Report: The Evolving Services Model

The top companies on the VARBusiness 500 continue to ramp up their services focus. Case in point: IBM's recent acquisition of Internet Security Systems, which will become part of IBM Global Services (VARBusiness 500 No. 1), and its talk of managed security services. In addition, Unisys (whose services unit is No. 21 on the VARBusiness 500) is also getting its outsourcing message out, recently hiring Joe Hogan as its new vice president of strategic sourcing.

Hogan has been focused on outsourcing services for more than 25 years, most recently serving as vice president of the worldwide marketing, strategy and alliances unit of managed services at Hewlett-Packard. He says he will be working on business development efforts focused at providing outsourced services to Unisys' top 250 clients.

According to the exclusive VARBusiness Market Insight Report, which surveyed more than 600 midmarket and enterprise end users, this services push has merit, as services are a top priority for IT spending. In fact, respondents reported that managed services are expected to account for 13 percent of their spending in the enterprise space by 2007, and 12 percent in the midmarket space.

Other services, such as professional and consulting and break/fix, are expected to reach 27 percent of IT spending in the enterprise space by 2007, and 25 percent in the midmarket space.

Hogan says the key to a successful outsourcing contract is in the relationship; longer relationships are generally more successful, and adaptability is paramount.

"More than 70 percent of contracts renew with the same provider," he says. "It seems to work better when it's a longer-term contract as long as the provider and end user recognize when they start the relationship that it's not going to be the same as when you renew."

He adds that as businesses change over time, it's important to have a partner that can adapt and work with the client over time. Ultimately, Hogan says, the distinction between managed services and outsourcing will blur into what he calls simply "sourcing relationships."

These sourcing relationships involve services from components to an entire IT environment for clients.

"Most businesses need a sourcing strategy that says I do this standalone, this as a shared service, this as a cosource, this as a multisource relationship and so on," Hogan adds. "The industry is all about multisourced relationships."