Contract says no: Many businesses are considering edging further into the Cloud, but today's ITO contracts are not always written with this new commercial model in mind. John Sheridan, Director – Head of ITO at Alsbridge, comments on the key considerations for businesses entering and renegotiating their ITO contracts.
The results of our recent study, Terms of Endearment, shows that IT leaders across Europe are unhappy with their ITO contracts for a variety of reasons including the lack of flexibility to fully exploit new technologies or business models.
It also concludes that, whilst most organisations (92%) polled are using ‘Cloud’ in some form or another, most are focusing exclusively on SaaS business solutions and relatively few have yet to adopt compute or storage based IaaS solutions.
The report highlights that Cloud initiatives are failing to deliver expected levels of operational cost savings or IT efficiency. Unsurprisingly, the principal barriers to Cloud adoption are data sovereignty and privacy, regulatory compliance and risk of vendor lock-in.
What did surprise us was that key criteria such as cost of entry, complexity of current legacy estate and level of appropriate in-house skill-sets were scored as mid to low in terms of importance. In our recent experience, these are primary risk areas and the ones that have caused the greatest challenges for clients.
Successful companies will be those that embrace this journey as a major business change programme and not a technology change project. When planning a renegotiation or future sourcing strategy, businesses should be thinking more broadly across a wider range of challenges including:
• Future vision and strategy: How will your business objectives influence what you require from your IS service and can the vendor(s) that you are considering commit to that same roadmap?
• Demand management: Being able to deploy just the compute or storage resources your business needs to meet peaks and troughs in demand is one of the key benefits of Cloud. However, this places a whole new emphasis on capacity management, demand management and intelligent forecasting, as well as the need for constraints on automated provisioning.
• Commercial management: On-demand services require an entirely new commercial, allocation and/or cost recovery model mapped to business usage. This is something that the current IS model may not be geared up to support and must be considered as part of a wider business change programme around Cloud adoption.
• Compliance management: Organisations need to balance the desire for true on-demand private Cloud utility computing with the constraints of dedicated (private) solutions (either on or off-premise). These can include complex security, regulatory, compliance and other ‘legacy’ regimes.
• Service integration and management: In a multi-source world the boundaries of responsibility (provider to client and between providers) become very blurred. This, coupled with more complex service management and integration challenges, means that the IS operating model will inevitably change and much greater clarity of ownership and accountability will be needed.
• Total cost of ownership: Consider the whole deal lifecycle, not just building and implementing a platform. The business case must factor in the cost of future support, maintenance, upgrade and change, not just the retained costs and investments. Also, what kind of flexibility are you looking for and how will it be funded?
• Change management:
o Technology change – understand how new technologies will be integrated into a complex ‘legacy’ environment.
o People and organisational change – your retained organisation will inevitably require new skill-sets, capabilities and ‘management’ disciplines to operate effectively in the new world. Can you develop/retain them and are they affordable?
o Process and operating model change – New models will be required to manage an ‘on-demand’ service together with clarity in ownership and accountability across the supply chain.
o Business engagement and change communications – get early buy-in from business owners who will have to change the way they consume technology.