Gartner is advising IT chiefs to check that their IT services providers are financially sound and able to survive the recession, and refresh their risk analysis at least once every six months.
IT service providers are facing challenges that include the rise of renegotiation of multiyear and outsourcing contracts, the development of alternative delivery models, and the need to balance price reductions.
These factors “hide a major risk for the market as a whole,” Gartner has cautioned IT directors and CIOs today.
The guidance is that checks need to be made every six months of a service provider’s investment profile, with an organisation’s sourcing strategy reassessed every year to account for changes among market providers and new offering developments.
Market-watchers insist that the economy has prioritised outsourcing as a means of achieving short-term cost reductions. Similarly, business process outsourcing in some cases is being used to carry out overdue overhauls to back-office and business service delivery models. But Gartner’s Claudio Da Rold sees 2009 and 2010 as being a critical period for the outsourcing and IT services market.
“Organisations need to understand the changing behaviour of IT service providers and the measures they take to avoid unforeseen business and operation risks” the analyst said.
A membership survey carried out in the first quarter by the International Association of Outsourcing Professionals found that a majority of companies still plan to pursue outsourcing, but many of them were renegotiated pricing terms with their service providers.
At that time, one in five organisations said they had renegotiated prices on their existing outsourcing contracts. The industry body expects that both the volume of deals and pricing levels in contracts will be lower this year.
Nearly 75% of organisations reported that they will do the same or more outsourcing in response to the financial crisis and that greater contract flexibility is their top need. But 25 % reported lower volumes and 19% said they have renegotiated prices on existing contracts.
