Shorter Outsourcing Contracts a Sweeter Deal?

Ann All

The latest research numbers from TPI bear out some outsourcing trends that have been gaining momentum over the last few years. In particular, companies are slicing the length of their outsourcing agreements.


According to TPI, while contracts of at least five years were once the norm, the average contract now tends to run no more than two years. Just 12 percent of contracts in the broad outsourcing market are slated to last for a decade.


A survey by another firm, PMP Research, indicated that the majority of companies (78 percent) expect their outsourcing deals to last either one or two years. Just 10 percent of respondents expect them to last for five to 10 years. A PMP analyst told IT Business Edge that companies believe that shorter contracts allow them to maintain more control over their outsourcing relationships.


For the same reason, she told us, companies increasingly prefer to work with multiple outsourcing providers rather than a single supplier. Companies working with single suppliers reported more difficulties with service quality, ability to adapt to change and pricing.


In an IT Business Edge interview from earlier this year, TPI's managing director for Global Practices cited many of the same reasons for shorter contracts. Clients believe such deals can help them more easily keep up with the fast pace of technology. The shorter contracts also allow companies to more frequently revisit pricing, an opportunity typically welcomed by both outsourcing customers and their suppliers.


Finally, the trend toward shorter contracts is at least partially attributable to the increased popularity of the offshore model. With offshoring, there is more of an emphasis on formal knowledge transfer and process redesign than on transferring employees from the client company to the outsourcer -- which means the knowledge transfer process typically goes much faster.

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