New Zealand businesses are entering a critical phase of re-evaluating relationships with IT partners and re-defining managed services contracts.
An increasing number of organisations are planning on moving managed services in-house, shortening service contract periods, and either adopting a multi-vendor approach or breaking contracts up completely, according to research by analyst firm IDC.
Despite this, the managed services market will continue to represent a significant opportunity due to a deficiency of skills and the rising complexity of enterprise IT.
In 2016, the New Zealand IT outsourcing and managed services market reached NZ$1.6 billion, growing 2.8 per cent from 2015.
Competition in the market remains high as changes in IT procurement and rapidly evolving new service delivery models create a level playing field for IT service providers.
For example, in February, global research showed 79 per cent of managed service providers saw cloud services selling direct to customers as their biggest competitive threat. that was up from 54 per cent five years earlier.
So-called third platform technologies, cloud and mobility, are also changing New Zealand's IT services landscape by putting the focus squarely on how IT can deliver business outcomes.
"Core to success in infrastructure outsourcing will be implementation of new business models that incorporate significant levels of system integration, automation, support for traditional and cloud-based service consumption, and delivery requirements" said Donnie Krassiyenko, IDC New Zealand's senior market analyst.
These higher expectations are leading user organisations to look for greater value in managed services contracts as well.
However, with new demands come new challenges.
"It is now a crucial task for CIOs to ensure that the IT culture is focused on business goals," Krassiyenko said.
New Zealand firms are still learning how to effectively interconnect IT initiatives with both the needs of IT departments and those of strategy-driven business executives.
“The best approach is to include the business in technology decisions and implementations as early in the process as possible," Krassiyenko said.
The wider inclusion of C-suite stakeholders ensures the interests of lines of business are considered.
However, the overriding goal of managed services adoption remains controlling costs and achieving internal efficiencies.
Nearly half of New Zealand organisations consider lowering operational expenses as the top priority, putting extra pressure on service providers.
The danger of this mismatch between strategic expectations and the desire to cut costs is dissatisfaction.
Further, IDC said it can take up to 24 months for organisations to start realising expected savings.