Contracts Worth £14bn Under the Spotlight

Michelle Remo, “Big 4″ observer
July 20, 2012 /

A study of 630 ‘client-provider’ contracts worth £14 billion suggests that whilst many clients are happy to recommend their IT service provider, a significant proportion remain unsatisfied or indifferent to the support they pay for.

Analysis of the commercial relationships which make up a sizable chunk of total IT spend in the UK* goes on to show that, despite concerns over the quality of support received, most clients intend to continue outsourcing key technology-driven services.

Published by KPMG, the UK Service Provider Performance and Satisfaction study, suggests that the disconnect between client apathy and their willingness to renew contracts has been driven by a combination of the rapid growth of Cloud and App-based technology, a need to access key skills and increased confidence when it comes to managing suppliers.

“Outsourcing looks set to remain a large part of IT spend in the UK, but suppliers should not take it for granted that clients will remain willing to put their hands in their pockets. Up to this point, continued spend has been fuelled by a need to respond tactically to the difficulties brought about by tough economic circumstances, but complacency is not an option. The survey highlights that buyers are now using multiple service providers where they didn’t before – hence service providers have to respond to shifting preferences for how IT is delivered if the current trend is set to continue,” says Lee Ayling, partner in KPMG’s Shared Services and Outsourcing advisory practice.

According to the data, although 76 percent claim they intend to continue outsourcing, just 19 percent are ‘certain to outsource more’. Two years ago – the last time this study was conducted – the corresponding figure was 25 percent. The decline could be a result of the market maturing as organisations mix their approach to outsourcing IT services, but with 46 percent expressing indifference when asked if they would recommend their service provider and 12 percent highlighting their dissatisfaction, it appears that service providers need to improve to retain customer loyalty.

Asked why there was some discontent, respondents offered four key reasons in response. For some (45 percent) service providers are failing to actively identify opportunities for innovation and for others, their service providers ‘reluctance to should some of the commercial risk’ is a major concern. Worryingly, 3 in 10 also claim that some agreements are not met on time or to budget.

Analysis of the 230 study participants’ comments suggests that the problems are not enough to derail ‘client-provider’ relationships and prevent contracts from being signed. Demands for better services from their own customers and the search for skills lie behind UK businesses’ reliance on outsourced IT services. Key reasons identified by senior executives included:

46 percent saying the need for better quality services lay behind their decision (up from 38 percent in 2010)

51 percent admitting they don’t possess the right skills in-house (up from 39 percent in 2010)

70 percent claiming that although cost savings influence their decision to outsource, it is not as influential a factor as 2 years ago (82 percent).

Ayling concludes: “Just going for a low-cost option isn’t the de facto reason to outsource anymore. Companies are now looking at how outsourcing helps improve the quality of service they can offer to customers. At the same time a thirst for quality improvement means they want access to the skills that may be missing in house and the ability to respond rapidly to change.”

 

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