CIOS: Don't Let New Sourcing Models Take Your IT Organization By Surprise

by Sharyn Leaver

Sharyn-Leaver Driven by economic pressures and a desire for alternatives to conventional IT outsourcing, often with minimal involvement from IT, emerging sourcing models like managed hosting, SaaS, PaaS, and cloud-based services are growing in popularity. While potentially beneficial to the IT organization, they also present a particular set of challenges and risks. For example, new approaches tend to employ varied service delivery chains consisting of an ecosystem of suppliers, many of whom are small, young, and highly subject to industry consolidation. Contracts and SLAs may not be fully mature or adequate for enterprise needs, and service disruptions of various kinds are more likely. Since traditional sourcing tactics, terms, and expectations may no longer be adequate, CIOs should ensure their sourcing team is prepared to:
   
Support more complex service oversight. Make it a point to be aware of the service delivery chain and all its players, as well as the location of data and backup facilities. Insist on visibility into the mechanics of service delivery, and have contingency plans in place in case of delivery disruptions.

Refit contractual terms to new requirements. Specify requirements for data use, return, and recovery, and don’t underestimate the importance of transition assistance when moving to a new provider. Base SLAs on performance, not availability, incorporating liability clauses and contractual repercussions for repeated poor service. However, be realistic in expectations of service providers to agree to stringent terms and conditions, and be prepared to negotiate.
 
Guide business customers through the decision-making process. Make sure that they are considering regulatory and integration requirements when evaluating new solutions, and take time to inform them about the relevant technology and terminology.

Forrester Analyst Bill MartorelIi has written a full-length report on this topic - "Emerging Outsourcing Models Require New Sourcing Tactics." I encourage you to take a look.

And let us know - is your organization exploring these new sourcing models? What are you doing to meet their challenges? 

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Comments

re: CIOS: Don't Let New Sourcing Models Take Your IT Organizati

Managed hosting is meant for those websites that are designed to host busy e-commerce sites and dynamic, database driven Web pages. Perfect for organizations that don’t’ have the time or capital to invest in server administration.

re: CIOS: Don't Let New Sourcing Models Take Your IT Organizati

I agree with Sharyn. In this new world of SaaS and PaaS, it's all too easy for anyone to engage a vendor without truly understanding the ramifications of the agreement. I think Sharyn has outlined some key considerations for these agreements. Additionally, I suggest:* Consider the term - possibly 1 year then monthly* Understand whether or not you need an auto-renewal* Consider monthly usage true-up's (up or down)* Cancellation terms* Their ability to work with integration vendors.

re: CIOS: Don't Let New Sourcing Models Take Your IT Organizati

Good points Tony. Here's a link to another doc that provides some good advise on SaaS and PaaS pricing models and agreement tips: http://www.forrester.com/Research/Document/0,7211,46602,00.htmlThe comment about terms, for example, is very true. Our clients report that SaaS vendors that have sought longer-term contracts in the past are now more open to shorter-term contracts. You can typically get at least a 10% discount for yearly contracts. Forrester recommends that clients start with monthly plans to ensure that the functionality meets requirements and that integration issues will not be an obstacle to success.