Knowledge more important than credentials for outsourcing partners

Companies looking for a technology outsourcing partner would be wise to consider candidates' business knowledge and not just their technology credentials, according to a new study.

Research firm Meta Group studied 15 companies in North America that provide outsourcing services. These businesses take on information technology duties, such as helpdesk operations or software application maintenance and provide business process services, such as administering employee benefits.

The outsourcing providers - which included IBM, Accenture, Electronic Data Systems and Hewlett-Packard - are all technically competent, Meta analyst Dean Davison said. A customer choosing between them should consider factors such as industry-specific knowledge and how their corporate cultures mesh with its own, he suggested.

"The playing ground for [outsourcing] is shifting from being just technically proficient to providing business solutions," Davison said. Meta released the study on Wednesday.

IBM, Electronic Data Systems, Computer Sciences, Accenture and Science Applications International all made it into Meta's category of outsourcing "leader." Unisys, Perot Systems, Hewlett-Packard and India-based Infosys Technologies were among the companies that fell into the "challenger" bucket.

Outsourcing has grown in popularity, partly because businesses have been seeking to cut costs. Davison estimates that the worldwide IT-outsourcing market hit $180bn in 2003 and will increase 10 to 12 per cent this year. Fueling the outsourcing trend is its use of workers in lower-cost countries such as India and the Philippines - a development that has angered advocates for US tech workers.

Market research firm IDC recently estimated that by 2007, 23 per cent of all IT services jobs will be located offshore, up from five per cent in 2003. The figures refer to IT work done for US-based companies.

US firms, including IBM and EDS, have offshore operations. So does Bermuda-based Accenture.

Revenue at IBM's services wing grew eight per cent year-over-year in the fourth quarter, to $11.4bn. Big Blue's 2002 acquisition of PricewaterhouseCoopers' consulting unit is seen as having been helpful in developing expertise in different industries at the company. IBM combined the roughly 30,000 employees from PwC Consulting with about 30,000 IBM workers to form a new division, called Business Consulting Services.

George Bailey, who heads up the electronics industry group at Business Consulting Services, said knowledge of a particular industry allows an outsourcer to keep making improvements to a client's business. Industry savvy also enables the service provider to avoid cost-cutting measures that hurt the customer's business, he said. "What they really want is improvement in business results," Bailey said. "It takes industry insight."

Meta's Davison said it matters how well the corporate cultures of a company and its outsourcer fit together. Some companies have more formal "suit" ways of doing business, while others have a more informal, "ponytail" atmosphere. "What is the chemistry that takes place between the organisations?" Davison said. "How well do they like each other?"

Ed Frauenheim writes for CNET News.com