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IT outsourcing relationships buckling under pressure

Derek du Preez | April 23, 2013
Almsot all CIOs want to retender one or more deals

"Then you have more leverage and opportunity with your incumbent supplier to adjust it on a regular basis. What we have often found is that clients that are the most frustrated are the ones in the longer relationships."

IT leaders are wary of the renegotiation process however, with two thirds (68%) having renegotiated or retendered an ITO contract in the past and many reporting bad experiences.

Almost two thirds (61%) of IT heads have encountered difficulty in renegotiating with an existing supplier and, worryingly, almost half (47%) report outright conflict. Two fifths (40%) say renegotiation is usually a fractious process.  

With two fifths (41%) reporting difficulty in untangling their contractual terms and conditions, 39% of IT leaders also said that their objectives for renegotiation were not met.

He added:  "I think negotiating is pretty tough if you don't have really good data and good options. If you are five years into a ten year contract and you want to renegotiate it - well tough. It's going to be very hard. However, if you are in a five year contract and renewal is coming up in a couple of years, you've got much more opportunity to put some pressure on them by saying, we will go out to market, we will change to a supplier that's more in line with what we want."

A lot of developing a successful outsourcing relationship is down to realistic expectations and thorough preparation prior to entering the deal, according to Simmonds. The report found that two-fifths (40 percent) of IT professionals left too many key items to be confirmed after having already signed the contract.

"I think more important than cutting costs, is how the costs are cut and whether enough preparation was done and enough time was taken. The most common thing is that not enough time is taken in the contracting process to be really clear about what the services are, what will change, what will happen in different scenarios - and that's where the disappointment comes," said Simmonds.

"A classic mistake is not to do due diligence before the contract," he added.

Due diligence is carried out by the IT supplier to identify exactly what it in the IT estate it is taking over - rather than just what is said by the CIO. However, too often companies are carrying out this audit after having entered into an agreement with a supplier.

"Obviously the supplier will find things there that the CIO hadn't identified, and this will affect the price of the contract. If you have done due diligence pre-contract, no deal has been done so both parties have equal leverage. If you do it after the contract you always find things go in one direction, because the leverage is gone and you are already tied in."


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