Magazine article American Banker

Which Approach in IT Outsourcing?

Magazine article American Banker

Which Approach in IT Outsourcing?

Article excerpt

Information technology outsourcing discussions in larger organizations seem to gravitate toward horizontal or vertical approaches, both of which can provide solid value in the right situations.

The horizontal approach primarily leverages scale and best practices, outsourcing layers in IT infrastructure. This is generally from an enterprise perspective: One provider may end up with hardware and operations, another with network management, another with desktop management, and still another with application management.

The horizontal approach can yield good near-term cost reduction thanks to the provider's ability to leverage scale and best practices. This scale may be the provider's processing utility, or it ability to leverage supplier relationships.

Best practices usually emphasize operations throughout the IT architecture. The horizontal approach seems to work best when there are numerous interfaces to manage -- both systems and people. Often, however, an outsourcing arrangement dissolves near the end of their term unless continuous improvement is built into it.

Vertical IT outsourcing is often done by business unit or by major application area; a single provider has full accountability and responsibility for infrastructure, operations, and application management. A center of competency built around one application or a suite of them can provide more leverage for that business area than generic best practices.

Leverage in the vertical approach may also come from economies of scale and best practices in operations, but more often it comes from the leverage of experience and collective investment in an application. …

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