Outsourcing controls cost

IT services giant CSC last week agreed a £450m global outsourcing deal with Marconi. The move may be part of a wider trend that sees firms outsource IT to improve balance sheets.

The CSC-Marconi deal covers 10 years and will see about 114 UK staff move from the telecoms veteran to CSC and a further 18 move to BT, which is supplying the networking aspect of the deal. Marconi relisted on the London Stock Exchange last month after becoming a high-profile victim of the collapse in telecoms stocks.

"Having hit a mega-downturn a lot of IT costs were looking very fixed and we wanted them to be flexible," said Fiona Robinson, executive vice president of business systems at Marconi.

However, the firm said the outsourcing plans were not exclusively related to its financial situation. "It's also that we wanted to focus on core competency," Robinson said. "We haven't got the scale to run IT as efficiently as CSC. Are we the most efficient people to be providing it? I don't think so, even in the boom times."

The Marconi deal comes within a month of a CSC-led alliance's agreement with the heavily loss-making Royal Mail on a £1.5bn outsourcing contract that will see about 1,470 staff transfer to CSC.

Although many companies say they outsource to improve their focus on business objectives, Ian Williamson, vice president of European business development at CSC, said that a desire to cut costs was an important motive.

"Some have been more hesitant about saying that it is principally about cost reduction. but a natural reaction to tough economic climates is to consider outsourcing," Robinson said.

Anthony Miller of analyst firm Ovum Holway expects more firms to outsource IT functions to improve their financial positions. "Clearly, [outsourcing is] a way of reducing cost," Miller said. "Even if it's not explicitly said, it's the main reason. It takes all the cost off their books."

Other companies feeling the economic pinch are looking to renegotiate terms with IT suppliers. Law firm Stephenson Harwood said its renegotiation of software, hardware and consulting services contracts has grown from "almost zero" 12 months ago to about 40 percent of its business technology unit today. The company is also receiving enquiries related to R&D tax credits and technology patents.