Why Do Organizations Switch Their Service Providers?
Companies today use service providers across all facets of the business. From modernizing technology and streamlining operational processes to strategic consulting and IT outsourcing, services providers provide vast value, expertise, and increased efficiency to their customers, enabling them to spend more time and energy focused on their core functions. These relationships between service providers and their clients are forged over time, typically years or even decades, and many providers often promote the average length of time they retain clients as a performance indicator.
However, what happens when customers start questioning the relationship’s value?
Many customers are often reluctant to switch providers because of the time it takes for a new provider to understand their business, and there are also both direct and indirect costs associated with switching providers. Sometimes, regardless of these drawbacks, customers still choose to move on. What developments usually result in customers reaching this decision? IDC recently examined this question utilizing its Services Path data, looking across all types of services, to understand the reasons why companies ultimately choose to make the switch.
IDC’s Services Path program contains comprehensive data and guidance on the mind and journey of services buyers, for professional services, outsourcing services, managed services, and engineering services. The data set is based on a global survey of approximately 2600 organizations, spanning all sizes and industries, and covers topics ranging from adoption, budgeting trends, and purchasing preferences, to pricing and contract options and detailed customer satisfaction ratings for hundreds of vendors.
Services Path data shows there are several factors that consistently stand out as the primary reasons why customers choose to switch service providers. The top 3 reasons, examined by role, are shared below (in rank order):
IT Respondents:
- Enable more rapid digital transformation (DX) and modernization
- Improve service quality and raise service levels
- Lower cost
Line of Business Respondents:
- Improve service quality and raise service levels
- Enable more rapid digital transformation (DX) and modernization
- Improve data analytics and decision support
Digital transformation, modernization, and improved SLAs/service levels are the top reasons driving companies to make replacements. However, there are some differences between IT and LOB personnel in terms of what’s driving their decisions to switch. For example, IT places a much greater emphasis on lowering costs than line of business employees. Conversely, LOB leaders view improving corporate sustainability as a significantly greater driver of replacements than IT folks.
To help reduce customer switching risk and further bolster the stickiness of long-term relationships, services firms should make note of these top switching drivers and ensure they clearly demonstrate their ability to accelerate their clients’ DX initiatives and deliver high-quality and cost-effective services.
Customers today are looking for strategic partners that can be leveraged broadly across the business, who understand the nuances of their business, have deep expertise in their industry, and can provide fast proof of value. Firms that continually deliver on these needs will be well-positioned to maintain long-term clients and minimize the risk of customer attrition.
To learn more about IDC’s Services Path program, watch this short video.
Contributing author: Jason Bremner – Research Vice President, Worldwide Services
