IT directors should expect to negotiate lower prices among service providers in the next year or two, if interpretations of research from outsourcing advisory firm TPI can be believed.
According to this report on IT Week, TPI has reported that a fifth of current large international IT contracts are coming up for renewal over the next two years. (I suppose that’ll continue being true, since most large contracts are written for between five and 10 years…)
This “this wave of renewals will provide opportunities for firms to negotiate improved terms,” writes reporter James Murray.
How so? First, the options for client organizations are greater, now that Indian firms have joined the big leagues. The largest service providers are going to have to work harder to retain the work. Second, we’ll see many mega-deals become middling-deals, where multiple service providers will get a piece of the work — application maintenance or help desk or mainframe operations.
Then Silicon.com reporter Steve Ranger points out that the “big six” outsourcing firms — Accenture, ACS, CSC, EDS, HP and IBM — “could feel their grip on the market weakened by more competition from offshore companies. These companies currently possess 72% of the contract value facing renewal. IBM and EDS own half of that pot — $50 billion between them.
Even though there’ s a tendency for the incumbent to win a contract renewal, the structure of the deal will certainly look different, if the client managers are doing their jobs. Likewise, as multisourcing grows in popularity, those bigger companies will probably find themselves in the position of “prime contractor,” a la ABN Amro, which means learning how to play nicely with the smaller companies.