Equaterra survey identifies flexibility as driver for outsourcing

Businesses are planning to increase the ir

Businesses are planning to increase their IT outsourcing this year as they come under pressure from the credit crunch.

A study, 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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