IT chiefs worried by vendor lock-in risk missing out on cloud, big data

IT chiefs worried by vendor lock-in risk missing out on cloud, big data

Summary: Tech chiefs are worried suppliers could 'kick up a fuss' if they try to change their contracts, but also want to add cloud, BYOD and big data to their infrastructure.

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TOPICS: CXO, Outsourcing
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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.

Here's what is really worrying CIOs, right now

Here's what is really worrying CIOs, right now

Here's what is really worrying CIOs, right now

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.

Topics: CXO, Outsourcing

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9 comments
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  • They're probably right.

    "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."

    They're probably right. Best to let it expire and not renew it.

    . . . and this is why I'm not a big fan of contracts.
    CobraA1
    • No contracts?

      Seriously? You would do a $100 million software implementation flying by the seat of your pants?

      Contracts should be mutually beneficial. What you give up in terms of "lock-in" you get back in guaranteed support and continued ROI. If you want more flexibility, then build it into the contract! Instead of locking a price for 5 years, allow the vendor to raise prices by a capped percentage in return for allowing an "out." Some companies really do need to capitalize huge investments over a 10-year time span, if you're not locking your vendor (it works both ways) into supporting the system that long, you're going to suffer badly on the back 9.
      jvitous
      • Contracts are supposed to be mutually beneficial, but...

        ...in practice, they're usually weighted in favor of party with the best lawyer (usually the richest one). It's also the case that vendors who rely on lock-in to insure customer loyalty have a bad habit of treating customers like property. Remembering that enforced loyalty isn't loyalty at all, I think it better for all concerned for vendors to focus on encouraging customer loyalty by putting out the best possible product for the money spent.
        John L. Ries
        • Expecting altruism from vendors?

          Ones contracts tend to be more successful when you understand the motivation of the other party. Expecting vendors to be pragmatically motivated by their own profit a security is a safer position to negotiate from than expectations to the contrary. Any vendor who claims they only have my interests at heart is blowing smoke up my butt and often I will treat their disingenuous proposals with the contempt they deserve.
          jvitous
          • For negotiating purposes...

            ...assume the vendor is a money hungry thief, especially if it's a publicly traded corporation. The only exception is if the vendor is a proprietor you know personally (and then you can judge his character for yourself). Thus, when working with large vendors, long term contracts should be avoided, unless the advantage is particularly large (then keep your eyes open).

            Vendors should build loyalty by doing the right thing by their customers instead of relying on legal trickery or positioning oneself as the only game in town, but should is not is, so customers should act accordingly.
            John L. Ries
          • My main point being...

            ...contracts are usually slanted in favor of the party with the best lawyer (usually the richest one). Thus, contracts between consumers (or small businesses) and large corporations are almost guaranteed to be unequal.

            And, of course, click-through "EULAs" are really ultimata imposed on the consumer as a condition of being able to legally use the software at, and are thus not properly agreements at all (the term "agreement" implies negotiation). Naturally, they're written to protect the vendor, not the consumer.
            John L. Ries
  • While you probably didn't intend it...

    ...the title to the article is somewhat reminiscent of the subtitle to "Doctor Strangelove":

    "How I learned to stop worrying and love the bomb".
    John L. Ries
  • Safe to miss out on cloud and big data

    Most organizations will be fine missing out on Cloud and Big data since the ROI will never be realized for the majority of IT shops in business. Those that use Cloud and Big data have specific needs and seek out this type of technology to fill those niches.
    ammohunt
  • Huh?

    So IT chiefs couldn't give less a care about vendor lock-in for clients or servers, but all of a sudden it is a huge issue for the cloud? Ya, right - whatever dude.
    HackerJ