Businesses may be treating IT outsourcing as a way to cut costs without bearing in mind that outsourced functions are still a core part of their activities.

According to a study by Compass Management Consultancy (CMC), businesses have been aggressively demanding discounts of up to 23 per cent from outsourced suppliers in the course of renewal negotiations.

In 120 deals worth £30 million over the last year, the study found firms demanding large discounts at the start of talks.

Compass warned that this may be a short-sighted approach, neglecting service standards and the competitiveness of the contract as a whole in pursuit of short-term savings.

Geraldine Fox, Compass' director of sourcing services, warned: "We are seeing aggressive, high-level targets plucked from the air in contract negotiations which bear little relation to what the business needs.

"Asking for a 20 percent cut across the board could be too much — and drive a contract to failure."


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