IT outsourcing year in review: Grading our 2015 predictions

We predicted that this was the year that IT outsourcing companies would welcome standardization, outcome-based contracts would finally take hold and RFPs would become a thing of the past. Now it's time to grade those and the rest of our predictions.

2015 predictions crystal ball

Earlier this year, CIO.com and its outsourcing experts made several bold (and a few slightly less daring) predictions for IT services in 2015. We suggested that this year, companies would get serious about managing their IT supplier risk. (Not exactly.) We said that renegotiation and multi-sourcing would dominate contracting activity. (They did.) And we envisaged the arrival of outcome-based sourcing and the departure of the RFP. (Neither, alas, came to pass.)

We revisited all of our prognostications from last year and found that, once again, we got half of them right. Three of them were off base, and two were just beginning to take shape at year-end. As we pull together our forecast for 2016, here's how all those 2015 predictions panned out.

Right on target

Customers embrace standardization 

Companies did, in fact, become less interested in customer solutions and the intensive infrastructure required to support them. “They largely see standardization as a way to drive productivity, efficiency and maintainability of solutions,” says Marc Tanowitz, managing director of outsourcing consultancy Pace Harmon.

“Service providers have clearly moved away from asset based deals, which is forcing buyers to increasingly invest in optimizing their IT infrastructure to meet the needs of their stakeholders. What’s more, cloud providers began to offer more protections and options in their standard agreements, explains Rebecca Eisner, partner in the Chicago office of law firm Mayer Brown. “Companies embraced standard offerings in 2015 in large measure because providers began to embrace the needs of big company customers. This is particularly apparent for core functions for which cloud terms have historically been ill-suited.”

Renegotiation reigns

Companies didn’t just renegotiate at the end of their outsourcing deals, they started re-examining them mid-term, says Dan Masur, partner in Mayer Brown’s Washington, D.C. office. “The renegotiations have been driven in part by re-solutioning to bring in new technologies, retrofitting to add digital technologies, restructuring to adopt outcome or output based pricing, reconciling the contract to changing realities, and re-sourcing components of the services to specialized providers.” This behavior, however, was more stop-gap than strategy, says Bill Huber, managing director with outsourcing consultancy Alsbridge. “The market has shifted dramatically, and re-competes have demonstrated the potential to unlock significantly greater value at this juncture than can usually be achieved by a straight renegotiation, whether or not the renegotiation includes re-scoping.”

Multi-sourcing multiplies 

The deal-per-customer ratio continued to climb. “Clients are becoming increasing comfortable with best of breed suppliers and multi-provider environments,” says Tanowitz of Pace Harmon. “Driven by popularity of the cloud, standardization allows clients to ‘plug in’ or ‘unplug’ providers easily, and many companies have moved away from deals with a heavy asset investment by the provider.” However, points out Information Services Group (ISG) partner Steven Hall, “many enterprises are still challenged with governing in a services-based environment and have yet to modernize their governance organizations. We continued to see rapid adoption of SaaS solutions; workloads/applications moving to public cloud environments; and the implementation of bi-modal IT models, which all require advanced governance capabilities seen in product lifecycle management.”

The cloud comes down to earth

Finally. “In 2015, cloud computing reached the end of the beginning,” said Paul Roy, partner in the business and technology sourcing practice of Mayer Brown. “Cloud computing has become and is now a routine part of outsourcing conversations and solutions.” Public, private and hybrid solutions were all on the table. “At this point, enterprises’ forward looking investments almost always include cloud infrastructure for the apps they are supporting,” says Pace Harmon’s Tanowitz.

The sourcing decision becomes data-driven

“2015 saw the continued rise of Technology Business Management and TBM software providers,” says ISG’s Hall. “IT organizations are starving for actionable intelligence, based on their data, to help them make sound investment decisions.” Tanowitz argues that sourcing has always been data driven: “data and analytics are essential to ensure sourcing decisions are grounded in a solid business case and also to ensure that the procurement process remains objective and audit-proof. We expect this to continue to be the case, even for emerging technologies and new and innovative services.”

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