New Zealand businesses are entering a critical phases of re-evaluating relationships with IT partners and redefining managed services contracts, according to IDC New Zealand, which says an increasing number of companies are dramatically changing up their managed services contracts.

The changes come as Kiwi businesses increasingly shift from technology-focused outcomes to business ones when investing in IT – and managed services in particular – bringing new challenges for managed services providers.

Among the top challenges New Zealand companies say are preventing them from achieving strategic corporate goals using managed services is the lack of investment, driven by a disconnect between IT and business.

“New Zealand firms are still learning to effectively interconnect IT initiatives with both the needs of IT departments and strategy-driven executives,” IDC New Zealand says.

“Inevitably, organisations are moving towards a wider inclusion of C-suite stakeholders into IT decisions, ensuring that the interests of line of business are accounted for.

IDC says the most desired outcome of managed services adoption remains around controlling costs and achieving internal efficiencies.

“Nearly half of New Zealand organisations consider lowering operational expenses as the top priority, thus adding extra pressure on service providers,” IDC New Zealand says.

However, it can take up to 24 months for organisations to start realising expected savings, with IDC New Zealand noting a ‘mismatch' between enterprise expectations and actual savings from using managed services, which can result in dissatisfaction about the partnership.

IDC says 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.

Despite this, IDC New Zealand says managed services will continue to represent a ‘significant' opportunity in the local market, where outsourcing and managed services hit $1.6 billion last year, up 2.8% on 2015.

A lack of necessary skills and the rising complexity of enterprise IT are aiding demand for managed services, IDC notes.

Donnie Krassiyenko, IDC New Zealand senior market analyst, says competition in the market remains high as the changing patterns of IT procurement and rapidly evolving new service delivery models create a level playing field for IT service providers.

“Core to success in infrastructure outsourcing will be implementation of new business models that incorporate signficant levels of system integration, automation, support for traditional and cloud-based service consumption and delivery requirements,” Krassiyenko says.