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.
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.
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
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
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
Changing client and consumer
Challenging economic conditions.
Competitor IT strategies and
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.
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.
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.
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.