End of Outsourcing Contracts – an Opportunity for ANZ Laggards to Play Market Catch-Up?

A review of industry data sources reveals that more than 120 ANZ enterprises have large outsourcing contracts due to expire over the next 12 to 36 months, with a total contract value close to $2b AUD. These figures don’t include the smaller contracts that slip under the reporting radar; if those are included, we’re likely looking at closer to 500 entities and a TCV of closer to $4b.

Is that money being spent wisely?

In today’s marketplace, the idea of “competitive market rates” has become maddeningly elusive and a deal signed today begins to fall out of alignment with the market before the ink is dry. In the BPO space, Robotic Process Automation (RPA) has been exerting significant downward pressure on pricing, and is standing the traditional world of labour arbitrage on its head. A few high-profile examples notwithstanding, evidence suggests that ANZ enterprises – particularly in the public sector – have been slow to embrace the benefits of RPA. On the IT side, meanwhile, traditional outsourcers are entering the fray with a wide range of autonomics offerings – a different flavour of intelligent software tools – that are similarly pushing prices downward.

Cloud offerings further complicate matters at the end of a contract term, as in many cases incumbent providers are loathe to risk existing revenue streams by introducing cloud-based alternatives. As such, clients must be proactive about identifying opportunities to innovate. Meanwhile, enterprises that have migrated to new technologies such as SIP run the risk of continuing to pay for services from legacy systems that providers “neglected” to switch off following the transition.

Then there’s the simple problem of numbers – outsourcing contracts are getting smaller and shorter, and customers are bringing more and more providers into their service delivery ecosystem. So while it may not be disastrous if any particular deal goes sour, the reality is that outsourcing decisions are an ongoing fact of life, rather than a once-every-five-years proposition.

In this environment, reaching the end of a contract term and simply signing on for several more years of the same is a recipe for disaster.