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Outsourcing to rise, but deals to shrink

Some 80 percent of businesses will farm out IT functions by the end of next year, the Meta Group predicts.

Outsourcing is set to continue to grow worldwide during the next year, but the scope and length of many agreements will be reduced, according to a new report.

The research, by analyst firm Meta Group, predicts that 80 percent of organizations will outsource at least one information technology function by 2005.

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But the Outsourcing Pricing Guide report, released last week, also warns that 70 percent of that group will drive a harder bargain when they renew those outsourcing deals, cutting both the scope and duration of the contract.

The report also warns that companies are risking their outlay on outsourcing deals unless they pay more attention to factors during the initial stages of an agreement. The authors advise that companies enter an outsourcing agreement with the correct expectations and negotiate contracts with service levels that align with their primary objectives and that have equitable pricing.

Dane Anderson, a senior research analyst at Meta Group, said in the report: "Although outsourcing is clearly a strategic decision, the tactical and operational implementation of an outsourcing agreement often neglects many of the fundamental elements required for success."

Andy McCue of Silicon.com reported from London.