Can Your IT Outsourcing Contract Coexist with the Cloud?

Can Your IT Outsourcing Contract Coexist with the Cloud?

If your enterprise is committed to a long-term managed services or information technology outsourcing (ITO) contract, you might be looking longingly at the agility and efficiencies of cloud-based delivery models. If you’re like many enterprises that rely on managed services, you might be less than thrilled with the quality, responsiveness and flexibility you’re getting. Cloud seems like a better path, but you’re contractually obligated, potentially for several more years.

Meanwhile, your business users are continuing the drumbeat for more agility and flexibility — all at lower cost, of course. Adding to the pressure is the fact that your competitors are using cloud to reallocate capital and operating resources to driving innovation and value, placing your company in an untenable — and unsustainable — competitive position. It’s probably also the case that your service provider has no contractual, economic or technical incentives to suggest cloud migration strategies that might improve your position.

Seems you’re stuck. Right?

Maybe not. Just because you’re in a long-term relationship with a service provider does not mean you’re out of options. Most managed services agreements were written without cloud in mind. So, if you’re creative, you might find ways to renegotiate or possibly bring in a new vendor with cloud offerings that fit your business and workloads.

Four steps:

Review the contract. Make sure you know your contract before booking meetings with your service provider or a cloud vendor. Pay particular attention to the process for negotiating changes to the agreement, as well as minimum volume commitments and what happens if your workloads exceed those minimums. Your contract is probably silent on how new workloads are to be serviced, but check that as well.

Focus on work volume, not dollars. Most master services agreements are built around units of work performed in each time period rather than a dollar volume commitment. And once minimum volumes are met, most agreements allow customers to take additional volumes to other vendors and platforms.

Look for a high-value test case. Identify a basket of workloads that are well-suited to cloud migration. Public cloud examples might include dev/test or backup and archival. Private cloud examples might include high-volume transaction workloads running on legacy systems that can be forklifted to a virtualized environment. Use this list of workloads when engaging your service provider and/or cloud vendor. It will focus the conversations on specific, immediate paths forward and help you build financial and technical cases to support your eventual decision.
Amend, if it makes sense. It might not. The reality is that your current service provider likely is not technically equipped to deliver cost-effective, reliable cloud services. If that’s the case, they’ll do everything they can to discourage you from going down that path. Thus, the reality may be that in order to preserve your competitive position, you simply can’t wait for your current provider to figure it out. If that’s the case, you’ll want to move new workloads and cycles beyond your contractual minimums to a provider with the right cloud credentials.

A win/win?

Let’s assume your current provider is up to the task. Here’s where to look for the win/win:

Successfully migrating a set of workloads delivers value to you (increased agility, reduced costs, more productive employees), and also to your service provider (new capabilities and infrastructure roadmaps that they can sell to other customers). With a mutual win for both parties, the stage is set to work with your service provider to forge a contract amendment that makes the next workload migration more procedural. Sweeteners for a deal might include shared cost savings, bonuses for hitting KPI metrics, or a contract extension.

Of course, all of this assumes they can deliver the goods, and that’s probably a long shot.
This time it’s different

Start planning now for your next rebid. Cloud has so fundamentally changed the procurement landscape for managed IT services that your procurement process must fundamentally change as well. Map out your RFI/RFP game plan to:

a) attract service providers who “get” cloud

b) build a next-generation set of performance metrics and incentives into the contract, and

c) account for new elements of value that only cloud providers can offer.

In the next generation IT outsourcing world, service providers are going to look very different from what you find in today’s marketplace. There will be more of them, their capabilities will be different, and the value propositions they offer will need to be accounted for in how you evaluate your choices. Management and governance will follow new models, and metrics will be fundamentally different.

Today, the market is unsettled, and until that changes, the ball will be in your court to procure IT outsourcing agreements that put your company in the best position to reap the competitive benefits of cloud strategies.

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