Businesses can put too much trust in their suppliers when
negotiating outsourcing contracts, said Ovum Holway's annual report
on the state of the UK IT market, published last week.
The analyst firm Ovum Holway's report for 2002 predicted that the
outsourcing market in the UK will continue to expand despite the
economic downturn, and grow by 15% to almost £8bn this year. This
growth rate is only slightly down on the 19% rise in 2001.
In response to the economic downturn IT managers are under
increased pressure to squeeze more value from existing IT assets
and demonstrate how new projects will deliver a return on
investment.
With the promise from suppliers that outsourcing can reduce IT
costs, many companies will be tempted to jump on the
bandwagon.
However, Anthony Miller, research manager at Ovum Holway and author
of the report, warned, "Everyone [the supplier and user] wants to
make the contract work and no one wants to be seen as negative so
the element of trust can be overdone.
"[Both the user and supplier] need to set out a very clear set of
rules in the contract," he added.
Apart from detailed service level agreements to set minimum
standards, companies should pay particular attention to ensuring
that the contract is flexible enough to change when its business
changes, for instance after it merges with another company, Miller
added.
Last year, for instance, insurance giant CGNU scrapped a seven-year
£124m outsourcing contract with IBM after only two years.
CGNU, which had gone through a merger after the IBM deal was
signed, said that the decision to abandon the contract was part of
a drive to consolidate its IT systems.
The report states that EDS has emerged as the main winner in the IT
services market, growing its revenue by nearly 50% in 2001 to
£2.3bn, and dominating the supplier market.
However, users have started to demand greater commitment from their
service providers, the report said, with an increase in the use of
risk-and-reward contracts, where both parties have a stake in the
success of an IT project.
Web site:
www.ovum.com/