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Gartner: IT outsourcing will disappoint

The market research firm says 50 percent of outsourcing deals will be considered unsuccessful when it comes to delivering the expected value.

Half of information technology outsourcing projects will be considered unsuccessful in 2003 because they have not delivered the expected value, according to a new report from market research firm Gartner.

The growing practice of IT outsourcing involves a company hiring another to handle tasks such as managing a data center or handling tech support questions. Gartner suggested that external service providers should do a better job of communicating with clients and accommodating their issues. The parties involved in an outsourcing contract should commit to regularly scheduled formal meetings to review progress, said Linda Cohen, managing vice president for Gartner.

"Failing to do this, the relationship can be seriously compromised because corrections are not made in a timely fashion," Cohen said in a statement released Monday.

IT outsourcing is billed as a way for companies to trim costs and focus on core business operations. Lead outsourcers include IBM's services wing, Electronic Data Systems and Accenture. IT outsourcing has been a rare bright spot in a gloomy technology spending climate, with Gartner reporting that IT outsourcers expect to generate business by sending more technology work to low-cost facilities around the globe.

Gartner cautioned that in 2003 fewer than 30 percent of corporations will have formal plans for managing long-term relationships with their service providers. Gartner also said changes in the business and evolutions in technology will create a need for contract renewals and adjustments.

"Long-term arrangements with (external service providers) must be built for change, rather than 'built to last,'" Cohen said. "Flexibility is the key to successful long-term service supplier and buyer relationships."

Gartner also suggested that as companies grow dependent on outsourcers over time, they will have to decide whether to hire a single, external source, or multiple sources. A single-source approach works for corporations that can manage a single, complex contract but lack the capability to manage and integrate multiple suppliers, Gartner said. However, Gartner analysts said that through 2004, "multisourcing" will remain the dominant strategy, and 40 percent of large companies will adopt a prime or general contractor to manage the external service provider "chaos."