IT departments need to focus on managing their outsourcing relationships as companies increasingly rely on the skills of external service providers to help implement complex ebusiness initiatives.

Some 60 per cent of companies will employ three or more service providers to manage their core business processes by 2002, according to a new report, Orchestrating Service Providers, from Forrester Research.

As the number of outsourcers grows, however, so too will the challenge of managing relationships with them. But if IT departments fail to do this effectively, projects could be jeopardised, says Forrester.

"The complexity of ebusiness initiatives forces firms to employ a portfolio of help companies. These forces increase further the complexity, and make it tougher to achieve success," warns the report's author, Christine Overby.

The weakest link

The study claims that the number of application service providers (ASPs) and business process outsourcers will triple over the next two years, creating a web of service providers that work with IT departments.

But companies currently using multiple providers have already reported an increase in communication, integration and co-ordination problems.

"The danger is that weak service providers can stall entire projects," claims Overby. "If one provider runs into a snag, then the whole project may have to be put on hold."

Some internet companies, for example, have had to delay their launches after experiencing compatibility problems between different technologies. Halifax, for one, missed the deadline for opening its Intelligent Finance online bank last year after discovering that the telephone system, built by one service provider, did not work with its back-end systems, created by another consulting group.

"We were disappointed that we didn't meet the deadline we set ourselves," the bank's chief executive, Jim Spoward, told customers. "But that was infinitely preferable to subjecting customers to downtime and delays."

The late launch meant that 15,000 customers were kept waiting.

Forrester's findings are also backed up by previous research from Vanson Bourne. The IT market research group found that 60 per cent of IT directors in the UK are still struggling to integrate their ecommerce systems with their back-end applications.

Overby claims that the problem is often caused by IT departments continuing to use traditional project management methods to control supplier relationships.

"Enterprises use internal staff for monitoring projects, setting clear expectations and hold frequent review meetings, but this limits management to project and functional boundaries, and only encourages communication between providers working on a single project," she says.

New management processes

New management methods recommend selecting service providers on the basis of their collaboration skills, which increase proportionately the benefits offered by them, Overby adds.

Forrester also advises firms to ensure service providers focus on the business benefits of technology as a whole instead of concentrating on implementing it across traditional departmental lines.

It likewise recommends implementing cross-company process teams that areresponsible for integrating accountancy team and marketing functions, for example.

But Overby warns that organisations cannot afford to manage all of their providers directly. "By engaging a partner to manage service providers, enterprises can gain significant cost savings," she says.

David Tee, chief operating officer of DCfor, an ecommerce consulting group, says that the use of this type of lead agency has increased massively over recent years.

"A single entity is contracted to do the work and they subcontract down to specialists. The buyer gets a single point of contact to take responsibility for the work," he says.