Although falling prices around the world are good news for buyers of such services, it means some outsourcing suppliers may be driven out of business. Consequently analysts Gartner are now warning organisations that have outsourced key functions to keep a close eye on these business partners' health.
It is thought global IT outsourcing prices are expected to drop anywhere between five and 20 per cent in the next 12 months. This could mean some suppliers go bankrupt, as a decrease of more than ten per cent would be higher than many IT providers' net profits.
Businesses are therefore advised by Gartner to use caution and not sign any long-term sourcing contracts, regardless of how lucrative suppliers' offers and discounts appear.
Alex Blues, IT outsourcing expert at PA Consulting Group, comments: "I believe that the issues are not as simple at they appear. There are many other factors that should be taken into account when determining the length of an outsourcing contract. Yes, some suppliers may be driven out of business but it is much more likely the failing businesses will be acquired rather than simply disappear.
“I believe that companies should focus on the complexity of the outsourcing contract and the amount of transformation involved. If the contract is 'commodity' then there is no need for a longer term contract. If the contract is more complex then the necessary contractual provisions need to be included to protect against bankruptcy.
“However, if I had to focus my attentions it would be on the reasons for 95% of contracts continuing to fail which includes; lack of or change in the business case, misunderstandings over the capability of the supplier and poor governance. It is these issues that should be keeping the CIO awake at night.”
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