Outsourcing Buyer Behaviour Today – An Insight From EquaTerra’s UK Pulse Survey
Lee Ayling, Managing Director, EquaTerra UK Information Technology Advisory
In the light of the current economic conditions, we asked the respondents of our 1H 2010 UK Pulse Survey* in which ways buyers are changing their approaches regarding outsourcing and global services sourcing efforts. According to service providers, most buyers are reopening contracts to renegotiate pricing levels, closely followed by pushing more work to offshore locations.
Service providers were asked to rank buyer behaviour on a scale from one to five where one represents ‘very uncommon or infrequently undertaken’ and five represents ‘much more common or more frequently undertaken.’
Buyer Behaviour as Reported by Service Providers
My recent experience definitely agrees with what service providers are reporting. Whether outsourcing buyers are reopening contracts to renegotiate on price, location of service delivery, scope or service levels, mid-term renegotiation appears to be a growing trend. For many second and third generation contracts it is almost assumed that there will be a mid-term contract review.
During renegotiation exercises, outsourcing buyers seem to be less concerned about the location from which services are delivered and more focused on ensuring that their service provider is aware that they are competing in a global market and that price, service levels, quality and scope must be market competitive.
An interesting observation made by service providers participating in the survey was that while the scope of contracts is decreasing, the profitability of these contracts is increasing. I attribute this to client organisations having open discussions with their various service providers and asking, “what part of my outsourcing portfolio can you deliver at a price which is appealing to me and offers a suitable level of profit to you?” The end result is more deals with a smaller scope.
If you are considering renegotiating a contract, proceed with care. It’s all too familiar, particularly in large organisations, for the procurement team to focus on driving down prices, while operational teams, in parallel, highlight their dissatisfaction with levels of innovation to the service provider – a clear and consistent internal strategy is needed to achieve the best results. For more about outsourcing contract renewals and renegotiation, click here to visit EquaTerra’s website pages dedicated to this topic.
*The UK survey polls the UK market’s leading IT and business process service providers and advisors to take the “pulse” of outsourcing market trends. Click here to view the 1H 2010 UK Pulse Survey Results.
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