IT chiefs worried by vendor lock-in risk missing out on cloud, big data
IT chiefs struggle to renegotiate IT outsourcing contracts because they feel locked into existing deals, but could be missing out on new technologies such as cloud and big data as a result.
Nearly two thirds (65 percent ) of IT decision makers do not believe their outsourcing suppliers would be open or approachable about contract renegotiation, and nearly half predicted suppliers would "kick up a fuss" if they tried to renegotiate.
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As a result, 39 percent said they feel "locked in" with their existing suppliers, and 71 percent said they lack the necessary information to renegotiate. And more than half (52 percent) say benchmarking clauses, a common contractual feature designed to help measure a supplier's performance, do not work.
Over half of the 250 senior IT decision makers surveyed across the UK, Switzerland, Holland and the Nordics said they don't have an overarching sourcing strategy in place and 42 percent have no formalised review point in their ITO contracts.
However, these tech chiefs seem to have learned their lesson: more than half of IT leaders say they now plan to appoint a bigger or more skilled negotiation team and invest more time in renegotiation proceedings.
Rick Simmonds, managing partner at outsourcing advisors Alsbridge, which conducted the research, said companies often don't have the data readily available to know whether what they are getting is what they need in the current market.
"Typically clients are negotiating outsourcing contracts every few years or so and in house there isn't great depths of current market information," he said.
He said companies are are sometimes surprised by the reaction of the incumbent suppliers when they want to renegotiate or retender. The incumbent tends to be "quite defensive and hard to deal with", he said.
And while he said IT suppliers are right to kick up a fuss if clients are unfairly moving the goalposts, many contracts signed during the worst of the recession don't really fit companies now looking to grow and take advantage of new technologies.
"Think about the amount of change that has come into the market in the last three or four years; the accent on cloud, bring your own device and big data analytics that was barely being talked about four years ago. And you think about the deals signed in 2009 as a reaction to the downturn, heavily focused on cost reduction, it's not surprising that when you look at them in 2013 you are not getting everything that's best in the market today. But when you look to change that you can get into a very difficult dynamic with your existing supplier," he told ZDNet.
Now is a good time to renegotiate, he said. "What you've got now is access to quite disruptive technologies. Virtualisation and cloud ought to be able to bring you a massively different delivery model. If you compare that to a traditional outsourcing deal signed five years ago what is being sold now has moved on enormously."
According to Information Services Group, which tracks large outsourcing deals (ones with an annual contract value of more than €4m), there was a big drop in the number of contracts signed in the first quarter of this year.
Deals totalling €1.5bn were signed in the first quarter a 20 percent decline from the first quarter of 2012 and a 30 percent drop from the fourth quarter of 2012. The market awarded 105 contracts in EMEA, a drop of 15 percent year-on-year and 17 percent sequentially.
A major reason for the decline was a lack of new outsourcing deals – down 50 percent from the fourth quarter of 2012, thanks to a reduction in the number and average size of contract awards.
For the first time in more than a year, restructuring of outsourcing deals accounted for about half of the region's total. The UK public sector is now the world's largest outsourcing market outside of the US.