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23 Mar 2009
Gartner has predicted a fall in outsourcing prices of up to 20 per cent by 2010, in what could be good news for companies that outsource their IT.
The analyst firm forecast a reduction of between five and 20 per cent based on the continued economic downturn, which will increase competition and prompt cost-focused buying behaviour.
"Regardless of the relative strength of outsourcing during a recession, many clients are reporting intense discussion with their vendors and renegotiation of contracts for terms and conditions, service level agreements, fees, volumes and low-cost offshore delivery locations," said Claudio Da Rold, a Gartner vice president.
"These items are under scrutiny to identify satisfactory concessions to further reduce the cost of services on a case-by-case basis."
Gartner said that the cost of datacentre services could fall by between five and 15 per cent, network services between 10 and 15 per cent, and application hosting services between 10 and 20 per cent.
"It is important to remember that price reductions will apply with great variability across geographies, vertical industries and client size with regard to specific deals," said Da Rold.
"Providers are not reporting any across-the-board price reductions, but rather will address each client situation individually."
Gartner warned that customers pushing for prices which are too low could affect the quality of the services provided and the relationship between provider and client.
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New Layer of Business Value Needed
Outsourcers have always strived to remain competitive within the market when negotiating contracts and costs. Therefore, it comes as no surprise that Gartner has predicted a reduction in outsourcing prices with the additional pressures of the current economic climate. Cost has always been one of the key drivers in the past, now it has simply become a priority for customers. However, cost-saving initiatives should not wholly determine an outsourcing deal and there must be a balance between budget requirements , service requirements and innovation objectives. Turning off technology investment during troubled economic periods is counter-productive and when the upturn arrives companies may find they lack the core capabilities to remain competitive. Outsourcers cannot afford to rest on their laurels; they will have to step up and provide a new layer of business value to ensure they are providing ?more for less?. Providers need to work with customers to modify their operations to unlock productivity that may be currently trapped in disjointed processes, poorly integrated planning or inadequate communication. Ultimately, outsourcers will have to go the extra mile to guarantee added value, but customers should not negotiate themselves out of the market by sidelining the quality of their provider.
Posted by: Tom Higgins, Managing Director, Commercial Solutions EMEA at Perot Systems 27 Mar 2009