Global businesses are demanding large discounts from
outsourcers amid fears over economic downturn.
According to a 12-month study of global companies carried out by
Compass Management Consulting of 120
outsourcing deals, businesses are requesting discounts of up to
23% from outsourcers in return for longer contracts
But the renogiations could threaten the effectiveness of the
contracts, said Geraldine Fox, global sourcing head at Compass
Management Consulting. She warned that lower price contracts could
lead to quality slipping and longer contracts could leave firms
with out-of-date IT.
"The business today is not going to be the same as the business
in eight years' time and the economic environment will not be the
same either," Fox said.
Phil Morris, managing director at sourcing consultancy
Equaterra, said it is risky to place inappropriate demands on the
supplier. "I believe the emphasis should be buying services at a
price appropriate for the market and at a level that is
sustainable."
"If it is clear that the outsourcer cannot do it at that price
the service will go down," he said.
Robert Morgan, director at Hamilton Bailey, which provides
consultancy services to outsourcers, said outsourcers rarely make
more than 8.5% and asking for large cuts in price comes at a
cost.
"The outsourcer will have to take out costs by reducing the
service levels, taking people out or even sweating assets by not
refreshing technology as quickly," he said.
Businesses can get price reductions and flexibility if they
disclose their future business plans to outsourcers, he said. "By
understanding [a customer's] business strategy and applying that to
the investment decisions required in technology considerable
savings can be made."
Guy Mason, chief information officer at rail freight company
English Welsh & Scottish Railway, said flexibility is more
important than price. "Flexibility is important because the
changing economic conditions mean there are some adjustments to our
business plan and we want more flexibility from the supplier."