Business Reasons Driving Software/Application Development Outsourcing

While some companies contemplate outsourcing whole departments, others choose to outsource individual software/application development projects.

E.I. DuPont de Nemours (Dupont) is a global science and technology company with operations in high-performance materials, specialty chemicals, pharmaceuticals, and biotechnology. Seeking a sharper business focus, DuPont inked a ten-year $ 4-billion deal with Accenture in January 2002 to implement and manage an enterprise resource planning system from SAP. Over the years, Dupont has transferred 3,000 IT workers to its two main technology service providers, Accenture and CSC. The IT staff that remains at DuPont - about 1,200 worldwide - are responsible for the stewardship and architecture of the company's IT operations.

Why are companies like Dupont outsourcing software/application development? There are four primary reasons.

1. To manage growing complexity,
2. To keep up with the impact of the Internet and e-business,
3. To get the capabilities to deliver a range of IT services worldwide, and
4. To manage risk.

Managing Growing Complexity
In today's increasingly competitive business environment, companies have become dependent on information technology not only to conduct day-to-day operations, but also as a strategic tool to enable them to re-engineer business processes, restructure organizations, and react quickly to competitive, regulatory, and technological changes. As systems become more complex, companies increasingly turn to external IT service providers to develop and implement new technologies and integrate them with existing applications in which a company may have already made a considerable investment.

Keeping up with the Impact of the Internet and E-Business
Businesses are increasingly using the Internet to interact with new and existing customers and create new revenue opportunities. Business conducted electronically over the Internet, or e-business, extends beyond Internet-based applications, such as e-commerce Web sites and corporate intranets, to include packaged software such as customer and supply chain management software. E-business initiatives are often large and difficult to manage and must keep pace with constantly evolving business processes and technological innovations. In addition, managing and upgrading existing systems has also become more critical given the importance of these systems to e-business initiatives. Internal IT departments often do not have the appropriate resources or breadth of skills necessary to execute these initiatives. As a result, companies increasingly turn to outside service providers to design, integrate, implement, and maintain their e-business applications.

The Need for IT Service Providers That Can Provide a Range of Services Worldwide
Many companies today need a wide range of IT services, from high value-added services such as the integration and implementation of e-business and packaged software applications to lower-end services such as system maintenance and the re-engineering of older applications. As a result, companies often seek a service provider that can understand and integrate a wide spectrum of emerging technologies with existing systems and that offers a comprehensive range of services from software design and development to system maintenance. In addition, as companies become global, they increasingly require IT support on a worldwide basis. In the e-business environment, service providers need to have a close relationship with customers given the complexity and time-sensitive nature of e-business.

Risk Management
Beyond skilled resources and improvements in business processes, companies want IT partners who share in the risks and rewards of outsourcing cost savings. A willingness to commit to business outcomes is viewed by many executives as the foundation for a strong outsourcing relationship. The appetite for splitting the risks and rewards between user and service provider is increasingly prevalent among outsourcing relationships.

The bottom line: Today a technology strategy is useless without a complementary sourcing strategy to ensure it delivers value. Operational efficiency can be achieved by carefully planning and implementing IT-enabled processes needed to support business. By focusing intensely on an analysis of the IT sourcing needs, an enterprise can ensure that it has access to necessary resources - and even find a way to survive in the marketplace.