Midrange Shops Ponder Using Outsourcing Services More

Published: April 5, 2007

by Timothy Prickett Morgan

The data might be a little thin, but this could be the beginning of a trend. According to Susquehanna Financial Group, a stock brokerage house that tracks the IT outsourcing market, midrange shops are more willing to consider outsourcing than they might have been in the past.

Susquehanna Financial did detailed interviews with 25 IT organizations that have at least 1,000 employees and that represented healthcare, pharmaceuticals, manufacturing, financial services, and telecommunications firms. (Yes, 1,000 or more employees is the high-end of the midrange market, not the core midrange, and yes, this is pretty skinny data.) In any event, the brokerage house says that its findings indicate that smaller companies have the greatest potential for growth in demand for outsourcing services, but that they are more inclined to find something closer to home--so-called nearshore and onshore services.

Manufacturing is the least penetrated vertical, and healthcare companies are allergic to the idea because of "negative public perception issues," according to the report. Outsourcing has not even begun to penetrate the market. Only 8 percent of respondents to the Susquehanna Financial survey have moved to a 100 percent outsourced model, while 48 percent of those surveyed have done none at all. Basically, it is wide open down there in the market where companies have 1,000 or fewer employees.

Of course, these customers are the least computerized and the most likely to give decent software as a service offerings a try, if they come in at the right price point and can be shown to be secure and dependable. Small companies don't want to buy any IT at all--in-house or outsourced makes no difference. IT cannot be a core competency for a small business, or even a fairly large midrange business, because it takes a large, sophisticated IT shop to wring out differentiating features. Or, if this were the 1980s, I would be saying an integrated system like the AS/400, which provided an integrated, easy to program system that allowed programmers to focus on business logic, not computer logic.

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