53% of IT leaders plan to renegotiate their IT outsourcing (ITO) contracts as 47% encounter outright conflict

24th April 2013

Over a quarter (26%) of IT leaders across Europe’s biggest outsourcing markets are dissatisfied with at least one of their IT outsourcing (ITO) contracts. 

 

 

 

Three quarters (76%) are also considering to renegotiating or retendering two or more of their outsourcing contracts, according to a new report from sourcing advisor, Alsbridge plc.  

Rick Simmonds, managing partner at Alsbridge, comments: “It was Samuel Johnson who said “marry in haste, repent at leisure” and it’s true today in the world of ITO.  

“ITO can be a great way to cut costs and deliver value, but only if deals are done properly. But it looks like many – especially those done under extreme cost pressure during the recession – are failing to meet ongoing client needs.” 

The Terms of Endearment - We Need to Talk report examines the biggest challenges threatening ITO relationships in the UK, Switzerland, Holland and the Nordics. 

 

Drivers of Change

 

IT leaders don’t appear to be getting everything they want from ITO to meet the demands of a changing environment, but they do accept some of the blame for their predicament, according to the study.  

Two fifths (40%) of senior IT professionals admit they left too many key items to be confirmed after signing their ITO contract.  

The main reasons for wanting to change include their ITO agreements not keeping up with changing technology needs (54%) and diminishing returns from their ITO investments as time goes on (49%).  

 

IT leaders’ top reasons for wanting to renegotiate or retender ITO contracts

1

My technology needs have changed

54%

2

I am seeing less benefits now than I was at the start 

49%

3

I need a new delivery model (e.g. single/multi-vendor/in-house)

48%

4

My business needs have changed

46%

5

The market price is less than what I’m paying

46%

6

I am under pressure to cut costs 

46%

7

There is no flexibility to meet changes in demand

45%

8

I am not seeing enough innovation from my supplier

44%

9

I expected too much from the contract

39%

10

The supplier has become complacent 

36%

 

Yet IT leaders are keen to fix things with their existing suppliers, with over half (53%) planning to try and renegotiate.  

A quarter (24%) of IT professionals plan to retender their business with a new IT supplier.  

 

Bad memories

 

IT leaders are wary of the renegotiation process however, with two thirds (68%) having renegotiated or retendered an ITO contract in the past and many reporting bad experiences.  

Almost two thirds (61%) of IT heads have encountered difficulty in renegotiating with an existing supplier and, worryingly, almost half (47%) report outright conflict. Two fifths (40%) say renegotiation is usually a fractious process.   

With two fifths (41%) reporting difficulty in untangling their contractual terms and conditions, 39% of IT leaders say their objectives for renegotiation were not met.  

A third (34%) of respondents admit there are things they would have done differently with hindsight during ITO contract renegotiation.  

Simmonds comments: “Although it can look like the tough option, IT heads should try to fix any problems with their existing suppliers through discussion and negotiation, provided they are competent and the relationship is ok. 

“Market data is key to success – if you know what the market can deliver, then you can start to control the renegotiation process and convince your incumbent supplier to come into line, or go to the wider market with confidence.”

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