STRATEGIC INTENT FOR IT OUTSOURCING

Companies today are outsourcing the activities of their IS departments at unprecedented rates. Interviews with senior executives in fifty co mpanies worldwide show that three kinds of strategic intent drive the decision to outsource. 1. Companies pursuing IS improvement seek cost reduction, better performance from core IS resources, and the acquisit ion of new technical skills and competencies. 2. Outsourcing for busin ess impact focuses on deploying IT to improve critical aspects of busi ness performance. 3. Outsourcing for commercial exploitation aims to l everage technology-related assets through the development and marketin g of new technology-based products and services. Each type of strategi c intent requires different approaches and tactics in the areas of the contract type, the performance measurement and evaluation scheme, the compensation system, and the assignment of decision-making rights to the vendor. Since the nature of the risks and rewards for each of the three types is different, the control mechanisms must be different as well. in ail cases, the customer's relationship with the vendor must b e aligned with the strategic intent underlying the outsourcing initiat ive. When strategic intent is well understood and the critical issues are carefully addressed, the chances for success are greatly increased . In evaluating IT outsourcing opportunities and structuring relations hips, managers should design the outsourcing contract to reflect and r einforce each strategic intent pursued; make sure that their organizat ion and the vendor have the right mix of competencies and know-how; ma ke sure that their organizational culture and work practices are compa tible with those of the vendor; and enable continuity by designing con tracts and relationships to anticipate change.