Economic crisis to influence outsourcing decisions

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Economic crisis to influence outsourcing decisions

Karl Flinders

The current economic downturn will drive new ways of providing and pricing IT outsourcingmuch likethe bursting of the dotcom bubbleincreased the take-up of offshore services.

In 2001/2002, when a recession was caused by overvalued web-based companies, the dotcom boom came to an abrupt end. As a result, businesses started to offshore IT services to lower-cost destinations such as India to cut costs.

According to Gartner, the current economic slowdown could drive a similar metamorphism in the way IT services are delivered.

"In 2001/2002 after the dotcom crash, offshore services grew in the same way we believe the new economic crisis will bring new delivery models," said Gartner analyst Claudio Da Rold.

Businesses want to cut costs, but not at the cost of future opportunities, he added. "Businesses should not reduce cost at the cost of flexibility because this is what happens in bad outsourcing deals."

He said new models will include cloud-based services with payperuser or perunit pricing models.

If businesses commit to long-term agreements with suppliers they could miss out on the advantages of these models. The suppliers could also miss out by sticking to current delivery models rather than being more innovative about how they deliver and charge for IT services.

To ensure that businesses do not compromise flexibility they should steer clear of long-term contracts, said Gartner analyst Linda Cohen.

"Do not sign 10-year deals today to cut costs because you will be bound by them when things pick up.They will not be enduring value for businesses or suppliers," she added.

Cohen said businesses should sign short-term contracts that improve costs, ensure contracts can be enhanced mid-term and plan for substantial growth and innovation over the long term.


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