Many CIOs say they're eager to save money by outsourcing—no surprise in these tough economic times. However, our second annual survey on outsourcing finds there's no stampede going on. Cost is now the number-one reason for outsourcing, cited by the 396 top IT execs we polled, but the share of the IT budget going to outsourcing services is expected to decline slightly in 2002 compared with 2001. Outsourcing projects have been cut back, and "business process outsourcing"—supposedly the next hot outsourcing trend—still hasn't caught on. But despite the pressure they face to reduce costs, most CIOs aren't pushing to negotiate better terms when contracts come up for renewal.

One study also found that while cost is important, several rationales for outsourcing—lack of internal expertise, desire to focus on core competencies and lack of internal staff—are also of great importance.

A growing number of outsourcing contracts went to large computer companies and Big 5 accounting firms in 2001, though whether this will continue in a post-Enron world is anybody's guess.

CIOs are leaving money on the table, and not watching costs as closely as they could. Not only are few CIOs seeking better terms for contracts, but most aren't consistently tracking outsourcing's hidden costs, such as the cost of vendor searching and contracting, contract management and post-outsourcing reintegration.

This article was originally published on 05-15-2002
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