Economic downturn starts to force contract rethink

A report by Forrester Research into IT services spending, overall services, strategies and priorities has confirmed the toll the economic downturn is taking on IT budgets.

Even though European IT budgets seem less affected than those in the US, the survey of senior IT managers across North America and Europe revealed that more than 72% of firms believe that the global economic slowdown has impacted on budgets.

Consequently two-fifths of large businesses have cut their IT budgets this year and a quarter of firms have put discretionary spending on hold. In terms of IT services, 16% have already cut their IT services spending and 70% said they will likely negotiate lower rates with suppliers.

According to the research the hardest hit vertical sector will be financial services with just under half already cutting their budgets. Conversely only 39% of respondents in the media, entertainment, and leisure industries said they have had to reduce spending.

Increased outsourcing appeared to be the key tactic in reacting to such downward financial pressure with 45% of firms planning to increase their use of applications outsourcing and 43% increasing their use of infrastructure outsourcing. A similar number said that they would move more work offshore.

According to Forrester, few firms have fully tapped into offshore resources, with just les than a tenth of firms currently using offshore resources wherever and whenever possible. Given a need to cut costs, 14% of firms confirmed they will increase their usage of offshored services with a fifth actively piloting offshored services.  Even though 22% of firms are not using offshored service, they are actively tracking developments.

However, the survey also revealed that firms were cognisant of the downsides of offshoring. Of those firms not sending work offshore, a majority cited the questionable quality of the work done and .even though firms using a third party  were overall satisfied with their decision to, 52% said that their biggest challenge with existing IT services and outsourcing relationships was that cost savings were  lower than expected.

In a sharp reminder to the vendor community, other stand-out challenges included inconsistent or poor service quality (40%) and the inability of the vendor or contract structure to respond rapidly to changing business needs (35%).