Telling the positive story of UK ITO trends
EquaTerra recently released the results of its 2010 UK IT outsourcing (ITO) service provider performance and satisfaction (SPPS) study. EquaTerra conducts annual ITO SPPS studies across all major European market segments, as well as a global finance and accounting outsourcing (FAO) SPPS study each year.
This year’s UK study analysed over 650 outsourcing contracts held by more than 220 of the top IT spending organisations in the UK. The total annual value of the contracts included in this study is over £14 billion, accounting for approximately two-thirds of the total UK outsourcing market in terms of annual contract value. All major commercial and public market sectors are represented in the study.
The results from this year’s UK study are positive in terms of ITO meeting the needs and drivers set out by UK buyers, as well as measured by (most) buyers’ satisfaction with the performance of their ITO service providers.
- ITO drivers are being met: Sixty-eight percent of respondents are significantly positive (37 percent) or moderately positive (31 percent) that their organisation’s ITO efforts achieved their initial objectives. Only six percent of respondents overall are moderately or significantly negative on this point.
- Buyers are satisfied with their ITO provider’s performance: Fifty-seven percent of UK ITO buyers indicated they are very satisfied (nine percent) or satisfied (48 percent) with the general performance of their service providers. These levels are slightly above those registered in the 2009 edition of this study. Just six percent of respondents overall indicate they are unsatisfied or very unsatisfied with their service provider’s performance.
These positive findings were generally mirrored in all of the ITO SPPS studies EquaTerra conducted across Europe over the past year. A variety of factors contribute to these UK and European ITO success levels, including buyers’ self-assessed sourcing and service provider management capabilities, a point addressed in last month’s column.
Deal size is also a factor. UK ITO buyers generally express higher satisfaction levels with their service providers for smaller deals than for larger ones – especially those greater than £50 million annual contract value – across most of the key performance indicators (KPIs) measured in the study. There were many variations, however, across individual service providers and KPIs. UK ITO buyers were, for example, generally less satisfied with their ITO providers’ abilities to deliver “innovation” than with other KPIs, regardless of deal size. Disappointment with underachieved innovation, however, is hardly limited to those efforts pursued via outsourcing.
A combination of factors lead to buyer ITO success and satisfaction. As Lee Ayling, EquaTerra’s Managing Director, IT Advisory UK, noted, “One of the many points of note in the 2010 UK study is that outsourcing contracts which deliver cost savings alone do not lead to higher client satisfaction. But successfully delivering cost savings plus another driver, such as access to skills or time to market, does positively impact general satisfaction – highlighting that both end-users and service providers should not focus on price alone, before or during an outsourcing relationship.”
EquaTerra identified several other key trends in this research, including:
- The economic climate continues to be a major contributor to the increase in demand for ITO in the UK. This demand is being fueled by buyers’ needs to respond tactically to recessionary economic conditions by cutting current operating costs. It is also driven strategically by ongoing shifts in preference for how core IT services are delivered in the organisation.
- Cost reduction and flexibility goals dominate ITO demand, but other drivers are becoming increasingly important. Delivering cost savings remains the top driver for future ITO efforts, but enabling greater financial flexibility continues as a prevalent second choice, cited by 15 percent more respondents this year than last.
- Global sourcing remains a core element in organisations’ sourcing strategies, with 75 percent of respondents using near or offshore IT services provisioning.
- The rise of multi-sourcing continues to grow. This is a positive trend in that, as noted above, larger monolithic contracts often produce lower satisfaction levels. But, buyers must carefully balance the complexities of multi-sourcing sourcing and management with potential benefits of managing smaller, more focused deals.
Clearly, UK buyers are benefiting from their increased use of ITO. While they are continually learning what it takes to make ITO successful, they are also raising the bar in terms of complexity via more global sourcing, multi-sourcing and the expansion of ITO footprints. Given the inevitability of ongoing challenging economic times and the continued growth of global competition, continuing to hone ITO skills is well worth the investment.