Eighty-one percent (81%) of respondents in the HFS Pulse survey of 600+ decision makers from Global 2000 enterprises indicated that business and technology leaders are looking to revisit and potentially renegotiate their IT services contracts. The likely cause for this is a perfect storm of economic headwinds and looming recessionary pressures underpinned by the exhausting ongoing war for talent. HFS’ guidance for enterprise leaders looking to renegotiate their services contracts in the current economic environment should consider the following:
- Define your business objectives clearly. First, review contracts lacking links to top-line growth objectives. Next, consider that many ongoing contracts and those up for renewal may not have the right business or growth outcomes factored in because of the evolving nature of your business. Reviewing service provider contracts is essential, regardless of the renewal cycle.
- Only focusing on cost is short-sighted. Cost and efficiency are always enterprise considerations, even in the best of times. Given the current economic circumstances, cost is back on the top of the business objectives list. However, only focusing on cost opportunities is short-sighted. Enterprises must focus equally on cost, efficiency, and business value factors such as speed-to-market, innovation, and improved customer and employee experience to ensure future value. We briefly discussed business value in our recent blog. Because of the evolving nature of business, enterprises must again consider reviewing annual compliance activities and ESG scorecards.
- Don’t forget customer satisfaction. Enterprises and service providers should revisit customer satisfaction scores (CSAT) for service delivery as part of their review process. Understanding CSAT drivers such as skilled talent, support, and delivery quality can lead to better outcomes and more effective measurement and billing practices between parties.
- Consider co-creation. For new or nascent capabilities or new product or service creation, consider engaging in co-creation initiatives in the engagement. The jointly developed capability may create new value and potential revenue opportunities that benefit both parties and outlive the current economic crisis.
- Look for improvement opportunities. Enterprises should assess whether they are getting the best value from their long-time service partners. Just because a partner has institutional knowledge does not mean they are pushing the envelope for innovation and automation.
The Bottom Line: With the present circumstances, enterprises need to balance cost savings with clear outcome milestones.
HFS recommends that enterprise buyers work with service providers to ensure they balance cost savings and business value being created when renegotiating. By doing so, both the services provider and the enterprise can navigate these economically challenging times together as partners, rather than just commercially, and maintain future impact potential.
Explore the HFS Pulse Dashboard
Take a look at the breadth of data in our Pulse Dashboard, which showcases data about current and future demand trends for technology and business services and related emerging technologies. See more here.
