Shorter IT outsourcing contracts in 2014

Shorter IT outsourcing contracts in 2014

More organisations will demand agility and flexibility, says Ovum

More organisations will look to shorten their IT outsourcing contracts with providers as they demand more agility and flexibility, according to research firm Ovum.

In its new report, Outlook for the Global Outsourcing Market at the Tail End of the Financial Crisis, the researcher said renegotiations and restructurings will be a key characteristic in the future of the global outsourcing market.

The analyst firm said with US$146 billion worth of contracts coming up for renewal and the trend towards shorter contracts, the global outsourcing market revenue is predicted to grow only 4 per cent by 2014.

“A large proportion [of organisations] aren’t going with long term – 7, 10, even 15-year deals,” said Jens Butler, principal analyst, IT services at Ovum.

“Certain organisations usually within federal government, defence, or those engaging in large transformation programs of work are still embracing these longer term deals. But there are a large proportion of contracts that aren’t going down that path any more.”

Butler said organisations are also becoming more savvy and mature in evaluating IT outsourcing contracts and how they meet business outcomes.

“Most organisations are aware of what they want and need and therefore are actually driving capability delivery around ‘needs to have’ rather than ‘nice to have’.

“That’s creating greater competition, great flexibility demands on the vendors; it’s driving negotiations in a way whereby it demands greater flexibility and ability to leverage the services.”

Read IDC head of research Matthew Oostveen predicted there would be shorter contracts with IT service providers in 2013.

Butler added that more organisations are turning away from the simple cost cutting approach to outsourcing and are looking at how it fits in with their longer term strategies.

“It’s not about ‘let’s shift out servers, renew the data centre contract or applications contract’. It’s about 'how do we actually support the organisation to increase its customer satisfaction?'

“There’s a longer term view amongst a lot of organisations now. They want to make change rather than just cut cost.”

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