As the IT outsourcing market slumps to a 10-year low, with contract values down 34% on the same period last year, we read with interest that 96% of Heads of IT are unhappy with the outsourced IT contracts they had negotiated and plan to retender or renegotiate at least one of their IT outsourcing deals. (‘IT Outsourcing Relationships in Need of an Upgrade?’ 22/4/13).
The key issue that this survey reveals is that many outsourcing contracts promised attractive cost savings, but only by limiting a company’s ability to make adjustments as business and IT needs continuously change. Some contracts were for long-term periods, up to 10 years! (One has to wonder at those IT managers who thought they knew what IT their company would need in 10 years’ time.)
Not surprisingly, a survey found that the most frustrated managers were the ones trapped in the longer-term contracts, which are blocking their ability to take advantage of new technologies and obtain the IT services their businesses need.
Only just over half of those surveyed plan to stay with their current suppliers, which should be worrying for the rest, who are clearly not responsive or competitive enough in today’s fast-changing market. If this last year was the worst for the IT services contract market since 2002, one has to wonder what these outsourcing companies are thinking. They clearly are not doing enough to keep their customers happy – in another survey, by Compuware, poor quality of service and hidden costs were commonplace.
But the survey also showed why some are reluctant to open discussions with their suppliers: 61% of IT heads reported difficulty in renegotiating with an existing supplier and 47% reported outright conflict. And at the end of a stressful renegotiation, only 61% had met their objectives and secured a more flexible, reasonably priced contract.