Attorneys predict a demanding year for IT outsourcing customers

Global politics, data demands and rapidly advancing technology needs will make 2017 a time of critical decision-making for IT leaders.

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Companies will need to update their outsourcing relationships to incorporate these security and privacy changes. “Regulators will be watching companies to determine if they are appropriately evaluating the risks posed by vendors and other third parties, and incorporating those considerations into their selection, contracting, and ongoing monitoring of those third parties,” Eisner says. “Given the rapid pace of change, this is a good year to evaluate existing selection and due diligence processes for third party contracts involving data access to o ensure that security and privacy standard clauses are up to date.”

[ Related: Cloud services now account for a third of IT outsourcing market ]

Demand surges for analytics and digital services

Big data is only getting bigger, as a December 2016 report from the McKinsey Global Institute declared that volumes are double every three years. “That mirrors what we are seeing,” says Peterson, “that the biggest opportunities for the future — and the biggest margins — lie in data analytics.” But IT leaders aren’t just contracting with specialist data analytics firms for these tasks. They’re doing deals with professional services firms and technology vendors with integrated technology stacks as well. Looking ahead, data analytics will become a standard part of most contracts, Masur says.

Cloud computing took off last year. “Clients in large numbers decided the cloud was safe enough and reliable enough to support critical countering work load,” says Eisner, who predicts that clients will move even more production work to the cloud in 2017.

[ Related: 11 ways to address RPA and AI in IT outsourcing contracts ]

Meanwhile, intelligent automation delivered via cognitive computing or robotic process automation are also poised to take off. Companies will be looking to artificial intelligence capabilities to help them extract value from their big data. And RPA is beginning to transform outsourcing. “Having nearly exhausted the cost saving limits of moving work to lower cost people, customers are now demanding that IT and business process outsourcing companies focus on achieving greater cost savings by moving much of that work to machines.”

[ Related: Building a business case for offshore robotic process automation ]

The need for software speed — and integration

The emphasis of software-related contracts will be on software integration. “As the push toward disruptive technology and digital services continues, companies will rely heavily on integrators,” says Peterson. “Someone needs to make sure all the data flows correctly among those components and processes [run] seamlessly and accurately through the software stack.” IT leaders are looking to systems integrators for this work. “There’s a tremendous challenge there, but also a tremendous opportunity to effectively use integrators to become winners in the new digital economy,” Peterson says.

The pace of business change is also fueling the adoption of agile development methods — and agile development outsourcing agreements — to achieve business value faster. “However, clients and their legal teams are uncomfortable form a contracting perspective with an approach that is often light on upfront specifications and relies more on collaboration and trust between client and developers,” Masur says.

“While cumbersome and arguably inefficient, the traditional waterfall approach to software development is easy to memorialize in contractual language because it is very linear.” Nonetheless agile agreements will increase, predicts Masur, noting that there are contractual mechanisms outsourcing customers can implement to reduce uncertainty while still reaping the benefits of more a collaborative.

This story, "Attorneys predict a demanding year for IT outsourcing customers" was originally published by CIO.

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