Brief: Information Technology Outsourcing - One Company's Experience

Abstract

Summary To address the pressures of the 1990's business climate, Amoco Canada Petroleum Co. Ltd. went through an aggressive evaluation and restructuring of its business operations. This precipitated a critical review of its information technology (IT) strategy with a goal of maintaining effectiveness while reducing overall costs. To meet the challenge of substantially reducing expenses while continuing to maintain effective service levels, the company entered a 5-year agreement to outsource its data center and network operations. This paper discusses the business forces that brought Amoco Canada to consider outsourcing, the processes surrounding the outsourcing decision, and the results to date. We demonstrate that by understanding the role of IT in its business plans, the company successfully met its outsourcing objectives. Introduction Outsourcing IT services is a growing trend as organizations look for ways to solve the problem of maintaining services while reducing costs. A study1 done several years ago by an IT consulting firm predicted that every Fortune 500 company would consider outsourcing information systems and 20% would outsource at least some portion of their IT functions by 1994. More recent studies confirm that this is happening. The nature of outsourcing is changing. Companies are not approaching outsourcing only as a means of reducing costs, as has been the case in the past, but as a strategic tool in IT management. The data center is now just one of many functions being outsourced. More companies are including management of local area networks, desk top computer systems, applications development, and midrange computer systems in their outsourcing. Another recent development in outsourcing is "transitional outsourcing." Under this arrangement, the data center and network operations are outsourced so that resources can be directed to the development of client/server applications. This is the nature of Amoco Canada's outsourcing agreement. Fig. l shows the company's rationale for outsourcing these functions and what it hoped to gain. This brief addresses these areas and also examines the company's experience since outsourcing began in Oct. 1992. Were expectations and objectives met, and how has the relationship with the outsourcing vender evolved? What are the expectations for the remaining years of the agreement? Why was the company successful with its outsourcing? We also show why the contract is the most critical element in the outsourcing relationship.