Staff retention problem sees IT outsourcing come into its own

The real significance of IT is that it allows resources to be freed up elsewhere in the economy.

This is the simple business logic that is driving a relatively little-noticed industry within the IT sector here: outsourcing. Outsourcing is where companies hand over responsibility for all or some of their IT functions to a third party to manage.

One of the more interesting findings from a recent survey on the Irish networking industry commissioned by the 3Com Corporation strongly supports evidence of the increasing popularity of IT outsourcing.

The survey revealed that while 35 per cent of Irish enterprises say it has become more difficult to retain IT staff, 40 per cent say it is not an issue.

"Our interpretation of this finding is that while there may be a shortage in IT skills, it may not be considered a problem because of the opportunities to avail of outsourced services," says Mr Ray O'Connor, sales manager of 3Com Ireland.

Figures from the research firm International Data Corporation show that, including information systems, desktop and network outsourcing, the total Irish outsourcing market was worth $137 million last year. While this might seem a reasonable figure, it compares poorly with other EU countries, particularly the UK, whose total market was worth $5.4 billion in 2000, according to the IDC.

"The Irish IT industry is slightly less mature than other EU countries," suggests Ms Fiona Fox, services manager with Hewlett-Packard, who says that the company has a number of major contracts running with companies in other EU countries, including Britain and Holland.

EDS, a global outsourcing provider, has a long-term global contract with Xerox, which extends to its Irish operations. About 50 of the company's 300 employees in Ireland work full time with Xerox Ireland providing a range of services, including IT and business process support.

Mr William McAuliffe, client sales executive at EDS Ireland, says the value of outsourcing contracts can be very high, particularly since most of them extend over a period of between five and 10 years. He insists that large-scale contracts cannot be operated in the short term, particularly as the "learning curve", whereby the two companies learn to fit in with each other, can last up to two years.

Mr McAuliffe says EDS has a deal in the pipeline with a mid-sized financial services company to provide IT support for call centre activities worth £100 million over ten years. About 150 people from the client company will transfer their employment contracts to EDS.

Yet as an industry, even at the higher end of the market, IT outsourcing seems to have a low profile. "That's the way it should be," says Mr Auliffe. "An IT user in a client company should not have to know that the service they are using is provided by EDS."

While the number of large-scale outsourcing deals struck here so far has been relatively small, the IT outsourcing market seems to be making stronger inroads to small and medium-sized enterprises. According to outsourced service providers, among the more popular functions Irish companies are willing to hand over to a third party are desktop management and procurement, helpdesks, user and network support, recovery strategies and one-off projects.

Mr Paul Hourican, managing director of Cork-based PFH Computers, which employs 75 people, says that 18 months ago, his company would have mainly outsourced technicians with specific skill sets, the company has expanded to offer service solutions that involved managing desktops, file servers and software for clients, sometimes remotely.

Mr Hourican adds that his client base is now being joined by small and medium enterprises, many of whom are opening up to the advantages of IT outsourcing. "While IT is now easier to use, it is more complex to support," he says.

The introduction by SMEs of technology is a drag on their resources, and results in decreasing efficiency, he says. Company managements are increasingly demanding that their employees should not be fixing their computers, but using them.

"We've a long way to go towards acceptance of outsourcing as a good business decision," says Mr Joe O'Reilly, sales director of IT Force, a dedicated outsourcing company.

"The trick is not to spend more on IT but to spend it more intelligently," he says. IT Force also tends to target medium-sized companies with one or two dedicated IT staff. The issue of the IT skills shortage and the difficulty in retaining top level IT talent has made the decision to outsource an increasingly logical step.

Mr Ken Kelleher, managing director of Dublin-based network solutions provider Landmark Technologies says that clients seek a wide variety of skill sets in outsourcing services. For example, the highly specialised skills of a senior Internet security expert would probably only be needed for a matter of weeks rather than months or years. If that person were to be attached to the company for long periods, he would be likely to get bored very quickly.

Mr Kelleher says that it will often prove more cost effective to outsource a particular function or project than by hiring an IT professional and spending huge sums on training that person, only for him to leave shortly afterwards because of boredom and lack of challenges. Given the shortage of IT skills, outsourcing will ensure a level of continuity and service, he says.

Nevertheless, one of the major obstacles facing companies who consider outsourcing IT functions relates to personnel and human resource issues, including fears among employees that they may be made redundant and possible industrial unrest. However, outsourcing companies, particularly in large-scale deals, may take on all or the majority of IT employees in a client company under similar terms and conditions.

Ms Fox of Hewlett-Packard says that while ensuring protection for individual employees is not easy, the company always considers taking on employees from a client company. The company's gradual takeover of IT functions for the Sara Lee company's operations in Britain and Holland involved taking on all 200 people within Sara Lee who worked in its IT department.