IT outsourcing contracts hold back adoption of latest IT

Inflexible IT outsourcing contracts and traditional service delivery models are holding firms back from utilising the latest technologies

Inflexible IT outsourcing contracts and traditional service delivery models are holding businesses back from utilising the latest technologies.

According to a survey carried out by sourcing consultancy Alsbridge, 38% of CIOs think their outsourcing contracts hold them back from taking on new technologies and 35% said delivery models are an obstacle to adopting new technology. This is the latest evidence that businesses could be being crippled by agreements which were signed to reduce cost and make them more able to respond to change.

This goes some way to explaining the current trend for contract renegotiations. A desire to change technology is the main driver for the current spate of renegotiation of IT outsourcing contracts, according to the research findings.

A total of 54% of respondents plan to update an existing arrangement due to changing technology and 46% believe the ability to take advantage of new technologies is one of the most important factors in service provider selection, despite 34% stating that suppliers will not promote technologies like cloud computing that could reduce their bottom lines.

This is the third installment of a survey of 250 senior IT decision-makers in mature European markets, which has already revealed that 43% of IT contracts signed in haste during the recession are now causing problems because they were not structured properly and do not meet the needs of businesses. 

Furthermore, the same survey also found that 65% of IT outsourcing customers said suppliers would not be open to renegotiating and 48% think the suppliers would kick up a fuss if asked to renegotiate.

John Sheridan, head of IT outsourcing at Alsbridge, said technology can deliver huge competitive advantage to businesses, but only if contracts are flexible enough to quickly integrate new ideas.

“Inevitably, with the technology world developing apace, long-term contracts and inflexible agreements are leaving businesses behind,” he said.

“The desire for greater flexibility in today’s economic environment is understandable, but so is the supplier’s need for clear definition and confidence around return on investment. Clients and outsourcers must work together to agree a deal that works for both parties and doesn’t compromise either one’s ability to deliver,” he added.

IT outsourcing is going through a period of major change as the result of an economic downturn of extreme proportions alongside major advances in technology.

Tight budgets and increased service options as a result of new technologies, such as the cloud, mean many IT outsourcing contracts are no longer fit for purpose or the best option available.

A bank might have signed a 10-year agreement to outsource its datacentres in 2006; since then, a lot has changed. The financial services crash of 2008 might mean the bank has fewer customers, processes a smaller number of transactions and has less money. 

At the same time, cloud computing has matured, meaning the bank does not require as much datacentre space and does not need to pay for equipment up front. Retail, manufacturing and travel sectors are all examples of sectors also hit hard by recession and targeting new technologies to help them recover.

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Maybe this varies regionally, or even on the size of the outsourcing firm. The companies that we have chosen to have contracts with have made it a point to be accommodating to us. We expect to be the ones directing their work, including the technologies that they use. If the contractors are not experienced in the technologies or methods that we would like them to use, some managers have asked for the company to send their employees to training, and they have complied.
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