Companies are overpaying on their IT services, despite the falling costs of hardware and sofware

According to research from Compass Management Consulting, businesses are paying up to 40% more than necessary for IT services due to a range of factors such as unnecessary customisation, redundant capacity, unconstrained consumption and inflexible contracts.

According to the report, organisations have been successful in realising IT cost reductions of 8-15% on average, but by adopting standardised IT services they could achieve savings of up to 40%. Although the prices of hardware, software and services have fallen considerably in recent years, business spending on IT has continued to rise. The study claims this is due to the cost of over-configuration, under-utilisation and poor supply and demand balance.

Compass found that outsourcing agreements frequently place unnecessary constraints on service providers which prevent them from making changes which could reduce costs for the client. Too much focus is placed on defining specific technical requirements for hardware and software specifications instead of the service outputs, resulting in higher costs.

The company argues that, while all businesses have varied functional requirements, the majority have IT services requirements that have a high degree of commonality with other clients, even if they think of their own IT requirements as being completely unique.

Steve Tuppen, UK president of Compass Management Consulting, said “Many buyers of IT services are consistently over estimating the unique level of their IT requirements. Moreover, clients are continually adding to the list of requirements with little consideration of cost and at the same time defining the technologies their service provider must use. The economics of these decisions are simple: Either the buyer of the services or the provider has to meet the costs of this level of provision.”

Tuppen went on to say that the reason IT costs remain high in the face of aggressive cost cutting in business is a reluctance to change and allow suppliers to take advantage of more efficient technologies and management processes.

The full research is available in a white paper, titled ‘A Clean Slate: Standard Delivery of IT Services Drives Significant Benefits’ which can be downloaded from: www.compassmc.com

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