IT Outsourcing Customers Mad as Hell, Ready to Walk

IT outsourcing customers may not be mad as hell yet, but they’re losing patience with service providers who aren’t working with them to provide value beyond the basic terms of their contracts.

Close to a quarter of outsourcing clients will actively seek to eject their current provider if they have not effectively helped them standardize, automate, or transform their processes within the next two years, according to the 2014 State of Outsourcing study conducted by outsourcing analyst firm HfS Research in conjunction with KPMG.

The survey of 312 companies found that 37 percent of outsourcing customers are likely to fire their providers if they fail to meet compliance requirements, 28 percent may do so if the provider can’t provide greater flexibility to achieve scale, 27 percent will show suppliers the door if they don’t lower operating costs, and 22 percent will consider moving on if their providers can’t deliver better standardized or transformed processes.

IT outsourcing is at a critical juncture between being simply a source of low-cost staff and delivering genuine value to the business, says HfS Research president Phil Fersht. “Many clients are doing a lot more than having a quiet moan that they aren’t really getting value beyond very basic service provision,” Fersht says. “This time, many are actively looking to fire their provider if they cannot get past operational teething issues and actively begin the process of transforming the way they do things.”

Clients are beginning to wonder whether their current providers are capable of achieving the kind of business benefits promised prior to signing their deals, Fersht adds. “This is no longer about achieving significant cost reduction targets and getting basic tactical operations functional; it is about moving clients into a future state that is much more effective than the current one.”

What IT Outsourcing Customers Are Looking For

Over the next two years, outsourcing customers are looking for even more technology-enabled business value from suppliers. Nearly half (48 percent) said that it will be important that their outsourcing providers deliver improved analytics to improve operations and access to strategic talent, 47 percent said access to new technologies will be important, and a third indicated that improved analytics for revenue growth will be important, according to the survey.

“The focus on digital outcomes has dramatically emerged, with many clients increasingly no longer viewing tactical success as their end game,” says Fersht. “The onus is on clients to move the conversation to one of better analytical capability, more savvy and creative support talent, and access to better tools. These are the new stakes.” No one’s going to get fired today for failing to deliver advanced analytics, for example. But client expectations will increase in coming years, according to Fersht.

Meanwhile, many enterprises are actively implementing software-as-a-Service applications — in some cases, in lieu of outsourcing. However, notes Fersht, some failed to invest in the change management and organizational redesign required to reap the full business value of cloud-based systems. This is another area where IT service providers can step up to help companies implement a cloud platform and support the transformation that must happen. That’s “the Holy Grail for many buyers,” Fersht says.

Stephanie Overby is regular contributor to CIO.com’s IT Outsourcing section. Follow everything from CIO.com on Twitter @CIOonline, Facebook, Google + and LinkedIn.