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Businesses forced to ask IT service providers for help during pandemic

IT service providers have been approached by long-time enterprise customers asking for price cuts due to the impact of the pandemic

The current Covid-19 pandemic and the global disruption it has caused has forced enterprises to increase their focus on how they manage their IT services providers.

Effective management will help them survive the current slowdown and emerge strong when the global economy starts moving again. Service providers that helped during the tough periods will benefit from continued relationships, but must expect to reshape contracts.

The Covid-19 pandemic has highlighted the essential cooperative relationship between IT service providers and demonstrated that both sides required some leeway. IT service providers were even faced with long-established enterprise customers that could no longer pay for some of the services they received.

According to a study of 200 large enterprises, conducted by Boston Consulting Group (BCG), 79% have requested help from IT service providers during the Covid-19 pandemic.

The survey covered businesses in sectors including consumer goods and retailing; banking, finance, and insurance; mining, energy, and utilities; and technology, media, and telecommunications. It found that direct financial support was requested in the form of longer payment terms and price reductions, requested by 47% and 45% of companies respectively.

This was widespread as enterprises coped with almost shutting down for weeks and even months at a time. BCG found that 82% of the respondents saw revenues fall, 78% faced operational challenges, and 68% had to cope with service provider-related challenges.

One CIO at an Australian bank told some suppliers, “We’re sorry, we can’t keep paying for this process”, according to the BCG report.

This kind of request was for short-term relief only and service providers that supported customers during the toughest period will inevitably benefit from ongoing business as firms digitally transform.

“Many companies realised that they had no option but to become more digital more quickly if they were to survive, but only those that could facilitate remote work on short notice were able to limit the impact of the pandemic on their operations,” said BCG.

“Finding it difficult to manage these forced digital transitions on the fly, many companies turned to their service providers for support then and have been expanding their relationships with them,” added BCG.

One unnamed CIO respondent to the BCG survey said their organisation is deepening its relationships with the service providers that saw it through the initial crisis. “The [service providers] have been supportive and particularly good. We haven’t had a major incident throughout this period,” said the CIO.

IT suppliers will have business to target when the post-pandemic recovery begins, but will also have to reset their relationships with customers seeking to “revamp their sourcing strategies”, said BCG.

According to BCG, this will inevitably lead to customers wanting more for their money. “Building on the past year’s responses, companies are adapting their outsourcing strategies to get a bigger bang for the buck,” it said.

The survey found that due to “an abundance of caution”, 62% of enterprises are very likely to renegotiate outsourcing contracts. It said changes will be to contractual terms and conditions, pricing structure, delivery models, and scope of providers’ services.

Customers are also likely to expect service providers to “shoulder more risk” around maintaining the continuity of business operations.

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