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Spending on enterprise service providers to rise as companies seek savings

A recent AMR study found that U.S. and European companies are prepared to spend more on enterprise service providers this year

Companies will spend more on enterprise service providers this year, especially in the service industries, according to a recent AMR Research report.

Two-thirds of the 200 U.S. companies and about half of the 200 European companies AMR surveyed last October are prepared to increase budgets for enterprise application services, ranking cost savings, innovation and service-level improvements as their highest priorities.

U.S. companies are prepared to increase their budgets for outside help this year by an average of 9.4%, and European companies by 7.9%, according to the report. Companies in the service industry will spend even more, increasing their spending 11.2% from the current average of $17 million annually.

"It's making more and more sense to move to these providers," said Phil Fersht, research director at Boston-based AMR. "It gives [companies] the most control, and it gives them the most choice. It's really become a way of life."

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The report does note that recent economic events might knock companies' spending down by 2% or 3%.

According to the AMR report, U.S. companies with less than $1 billion in annual revenue are spending an average of $2.8 million on outside help. Companies with more than a billion in annual revenue are spending, on average, $29.5 million.

More companies are pursuing a best-of-breed service strategy, Fersht said. More than half of the respondents plan to increase the number of service providers with which they will work over the next two years.

Companies are going to a niche provider for highly technical areas, Fersht said, and to a more established provider for more bread-and-butter applications.

"The bigger they are, the more likely they are to multi-source," he said.

If you're looking for a service provider, Fersht said, the first thing you need to understand is the depth of each vendor. He said it's important to know how many people the vendors have available to help you, where they are, and how easy it is to access them.

Understand your own requirements, figure out what an enterprise service provider can do for you, and what they'll leave behind, Fersht recommends.

"A longer-term relationship should lead to a better alignment of the business processes," he said.

Talk to other customers, he advises, and look at the little things, like a service provider's attrition rate.

"If they keep losing people," he said, "that affects you."

And if you have a small to medium-sized business, don't get discouraged. If you're below $1 billion, you're not going to be that appealing to an Accenture or IBM, Fersht said.

"If you're not AMEX or GE, and you're a manager of widgets in the general market, those guys aren't going to roll out the red carpet for you," Fersht said. "[But] it's a good time to find a vendor. It's confusing. It's a very aggressive market, and it's a very successful marketplace."

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