The Growth in Outsourcing Applications
Outsourcing was initially used for standardized applications such as payroll, accounting, and purchasing or by companies that were struggling to survive and wanted a quick infusion of cash from selling their hardware. However, in 1989 Eastman Kodak surprised the business world by hiring three different companies to operate its computer systems. Kodak outsourced its data processing operations and sold its mainframes to IBM. It outsourced its telecommunications functions to DEC and its PC operations to Business land (and later Entek Information Services). When the performance of DEC and Entek began to slip, Kodak opened those services to new bids. Kodak continues to perform its own information systems strategic planning and development, but the responsibility of system implementation and operation belongs to the outsourcers. The results have been dramatic. Capital expenditures for computers fell 90% while operating expenses decreased between 10% and 20%. Kodak expected the annual information systems savings to reach approximately $130 million over the 10 year period of the agreement.
Several years ago, Xerox signed what was then the largest outsourcing deal in history: a $3.2 billion, 10-year contract with EDS to outsource its computing, telecommunications, and software management in 19 countries. The company moved to outsourcing to cut costs, to speed up the move from a mainframe architecture to client/server computing, and to free management to focus on strategic management issues rather than on day-to-day concerns. However, Xerox retained control over its systems functions, such as strategic planning and new application development, to support its reengineering efforts.
The success of Kodak and Xerox motivated other organizations to outsource their information systems. For example, many Fortune 500 companies outsource some or