IT leaders struggle to renegotiate IT outsourcing (ITO) contracts because they feel “locked into” existing arrangements, according to a new study by Alsbridge plc.
Two thirds (65%) of IT leaders do not believe their ITO suppliers would be open or approachable about contract renegotiation. Almost half (48%) even think they would “kick up a fuss” if they tried to renegotiate with them.
As a result, two fifths (39%) feel “locked in” with their existing ITO suppliers.
Rick Simmonds, managing partner at Alsbridge plc, comments: “IT suppliers are right to kick up a fuss if clients are moving the goalposts and failing to honour previous commitments or recognise unrecovered investment.
“However, if the business need or the technology world has changed, then it is incumbent on suppliers to be receptive and not keep their clients in the stranglehold of an outdated contract. This applies even more when the contract is nearing its end of term, when everything should be open for reshaping.”
The study uncovers the views of 250 senior IT decision makers from Europe’s most mature ITO markets: the UK, Switzerland, Holland and the Nordics.
Strength in numbers
Three quarters (71%) of IT leaders believe they don't have the necessary information to renegotiate their ITO contracts, while more than half (52%) say benchmarking clauses – a common contractual feature – do not work.
Over half (57%) also admit to not having an overarching sourcing strategy in place, while two fifths (42%) have no formalised review point in their ITO contracts – both of which can smooth the path to renegotiation.
Simmonds continues: “Having access to current market data is vital to developing a strong business case for change. It takes the emotion out of the proceedings, and necessitates a more principled discussion based on independent facts.
“IT leaders shouldn’t feel confined by their contract benchmarking clauses – going out to the wider market and applying informed commercial pressure as a contract reaches a break point can be very effective.”
Lessons learnt
Asked about past experience, more than half of IT leaders say they now plan to appoint a bigger or more skilled negotiation team (54%) and invest more time in proceedings (51%).
Almost half (46%) also plan to start the renegotiation process earlier.
Simmonds continues: “At the heart of every successful contract is a clear renegotiation strategy. IT leaders can bolster their position by matching up to suppliers' highly skilled and well experienced teams, and by starting the process at the right time – usually around two years before the contract ends.”
