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Why Clients are Switching IT Providers

by: Sarah Joson

Monday, October 14, 2013 |

Itís never too early to think about the future, especially in the world of information technology. Landing/Retaining contracts is now the name of the game and everybody is clamoring to position themselves in a favorable spot.

With over years of experience, many businesses have become quite familiar with outsourcing and its benefits. However, most were stuck with a contract and a provider that was once the best strategic move for the business, but is no longer effective today.  

CIO.com discussed their interview with Thomas Young, partner at Information Services Group, on what is exactly happening in the IT outsourcing scene and what factors are pushing clients to switch providers.

Young said in the past, it was a one-time-big-time thing where if businesses had to outsource even a fragment of their operation, they would have to purchase an outsourcing suit for the entire company.  

What pushes companies to make the move?

Nowadays, IT outsourcing operations are open partnerships that thrive on collaboration as opposed to the very structured process back then. Businesses used to send out request-for-proposals, see which provider offers the best solution, close the deal, and the buyer soon becomes stuck with whatever they have. Even if they wanted out, they canít nullify the contract.

Another reason seen by Young is the latest trend in outsourcing rates and packages. Business owners are presented with outsourcing rates that can help them deliver services and products to their own customers at a much favorable rate - to almost 60 percent less expensive than before.

Young anticipates that for 2014, a larger volume of pioneer buyers will be contracting with different providers. For the service provider side, a lot will be working harder in collecting fresh contracts.

Who are affected by this phenomenon?

Service providers in India will be affected the most, said Young. India, which was once the outsourcing haven for businesses, used labor arbitrage as leverage. However, the industry is no longer anchored on the quantity and cost of employees.

Another one would be the service-as-software business model, because of the gradual dominance of innovation and automation of processes. Two key segments identified are networking and data center operations.

Even large and established institutions are susceptible because of their size. It will be hard for them to keep up with the changes because it would mean that they would have to do it in all of their business hubs, which could take a long time.

For big providers, although it would be risky and time-consuming to stretch their rates for large companies, they would still do it so as not to lose clients.

All in all, Young concluded that for 2014, it would be an "easy-on-easy" of environment for IT outsourcing clients.

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