How Do You Manage Your Outsourced IT Contracts?

Gartner IT Key Metrics Data 2012 indicates the average annual IT outsourcing spend is 23% of total IT spending. Cost savings is typically one of the primary drivers for outsourcing, although often times too much focus on cost usually leads to dissatisfaction, because many savings are unsustainable, or are never truly achieved as market price has changed.

Gartner recommends using a third-party benchmark clause as a tool to ensure that outsourcing arrangements stay competitive to the market and IT customers remain satisfied with the services provided. These contract levers can help control costs, streamline processes and improve service quality, while minimizing disputes.

Most large outsourcing contracts have a benchmarking clause which states that at some point during the life of the contract, pricing is to be compared to the external marketplace. Processes for benchmarking outsourcing clauses are still maturing. Many respondents have either not executed their outsourcing clauses yet, or feel the process needs improvement.

Focusing too much on one element at the expense of others will result in an unsatisfactory service model. Often, market price comparisons tend to focus solely on pricing, but price is only one aspect of the overall contract.

Best practice service agreements are based on a balance between three critical elements: Pricing, Service Levels and Contract Structure. By including and executing price benchmarks and IT customer satisfaction surveys in outsourcing deals, sourcing managers and negotiators can achieve tangible cost-benefits while maintaining service quality.

Source: Gartner
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