British highway agency moved to increase its outsourcing with Atos Origin SA, while overall large-scale outsourcing deals on decreasing.

Focal Points:

• Shell recently announced that it has intended to increase the use of outsourcing in order to save up to $500 million per year in IT costs. The company will use several companies for outsourcing services, including AT&T, EDS, and T-Systems. The emphasis of the contracts is on increasing overall IT efficiency. As opposed to having many individual providers for services, Shell decided on focusing on a few strategic partnerships. AT&T will be responsible for networking, while EDS will manage end-user computing and T-Systems will provide managed hosting for servers and storage services. Contracts are expected to be finalized in 2008.
• The Highways Agency for the United Kingdom has recently announced signing a contract to outsource the management of its infrastructure and applications to Atos Origin. The contract is for five years and has an estimated value of $148 million. The agencies existing contracts were due to expire in 2007. The current deal with Atos Origin is expected to save the agency at least 15 percent annually. The new contract will both reduce costs and improve current service levels. Part of the deal includes transferring 120 of the agency's IT staff to Atos Origin. Atos Origin will deploy its Workplace Solutions platform to the agency's desktops to increase automation of desktop deployment and management, enabling worker access to corporate information from mobile devices as well.
• A recent published report has cited a decrease in large ($ billion plus) outsourcing deal in the last two years. The report stated that this trend would likely continue for 2008. A probable result of this trend will be the decrease in pricing by service providers, increasing outsourcing competition. Experton Group has also noticed a significant increase in smaller, niche outsourcing services in the last two years, specifically focused on niche service areas, such as infrastructure asset management and security/compliance auditing. The study also confirmed an increase in the number of deals that were being designed as multi-source contracts.

Experton Group believes IT departments will get more selective in future outsourcing deals, focusing on low-cost and financial improvement metrics for commoditized functions, while integrating service provider partnerships as necessary to obtain the set of services that best meets enterprise requirements. IT executives should consider combining resources from service providers where feasible to get business-oriented services, remembering to have staff dedicated to periodic review of service levels and meeting of financial goals.