With the dust from thecredit crunchyet to settle, and real
signs oftighter economic conditions ahead,
most companies will be looking torein in their spending in
2008. As previous articles in
Computer Weekly have observed, companies are likely to focus on
running their IT departments more efficiently as one way of
improving overall profitability, writes Rex Parry,
head of outsourcing at Eversheds LLP.
For some, that might mean a
new outsourcing strategy, perhaps with an
offshore element to benefit from the lower unit costs available
in countries with a cheaper cost base.
For companies that have already outsourced a large part of their
IT needs, a slowing economy will mean careful
management of their outsourcing arrangements becomes even more
important. Customers will also want to
review their existing outsourcing arrangements to identify ways
they can
reduce price or obtain
better value for money. Customers could consider the
following:
- If the contract allows for early termination, the customer
might find it cheaper in the long term to terminate their existing
arrangement and re-tender the services at a lower cost. Even if the
customer does not want to exit, it might be able to use the threat
of termination to renegotiate the pricing arrangement.
- Even if the contract does not contain a break clause, the
customer might find offering to commit to a longer contract term
will encourage the supplier to reduce charges.
- Often contracts will contain mechanisms that allow the
customer to push the price lower, usually through benchmarking. As
a general rule, technology costs decrease over time. A benchmarking
exercise allows a customer to ensure the competitiveness of the
price it is paying. If a customer has not recently benchmarked its
contract price against the market, then now could be a good time to
do so.
Any well-drafted outsourcing contract will contain a detailed
change-control procedure which should require the supplier to
accommodate changes requested by the customer. With the primary
focus now on reducing cost, a company might find that it would
rather take a lower standard of service in return for a reduction
in price or the scope of the services provided. In each case, the
change-control procedure should allow the customer to drive a price
reduction.
If the customer has been experiencing service problems, one
option is to exploit those failures to drive a price reduction.
Alternatively, if things are particularly bad, the customer might
consider other legal remedies (such as court action) to recover any
losses resulting from the service problems.
The emphasis in the coming months for those who manage
outsourcing relationships will be to drive down cost and ensure
their house is in order if legal disputes are likely. The better
news for suppliers is that some customers may prefer to use the
levers identified in this article to drive innovation or better
services instead of lowering the contract price.