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According to a survey by HfS Research, 43% of IT buyers described their decision to outsource IT and business processes for cost-cutting reasons as “mission critical”, whilst a further 44% said cost-cutting was an “important, but not critical” reason behind the move.
Buyers rated other operational and strategic drivers behind their IT outsourcing decisions as less critical. More than a third (37%) of buyers said that it was “mission critical” to outsource IT services in order to obtain “greater flexibility to scale operations”, whilst 34% said IT outsourcing was equally critical in order to meet regulatory or other compliance standards. On a strategic level, 24% and 22% of buyers respectively said that gaining access to talent and new technology was a “mission critical” driver behind outsourcing IT.
Reflecting on these trends, IT procurement contracts specialist Bridget Fleetwood of Pinsent Masons, the law firm behind Out-Law,com commented that “Our clients are increasingly under pressure to get the most out of their IT spend and this is driving them to adopt a more intelligent approach to IT sourcing.”
“We continue to see a trend in restructuring and renegotiation of existing deals as well as a move towards more agile and lean contracts which deliver best value and allow customers to access niche skills, innovative services and new technology, she added.”
Buyers believe their staff’s foremost strengths lie in contract negotiation and selecting service providers, with their weaknesses predominantly in external benchmarking and in defining business outcomes other than costs, according to HfS Research.
Improving analytics and driving innovation are the two reasons for outsourcing that have grown most in importance since buyers began outsourcing IT services, it added. A fifth of buyers that outsource document and print operations plan to change service provider in the next two years, whilst 19% and 13% respectively said they would change providers of contact centre and IT infrastructure services within that timescale, it said.
KPMG said that a separate survey it had conducted showed that organisations’ “clear top initiative” in 2013 is to “drive down operating costs, in part through ongoing redesign and reengineering of core business models and processes”. The second priority businesses have this year for outsourcing IT services is to invest in new or improved IT, such as to take advantage of cloud computing.
It said, though, that those businesses would face challenges in their initiatives because of “dysfunctional and fragmented organisational and operating models, designs, and processes, along with talent challenges and diminishing returns from traditional change efforts”. The challenges will lead businesses to look for “expanded” global business services, it said.
KPMG said that most buyers “need to improve” how they manage “multiple providers” as well as their assessment and management of risk in the context of global sourcing. It said that businesses that can make IT services sourced from multiple providers and through “alternative and mixed delivery models” work together will be able to glean the most value and sustained performance from their global business sourcing activities, even if it takes time to develop and attain that outcome.
“We have found that multi-sourcing places unique demands on the customer team both in terms of managing suppliers and integrating the services and systems that are being delivered,” said Fleetwood.
“We are also seeing the evolution of new sourcing structures which seek to address these challenges – including service and system integrator (or SIAM) and collaborative service delivery models. In our experience these work best where there is a clear and sensible allocation of risk between the customer and its suppliers (including the SIAM) and strong incentives to drive integrated services and systems for the customer,” she added.
The KPMG report also said that “More mature organisations are focusing on how to more consistently source, manage, and govern collective shared services and outsourcing efforts as a global portfolio vs. discrete set of initiatives.”
A report by technology insights firm, the Information Service Group, found that the total annual contract value (ACV) in IT outsourcing deals in the European, Middle Eastern and African market fell 48% last year from the figure recorded in 2011. It said that the ACV “was at its lowest level since 2007″.
However, in the UK and Irish market the total IT outsourcing total ACV recorded last year was €3.66 billion, up from €3.08bn in 2011, whilst the UK’s public sector IT outsourcing contracts market remains the world’s biggest, outside of the US, the report said.