In-Depth

IT to outsourcers: HELP!

• By Jack Vaughan, Rich Seeley
• May 31, 2001

What is an application development manager's biggest challenge today? Managing people. No line item grows more inexorably than the staffing budget. turnover is a fact of life! Skills shopping is endemic. This, in turn, has led to a surge in outsourcing all or part of key development projects. For many organizations, the days of doing it all yourself are simply done and gone.

Simply stated: Managing people today means managing individuals both inside and outside the organization.

In a tight labor market, the right mix of programming talent is getting harder to find. As retail sales and, more importantly, business-to-business transactions move to the Internet, there is a growing demand for more and more Web-based applications that require skills you tend not to find around the office in heavy doses.

Then there are enterprise resource planning (ERP) implementations and Enterprise Application Integration (EAI) projects, and the like. Link those stovepipes. Build that data warehouse. Where is the decision support system we were promised? This is
the chorus IT hears from departments in the organization. Did somebody say overwhelmed? The call for help goes out.

Let's look at the numbers. GartnerGroup's Dataquest organization has projected that the worldwide IT services market will reach $630 billion by 2002, according to a presentation at Gartner's ITXPO 99 held in San Diego. Most of this growth will be in non-maintenance areas, such as application development and implementation. This, Gartner indicates, is the reverse of the situation 10 years ago, when maintenance was the mainstay of the outsourcing industry.

Some say application integration will become IT's forté, with development relegated to outsourcers. In fact, application
integration (also known as middleware), is also a province being busily mined by legions of systems integrators.

This is how it adds up: Exploding skill-set requirements, tight labor markets and rapid time-to-market mandates combine to make a whole new mix of requirements for the IT manager. The manager's own new skills folio must now focus on core business competencies, business strategies and far-flung project oversight. A handle on metrics -- ways of measuring an outsider's performance -- is also a must.

The effects of this shift are being felt in the software business, too. The system integrator is becoming the chief channel for most new technologies.

Beyond body shops

While noting that development and integration services were once viewed as "low-margin body shop" code writing, Gartner has also reported that outsourcing services have evolved to include "sophisticated business application development" these days.

Some of the reasons for this change are obvious to almost everyone in the computer industry. In a tight labor market, programming talent is getting harder to find than reliable relief pitchers in baseball.

"The pace is accelerating as far as business applications are concerned," said Charles Stack, CEO of Flashline.com, which markets outsourced component development. "And there are not nearly enough programmers around to meet the demand. One of the solutions is outsourcing."

As Stack points out, as retail sales and, more importantly, business-to-business transactions move to the Internet, there
is a growing demand for more and more Web-based applications.

The idea of turning the whole application backlog over to an outside consulting firm with an army of bright, young, high-energy programmers seems like the best solution. And it may be. But there also seems to be a consensus that there are two ways to do application outsourcing: Well and badly. Outsourcing is no panacea, and horror tales of misplaced trust can still be found.

Doing it badly starts when the IT executive calls in a consultant out of desperation, according to Stan Lepeak, an
analyst with the Meta Group, Stamford, Conn. "You should look at [skills and resource needs] before you start the project," he notes.

Lepeak's prescription? IT executives must develop a strategic plan for outsourcing application development, determine in advance what skill sets are needed, and find a consulting firm that can supply them.

"Then it's not this big rush at the last minute that tends to mean you don't do the appropriate due diligence, and you don't do enough diligence in terms of developing the contract and the service-level agreements," he explained.

As with almost anything else, doing it well will take a lot of work. As Lepeak reminds IT executives, "You're outsourcing the work to get the task done. You're not outsourcing the responsibility to make sure that task gets done correctly."