Bear Market IT Services Sourcing Strategies: 4 Actions You Must Take Now

There is no denying we are in uncertain and unprecedented times.  As the longest bull market in modern history comes crashing to a halt and companies feel the impact of the COVID-19 pandemic, enterprises across the board are being forced to make tough decisions on IT investments.  There are actions companies should take now as they reassess their IT Services investments.

1. Review your current agreements.

Whether your company is assessing the ability to continue forward on existing third-party-enabled projects or assessing your provider’s ability to continue to deliver uninterrupted support, procurement organizations must review the terms of their agreements. Providing executives with a summary of the rights and limitations that exist in their third-party agreements will aid them as they seek to quantify the impacts of hard decisions that lie ahead.

Key contract terms that will help inform your leadership include:

  • Termination rights
  • Termination costs
  • Termination assistance
  • Resource continuity commitments
  • Minimum spend commits/penalties if not met, and
  • Discounts/forfeitures.

Reviewing these terms will determine the extent to which you are contractually obligated should you need to alter your current contracts.

2. Maintain active dialog with your IT Services providers.

Each day we hear more news about company travel restrictions, state and local governments stay-in-place orders, and new work-from-home mandates.  IT Services providers are doing these things, as well.  Actively engage with your IT Services providers to understand what policies they are enacting and discuss with them what impacts these changes will have to the support they provide you.  Challenge them to share their plans on how they will mitigate the impacts their policies will have on their commitments to your projects, timelines and areas of support.

In turn, provide visibility back to your IT Services providers of your changing priorities, updated policies, revised objectives and expectations.  Keeping an open and active dialog with your partners will help you both make the most informed decisions.

3. Assess your leverage.

To some it may seem like a one-way communication to the IT Services community that costs must be reduced on projects and current support agreements or contracts will need to be terminated or severely scaled back. The reality is you do have a different kind of leverage in a bear market economy.  Protecting all or a portion of a revenue base is a motivation to your IT Services providers.  This lever by itself can be worth as much as a reduction of 10%, perhaps more, to your current or projected costs.  While preservation of revenue streams can be a strong negotiation lever to pull, be cautious though, and expect that your IT Services providers will want something in return.

4. Preserve key relationships.

No one can predict how long this economic downturn will last or how long it will take to recover once it does. The hard decisions companies make now and how they are handled with your IT Services providers will have lasting effects on your relationships well into the future.  Be sure to acknowledge the value your IT Services providers have brought to your organization to date and the importance you place on their capabilities to continue to provide value in the future.

There are always risks involved with outsourcing IT Services.  A common mistake organizations make when negotiating an IT Services agreement is focusing too much on the here and now and failing to properly preserve the health of the relationship over time as business objectives, scope of services, and volume will inevitably change.  And then there are global events that no one even dreamed of.

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