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Grading our 2016 IT outsourcing predictions

Stephanie Overby | Dec. 19, 2016
We predicted this was the year that security and integration challenges would become key considerations, companies would embrace robotic process automation and offshore captive models, and the IT outsourcing contracting process would become more agile and accommodating. Now it's time to revisit our predictions.

In 2016, large enterprise clients went “from seeing cloud as a risk to seeing cloud as either risk-neutral or cutting both cost and risk,” says Kevin Rang, partner in Mayer Brown’s technology transactions practice. “As cloud services continue to mature and general acceptance as a platform continues to take hold, we expect this trend to accelerate.” Organizations of all sizes are now hosting mission-critical enterprise applications in the cloud. “The next challenge will be assessing and mitigating the risks to corporate security and trade secrets,” Seidl says.

Integration challenges surge

Customers adopting an increasing number of emerging digital technologies and working with a wider portfolio of IT service providers are did indeed face greater integration challenges. “We saw clients rapidly hire integrators both to configure new digital services and to reform data flows,” says Brad Peterson, partner in Mayer Brown’s technology transactions practice. “ Moving production workloads to digital platforms made old data flows obsolete and create new needs to extract, transform and load data between systems.” And creating and maintaining partnerships among providers continues to be a challenge, Seidl says.

The service provider universe expands

We thought that while CIOs would continue to turn to ITO, BPO and cloud service providers, they would be sourcing services from an ever-expanding list of emerging and digital technology providers this year, including more product oriented vendors.

That was certainly true, although some of those providers have been better partners in digital transformation than others. “Customers have continued to look to a wider array of service providers to provide innovation and transformation,” says Seidl. “But some are still struggling with how to define and motivate innovation, especially within the contract.”

Off the mark

Multi-speed IT hits outsourcing

We predicted that IT outsourcing clients want to call it, outsourcing clients will recognize the need to take different approaches to managing the “run the business” part of IT and the “change the business” part this year and demand a bimodal approach from their service providers.

We were wrong. While organizations are using agile and DevOps approaches internally to accelerate delivery, they’re not yet demanding a two-speed approach from third parties.

Vendors get soft(er)

We imagined that vendors, accustomed to placating customers by lowering prices, would have a come to Jesus moment in 2016 and begin taking a more accommodating approach to achieve further growth. That didn’t happen. In fact, service providers have, in some ways, become less flexible. “We’re not seeing a widespread shift toward flexibility among vendors,” Tanowitz says. “Rather, in many cases, vendors are becoming more rigid in their terms and service level agreements, especially regarding cloud-based applications.”

Agile sourcing emerges

As technology evolves more and more rapidly, we suggested that outsourcing decision-making would have to speed up to avoid getting left behind. However, the outsourcing RFP and contracting process has remained largely unchanged. “In my personal experience, outsourcing any services is taking just as long as ever,” says Adam Strichman, founder of boutique outsourcing advisor Sanda Partners. “There’s nothing agile about it.”

 

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