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A Challenge For Contracting Experts

November 25, 2009

Earlier this week I was invited by TPI to participate in a small discussion group for a feature in CIO magazine. The conversation was based around recent research conducted by TPI that looked at today’s major challenges for IT service management and governance.

I am not about to reveal the details of the research or of the very interesting discussion that took place. What I am going to comment on are the remarks made by CIO Magazine editor Martin Veitch.

Martin started the meeting by outlining the ‘top of mind’ issues that he is hearing from his extensive CIO contact base. He briefly discussed the old ‘image issue’, of CIOs as techies who fail to appreciate business goals and the need for technology alignment. This he dismissed as no longer valid. CIOs are well aware of the need for business alignment – and they are increasingly focused on some of the issues that make this hard to achieve.

Among those issues are the dramatic changes going on in technology.  For example, the impacts of Cloud Computing are only now being grasped and it will raise a wide variety of strategic and governance challenges, as well as opportunities. Among the implications is the need to review existing and future contracts. Emerging technologies will revolutionize the relationships with some existing suppliers; in other cases, it will mean forming relationships with brand new suppliers. Terminating, renegotoating and new sourcing will be a major effort and fundamental in its impact – especially with regard to getting good alignment with business needs.

So the role of Procurement will be critical to the CIO’s success, but so will the way that suppliers respond and offer creative new commitments. The dependence on contracting and commercial competence goes much deeper than in the past – and many CIOs have realised that it is a core dependency for their performance (echoing the views recently expressed by Professor Leslie Willcocks of the London School of Economics).

At last, CIOs are looking at a world where the latest technologies and the methods of service delivery allow them to re-think budgets and operate with dramatically reduced up-front costs. They can begin to move IT expenditure from a capital expense to operating expense. They can ‘gain revenge’ on many of the suppliers who they feel have ‘for years, taken advantage of them’ (in particular some of the major software suppliers).

CIO thinking is that they increasingly need to multi-source and to enter into either shorter term or more readily terminable agreements. Again, this has massive implications to the resources they need at their disposal – and it will also have major impact on suppliers and their business economics, plus the way they interface with and manage customer relationships. Not in itself new news – but potentially revolutionary for the world of contracting and contract / relationship management.

At this point, many CIOs apparently despair of obtaining the right resources within the business and take the view that they must develop commercial and contract skills within the IT department. They see a need for core skills in negotiation; they know that they must raise legal and financial awareness within  their staff. They must become ‘masters of outsourcing and offshoring’, understanding the impacts of culture and business practices on their projects and deliverables. Governance is another major issue, requiring appropriate contractual protections and the ability to oversee supplier performance.

So with technology now becoming the great business enabler, contracts and commercial professionals must step up to the challenges and opportunities that are being created. This new world calls for more creative relationships, supported by commitments and performance metrics that safeguard contractual outcomes. And the message from CIOs is clear – our community on both buy-side and sell-side must either step up to the plate and deliver against business needs, or the CIO community will acquire for themselves the skills needed to safeguard their success.

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