Professional services company, KPMG, have released their quarterly Global Pulse survey. The latest report contains some good news for back-office service suppliers – up to 68 per cent of surveyed vendors expect to see an increase in demand for IT and business services by the end of the year. This figure represents a nine per cent increase from last year, as suppliers regain confidence in short-term demand throughout the UK.
However, most new deals struck aren’t proving very profitable for suppliers. Many companies said their clients are investing more in automated systems and cloud computing than permanent management contracts. To capitalise on the popularity of short-term deals, many suppliers are changing their business-to-business deals to make them more appealing, not necessarily a better source of income. Only 38 per cent of suppliers who attracted new business last year reported increased profitability.
Lee Ayling of KPMG Management Consulting, said: “There are signs the economy is set for growth but we are still in a market where short-term savings seem to be the order of the day. Until this changes we are likely to see the balancing act between service provision and cost reduction continue to play out as contracts come up for renewal.”
Despite the increased demand, suppliers are worried about contract negotiations and how it will affect business. The fact of the matter is that many companies are focusing on their supply chain as a way to reduce spending. As a result, suppliers are losing out on profits through contract renewals and cutting rates in order to retain business.
Mr Ayling said: “Clients are not shy to play the ‘contract cancellation’ card in an effort to reduce costs. They won’t pull out of a contract without finding alternative services that can keep their business running efficiently, but many are becoming adept at gaining the upper hand in contract negotiations.”
However, as more retailers are in the market for back-office services (particularly with regards to IT, finance projects, customer care programmes and human resources), computing solutions providers could take advantage of the demand boom and see profits rise throughout the year – it all depends on how suppliers react to changing demands throughout the industry.