Fast Technological Change Threatens To Complicate IT Contract Renewal

This month’s Computer Weekly highlighted the fact that since many IT Support Contracts were signed some time ago and there have been some substantial technological changes since.

This means that many companies are likely to be looking harder at what newer technologies are relevant and necessary to their business today and in the near future, and looking for some flexibility being built into their outsourced IT service contracts as a result. In this way they can avoid missing out on the benefits of new technologies that e.g. their competitors may be using.

Why Do Companies Outsource?

A recent survey by the National Outsourcing Association (NOA) found (unsurprisingly perhaps) that 54% of outsourcing buyers gave cost reduction as the main reason for doing so and 36% said that the main driver was the need for improved services.

Re-Direction Threat

ISG figures showing that there are £175 billion of IT outsourcing contracts coming up for renewal globally in the next 3 years with 1,400 of these deals in the Europe worth over £14 billion.

The case of the DVLA which had outsourced for 30 years and then decided to bring all IT in house when its last outsourcing contract was up highlights the fact that organisations could make many different and unexpected decisions including re-direction. The many factors that could influence the big decisions at contract renewal time include:

·         The increased adoption of cloud computing. It is thought that nearly every renewal contract today involves at least some element of cloud computing which some commentators say is encroaching on the enterprise sector and breaks services down between more suppliers.

·         The threat of offshore firms and the effects of globalisation. The nature of many IT services in theory at least means that you don’t have to be in the same country as your suppliers although many companies favour local IT Support for many good and practical reasons.

·         Automation and AI software advances.  These are already being used to save time to save time and costs.

·         The sheer speed of technological change.

·         Changing client and consumer behaviour.

·         Challenging economic conditions.

·         Competitor IT strategies and choices.

These are the kinds of factors that can mean that IT contract renewal time is a more uncertain time for IT services suppliers and a more considered time for service users.

Decisions As Contract Comes Up For Renewal

In today’s business environment many company CIOs tend to consider options and decisions such as whether the contract will be renewed, reviewing the contract to see what changes could be made in the new arrangement, or considering the possible benefits and the challenges of bringing some or all of it back in house. 

All The Time

There is an argument among outsourcing consultants that CIOs should think about outsourcing agreements all the time and not just when the renewal date approaches. Keeping up as much as possible with the pace and level of change of IT to help with an ongoing review sounds like a good plan but hasn’t always been widely adopted, that is until now.

More Thought

Bearing in mind the rapidly changing technological landscape and other factors such as the rise of the cloud means that a lot more thought is being given by companies to what they want from their next IT contract.  CIOs will play a more important role in guiding the renewal decisions and IT services suppliers will need to expect more bargaining power from their customers and the need for more flexibility in their IT contracts.