Businesses are planning to increase
their IT outsourcing
this year as they come under pressure from thecredit crunch.
A
s
t
udy, which looked at 500 UK contracts, including 330 of the
biggest contracts from 125 of the top IT spending organisations in
the UK, found that outsourcing has grown dramatically.
Equaterra's UK Service Provider Performance and Satisfaction
Survey 2008-09 analysed £8bn of IT outsourcing contracts. It
reported that 63% of heads of IT plan to increase the level of
outsourcing, compared with54% in 2007 and 51% in 2006, a 12%
increase over three years.
The driver is cost. For 69% of the heads of IT questioned, cost
saving was the main driver for outsourcing IT. And, if asked by the
board to make savings, the research found that 80% of IT directors
would consider extending the level of outsourcing.
There are other
reasons to
outsource. IT heads regard outsourcing as a way to improve
quality (41%) and provide access to skills (27%).
Greater
flexibility
As financial pressures increase, IT heads are looking
for
greater flexibility in their IT outsourcing contracts.They are
increasingly negotiating contracts that allowthe level of
outsourcing to growor shrink with business requirements.
Lee Ayling, managing director for the IT and communications
advisory practice at Equaterra in the UK, says, "It is about having
a utility-based pricing model with variable costs, where you pay
for what you use. This enables an organisation in these uncertain
times to buy an adaptable outsource service."
Andflexible financing allows a business to spread the cost of
rolling out a contract."You donot need to make a capital investment
up-front.It allows the cost to be amortised over the length of
contract," he says.
But this level of flexibility is not risk-free, hewarns.
Businesses need to be sure exactly what services they need. Ayling
recalls how one large business with 100,000 staff entered into a
unit agreement with a service provider, under which it paid for the
service on a per desktop basis but did not have a clear view of the
number of desktops it had. "The supplier found another 20,000
desktops, which led to a 20% increase in fees. This completely
shattered the business case," he says.
The Equaterra research shows that outsourcing is still regarded
by UK businesses as a cost saving measure. But access to skills,
innovation and the ability to pay for outsourcing services flexibly
are significant factors driving UK companies to increase the level
of outsourcing they undertake in 2009.
Atkins extends
Capgemini contract
Multinational engineering and design consultancy Atkins has
extended its outsourcing contract with Capgemini in a
£13.7m deal running until 2014. The contract illustrates how
large UK businesses are becoming more savvy when renewing
outsourcing contracts.
"We have the ability to benchmark the costs of this contract
against other companies to ensure that it remains competitive,"
says Linda Barker, IS head of finance and HR systems at Atkins.
The contract provides support for both IT infrastructure and
core corporate applications, including finance, human resources and
payroll. Barker says Atkins will have the ability to add or remove
elements of the service to meet the company's changing needs.
The cost of the Capgemini service is predictable, which Barker
says "helps enormously with budgeting and forecasting as we know
there will not be any surprises waiting for us".
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