The decision to outsource, however, now goes beyond cost-cutting considerations. Companies are just as likely to turn to outsourcing when they want to concentrate on new business opportunities or dramatically change their overall structure. Rather than simply cutting IT expenditures, outsourcing can deliver substantial value in terms of long-term performance and profitability. And it is no longer the troubled organizations that are outsourcing. At least 35 percent of Fortune 500 companies will have outsourcing partners in 1995.
Future relationships with IT providers will increasingly involve shared risks and rewards. These value-based contracts (em which link compensation to a provider's ability to deliver specific benefits (em are rapidly gaining popularity across all industries. The U.S. systems-integration market alone experienced a 300-percent increase in value-based contracts from 1993 to 1994.
Cooperative outsourcing links the service provider's profit to agreed-upon improvements in a utility's basic corporate performance, as measured against earnings, competitive positioning, performance against budget, and customer satisfaction. Other industry-specific measures include cost per kilowatt-hour, customer retention ratings, levels of uncollectibles, and productivity rates.