Thursday, November 12, 2009

IT Services require ROI Justification More Than Ever

According to the latest Enterprise IT Services Survey by Forrester Research, buyers of IT services are taking a variety of measures to get more value for the money spent on IT services. The survey of more than 900 IT executives and technology decision makers in North America and Europe reveals that unlike the last recession where most IT services irms experienced growth, most respondents indicated that they will be spending less with consultants and managed service providers, and that pressure to reduce IT spending is going to continue well into 2010.

According to John McCarthy, VP and principal analyst at Forrester, "The data shows no quick turnaround - it's going to be a tough year for services firms as clients increasingly ask them to justify the ROI for IT projects and provide more value for a lower price."

Most services organizations however are not prepared for these new challenges. Services organizations have traditionally underinvested in the research and tools to make it easy to include an ROI analysis as part of the services proposal.

For service organizations seeking renewal or expansion on existing contracts, it is essential to provide an annual report card of savings to the organization. How can you expect a customer to spend more / renew unless they are convinced you've saved them money or delivered some other tangible value. One services organization we worked with was able to reduce churn by 60% and increase renewal deal size by 10%, even in these tough times, by implementing a Realized Value Report Card program for existing accounts. The tool collected basic information about the organization's costs and issues over time, and used research to determine how the services helped to avoid labor costs, reduce overspending, reduce issues, reduce risks, improve service levels, and do more with spending less.

New services customers are more frugal than ever, and services organizations have to tie the new services proposals to tangible savings / value, or risk not getting the priority the project deserves, or worse yet, lose the deal. Typical ROI proposals can include hard cost avoidance, but should also include a quantification of the value derived via the services service level improvemetns, scalability, time to market and risk avoidance.

Forrester research clearly indicates that frugal buyers demand ROI justification, and as a result, IT services organizations need to invest now in research and tools to change the way their sales consultants engage with customers. Quantification of tangible value and return on investment are required. The IT services organization that understands this and invests in a selling with value program will have a better connection with today's frugal buyer, and a clear competitive advantage.

More information about the IT Services research report can be found at: http://www.forrester.com/Research/Document/Excerpt/0,7211,55203,00.html

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