• silicon.com
• Management
• CIO Insights

By Steve Ranger, 27 April 2005 12:50

NEWS Four out of five outsourcing deals will be renegotiated during the lifetime of the contract, because many deals have been too focused on cutting costs.

A survey of 200 European executives by analyst house Gartner found that 55 per cent of those businesses with outsourcing contracts have renegotiated the deal.

One in eight contracts had even been renegotiated within the first 12 months of their operation, Gartner found, while only 23 per cent of companies said they did not expect to renegotiate their contracts.

But only six per cent were planning renegotiations to rescue existing deals, which Gartner said confirmed its view that relatively few companies are actively looking to bring outsourcing back in-house.

Half of survey respondents highlighted lack of flexibility as the biggest issue leading to renegotiations. Cost reduction was another key area, with two in five saying they paid too much for their outsourcing.

Gartner senior analyst Gianluca Tramacere said many companies had set up long-term outsourcing deals based on short-term cost cutting needs. "Organisations don't realise that their needs are going to change," he told silicon.com.

He said the "sense of disillusionment" that came from this is one of the biggest inhibitors to outsourcing.

But the analyst house said that some renegotiation, in the form of a mid-term review, is a good idea.

And as internal IT departments start to act more like a manager of different services rather than simply a provider, more emphasis should be put on correctly acquiring the right mix of internal skills.

Companies should spend at least four per cent of their IT budget on putting in place the right team to manage the deal, and should regularly review their sourcing strategy and exit management plans, Gartner said.

Tramacere said: "Outsourcing is not just about getting rid of people, it's about acquiring people - if you don't have the [right] skillset you will continue to have tough discussions about a lack of clarity."