As CIOs seek to reduce costs and complexity, many of them say they would prefer to purchase end-to-end service-level agreements from providers offering a combination of IT and telecommunications services rather than contract for each separately. They want standardized services that can be developed inexpensively and delivered wherever their employees conduct business. These findings come from a recent McKinsey survey of more than 50 European CIOs and industry experts. The survey sought to assess their priorities for IT and telecom services.

Most service providers still fall far short of addressing the needs of CIOs. While 98 percent of those in our sample agreed that they would like to purchase integrated IT and communications services that offer "distinctive value," few providers have sufficient skills in both domains to offer a complete package. Thus an opportunity exists for companies that can deliver both types of services—in particular, for telecom providers that can boost their IT skills and for IT service providers that can expand into networking and telecommunications.

The trend toward broad service agreements is marked by a shift away from contracts that specify technology brands and toward agreements that outline service levels instead ("99.5 percent availability of SAP payroll applications per user," for example). The emphasis on services has the effect of reducing costs, since providers can standardize hardware and software, increase utilization through shared environments, and pass the resulting savings on to customers. In addition it allows IT leaders to focus on the needs of the business rather than on technology. IT staffs sometimes resist a service-level contract because they are familiar with and trust certain brands and may be reluctant to cede control. In some situations, CIOs should consider outsourcing the entire process to a vendor, which would supply its own IT staff.

Negotiating contracts with specific service levels is a prerequisite for shifting from custom-developed solutions to a more industrial model of service production and delivery, since common platforms allow providers to deliver services and applications on shared resources more efficiently. As vendors send operations offshore to take advantage of cost savings, common platforms will also help them meet their customers' need for global delivery. Currently, only a few IT departments or vendors have established a seamless global presence; DHL, for instance, hosts its IT development and operations from three central hubs in Cyberjaya (Malaysia), Prague, and Scottsdale (Arizona), passing operational responsibility from one center to the next as each day progresses (see "Building a global IT organization: An interview with DPWN's managing director for IT."

Increasingly, IT and telecom decisions are being made within a single department reporting to the CIO. But we don't see a clear trend toward the use of a single provider for both types of service (exhibit). That may begin to change soon, however. While this approach does have some disadvantages, a single outsourcing relationship is easier to manage than several and gives customers with large volumes of business more bargaining power. Above all, the responsibility of managing the end-to-end integration of IT and telecom services passes from the customer to the vendor, thereby freeing CIOs to focus on strategic priorities. The cost savings can be substantial—as much as 20 to 40 percent of the operations budget.

To meet this rising demand for integrated end-to-end service agreements, providers should seek out partners with the necessary skills. Telecom companies, which bring strong credibility in network management and security, may want to partner with complementary IT players or consider major acquisitions. (The latter strategy would present the substantial managerial challenge of blending the different cultures and capabilities of telecom and IT providers.) Conversely, IT services companies should explore partnerships with players that have strong network-management skills. The integration of IT and telecom services would represent an important change to the industry's landscape and to the service offerings available to IT leaders.