Stick or Twist? The IT Contract Renewal Dilemma

Picture this…

You’re sat at your desk, the paperwork is piling high, the phone is ringing off the hook and you’re trying to get through the 500 unopened emails in your inbox.

Sound familiar?

You flag the important emails to action later, you’re deleting all the irrelevant ones, and the “we can make you £5m in 1 hour” type emails… if only it was that easy!

Then something catches your eye.  It’s a reminder that your existing IT outsourcing contract is coming up for renewal.

You have heard on the grape vine that the supplier is likely to increase their prices by 15%.

What do you do? 

You’ve been with this service provider for 4 years. The service has been acceptable if not brilliant.

They have always delivered and maintained the service.

You manager is really only interested in making sure you don’t go over budget. A price increase will cause unnecessary concern.

You look at the paper work… then back at your inbox… the phone is still ringing…

A procurement process is time (and money!) consuming and might only drive a lower price rather than a more impressive service.

Tendering could work. But you can’t be sure what criteria to focus on nor what service elements are worth paying more for.

How, where and who delivers IT services is one of the most important decisions an executive can make.

Technology underpins almost every business process. One only needs to think about where we shop, bank and share our memories – Amazon, Metro Bank and Facebook to understand the impact of technology. The impact of getting it wrong is measured in more than a few lost customers, it can affect share price, reputation and, in some instances, careers. RBS were fined £56m in 2014 after their 2012 IT failure.

Outsource contract reviews and renewals are unavoidable, so why is making a decision so hard?

According to figures from ISG, globally there are nearly 3000 contracts, worth over £175bn, coming up for renewal in the next three years.

The issue is understanding where you should be investing your money to reduce your risk and improve the service. In short how do you achieve demonstrable “Value for Money”?

Using the consumer motor insurance industry as an example, research suggests that half of all drivers could save 23% on their premiums if they perform market comparisons. If even a fraction of that saving, say 5%, can be uncovered through similar objective comparisons, business consumers of IT services could be on track for £0.2bn of savings.

For most businesses the only model that exists for comparison is the procurement and tendering process, and that means changing focus from the core business, researching other suppliers, and starting a costly and time-consuming tender process.

Deloitte’s 2016 Global Outsourcing Survey discovered that over 50% of participants found that third-party advisors added value during strategic assessment, business case development, RFP / vendor selection, market testing, negotiation and contracting.

As a consumer, you have become used to relying on others to gather the data and build models that provide comparisons to help you focus on where to spend your money. Consumer insurance is just one example. If you’re prepared to use that independent comparison model to save 10s of pounds for yourself…

What’s stopping you applying the same model to save millions for your company?

The key to making such a model work, is trust and independence. It is essential to know that the advice offered is completely unbiased. Next you must have the confidence that the model truly and fully reflects your requirements and conditions and has sufficient breadth. Comparison needs a large pool.

Given the importance of the decision to be made, the potential benefits of change against the risk of doing nothing, what’s stopping you using independent comparisons to inform your renewal dilemma?

The phone is still ringing… maybe it’s your manager. What do you want to tell her?

Written by Sarah Hill.

Sarah is an Account Partner at ImprovIT.

ImprovIT is an independent business consultancy with many years’ experience understanding corporate technology needs and the service provider market. It has a long history of identifying the correct price to pay and optimising service levels for outsourcing contracts.

ImprovIT has developed an industry leading methodology and databases, which saves time and effort in recognising sustainable savings and improved services.

The analysis and recommendations, independent of any service provider or technology bias, will help validate and inform decision making based upon facts.

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