Cost pressure puts IT outsourcing deals under threat

29 May 2013

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29 May 2013 | Andy Allen

Cost-focused IT outsourcing (ITO) deals signed during the recession are at risk as IT buyers look to take advantage of cheaper prices in the current market.

According to a report by independent sourcing advisor Alsbridge, 55 per cent of IT leaders signed existing ITO agreements under cost pressure during the recession. Now, 43 per cent of them say their cost-focused deals are running into difficulties. And a total of 84 per cent of IT decision makers surveyed are looking to drive down ITO costs further.

The study, which canvassed the views of 250 senior IT decision makers from the UK, Switzerland, Holland and the Nordic states, found that ITO market prices have fallen by about 25 per cent on average since 2010. The biggest reductions occurred in storage, where prices sank by 56 per cent, telecoms (43 per cent), servers (23 per cent) and mainframe (20 per cent) services.

However, while IT leaders are seeking to cut costs, 42 per cent believe cost reduction as the only motive for renegotiation rarely results in success.

John Sheridan, director, head of ITO advisory at Alsbridge, said: “Planning is essential to striking the right balance between cost cutting and getting a deal that works. IT leaders must use market data to understand what's fair at the level of value they want returned and have a reasoned discussion with their supplier based on clear objectives.

“A disproportionate focus on cost is likely to leave you with a contract that is badly structured and doesn't meet your company's needs.”

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