Gartner: Customer Belt-Tightening Impacts Service Providers

Managed services have emerged as a popular way for companies to reduce both cost and IT footprint. But here's the irony: The very traits that make managed services so compelling have also started to make margins shrink for services providers, according to Gartner, the research firm. Here are the details.

According to research firm Gartner, customers like the idea of using managed services to ensure business continuity as well as reduce operating costs. However, because of the economy, they are not willing to spend a lot of money to make that happen. In its latest survey on the subject, Gartner noted that 60 percent of the 200-plus survey respondents said they had renegotiated a services contract within the last two years. And many of those negotiations involved aggressive pricing demands from end-customers.

But there is hope. Gartner expects spending to increase in the service provider sector this year as more companies look to virtualization, cloud computing and managed services to get the job done for them. Just don’t expect companies to hand over a blank check for these services -- and be prepared to explain down to the last detail how such services can help their company grow.

“Service providers will face a U.S. buyer with cost-focused priorities and a multiprovider strategy, which means many of the competitive dynamics of 2009 will continue,” said Allie Young, vice president and distinguished analyst at Gartner, in a release.

Young noted the best course of action for service providers is to know their customers’ ‘pain points,’ as well as what the customers want and expect in a service provider. Also, focus on the basic themes of business continuity and lower operating costs, as those issues resonate with just about every customer. “Given the impact of the economic crisis and strong discipline on cost controls among U.S. buyers, providers must heed how critical it is to accentuate your practical skills to run the business,” she said. “These basic messages of cost takeout and IT availability must be prioritized, even for higher-value solutions.”

So what’s the takeaway? It’s common sense, really, in any economy: Listen to your customers, make sure they understand the value proposition your service provides, and be there after the sale. In short, make yourself worth the money and you’ll lessen the chance of being renegotiated.

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