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Digital drives business consultancy in IT outsourcing renewals

As IT outsourcing contracts come up for renewal, CIOs might consider more business expertise to help them negotiate contracts that support inevitable digital expansion

CIOs who are looking to replace or change their IT outsourcing contract amid the digital revolution might consider business consultancy services to help them make the right choices.

The next generation of IT outsourcing contracts will look different from their predecessors, which were probably signed five or more years ago. Much of the change is driven by new technologies that come under the digital banner. This might be a mobile app at the front and process automation at the back.

Digital is transforming businesses and how they deliver products and services to customers, taking IT to the core of their operations. IT services contracts that fail to accommodate this will put businesses at a disadvantage.

Suppliers know this and are selling the ‘digital dream’ to companies that need to revamp their services – but do businesses understand which services fit their digital plans?

CIOs and other decision-makers need to know that their IT service provider understands their business plan and delivers IT to support it. For example, a bank will require an IT contract that supports the development of mobile apps, for example, as they are challenged by new digital-first banks.

Traditionally, banks have huge IT services contracts, in which changes to scope and agile development are difficult to introduce.

Meanwhile, an appliance manufacturer might want access to software development skills on-demand as it develops internet-connected machines. Many IT services contracts were signed before IoT (internet of things) became a business buzzword, but now that it is, it is another consideration during IT services contract negotiations.

According to figures from ISG, just taking into account IT outsourcing contracts worth more than $5m a year, globally there are nearly 3,000 contracts, worth over $270bn (£175bn), that are coming up for renewal in the next three years.

Contract renewal is an opportunity to shake things up, but it puts huge pressure on decision-makers who might be struggling to understand the relationship between their IT services and the business strategy.

Get renewals fit for digital

To be sure these contracts fit their business needs as renewal approaches, CIOs might need the help of business consultancy.

John Keppel, president north Europe at ISG, says expert advice is more important than ever. “Almost every industry is undergoing its own wave of change brought about by new opportunities or competitive threats directly attributable to advancements in IT,” he says.

“From social to robotics, mobile to IoT, new channels to customers are appearing, new sources of revenue and service ideas are emerging and new competitors unencumbered by historical business models are suddenly taking share.”

IT suppliers are at the heart of these issues, says Keppel. “Never before have they been quite so critical to their clients’ businesses.”

Suppliers are changing

Businesses need flexibility and suppliers are required to sell answers to a business challenge rather than just answers to specified requirements, says Keppel. This means CIOs must be clear about where the business is going, he adds.

Jean-Louis Bravard, outsourcing consultant and former CIO at JP Morgan, says business consultancy that explains what is happening and who the suppliers are is valuable to enterprises. 

“That role by Gartner or Forrester Research is absolutely fundamental, but I think the consultancy in terms of what each firm should do now is a total waste and even self-defeating,” he says. “The amount of disruption is so high, you just cannot afford to educate a third party.

“What is needed is business expertise. Knowledge is not enough and with the speed of change and the number of competing solutions, the ability to decipher strategies and deploy them is just not for young MBA graduates.”

But Bravard does not think traditional CIOs, who look after operational IT, have the time to focus on strategy. “‘Run’ CIOs have an incredibly tough job and should leave the technology strategy to others,” he says.

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Getting the right consultancy

But getting the right consultancy support is not straightforward. CIOs must understand what is being offered.

Mark Lewis, outsourcing lawyer at Berwin Leighton Paisner, says for business consultancy to work in the digital age, it needs to meet certain criteria.

“[Business consultancy] is essential, provided that it truly focuses on what is happening in digital in the customer’s sector and peer group; understands and can communicate in detail what the future might look like; and can describe it for the customer, map it out and take customers on a journey to adopt those digital technologies,” he says.

Lewis adds that there are justifiable concerns about the independence of advice from consultancies within suppliers. “They aren’t independent, although they may well be able to help with the strategy and the journey to achieve it – as long as you are comfortable that their solution is best for your organisation,” he says.

“Businesses would be well advised to focus on a best-of-breed business consultancy solution, which would also have the advantage of keeping suppliers honest,” says Lewis.

What the consultants think

One supplier that is growing in the consulting market is Cognizant. Phil Dunmore, the firm’s head of consulting UK, says business advice is critical.

The traditional line between business and IT has disappeared, or become blurred, he says. “There is a need for the entire IT organisation, including its sourcing partners, to work seamlessly with the business to develop digital strategies and solutions.”

Dunmore says digital is delivered through an agile approach that needs a blend of business and IT capabilities. IT must support the business with ideas as well as implementation, he says.

IT services contracts must move from fixed to flexible contract design principles in order to support digital, says Dunmore.

“IT contracts developed over the past decade have focused on defining and managing in a fixed environment,” he adds. “Business demands and technology are changing so rapidly that contracts need to enable a flexibility in the type of services and capabilities the partner is expected to propose and deliver, driving potentially different contracting methods with the accent on delivering business outcomes and innovation.”

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