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As-a-service contracting

January 6, 2017

How to remain competitive? That is the challenge for every business. And unless you happen to have some unique form of advantage, competition tends to depend on sources of commercial differentiation – greater reliability, superior support services, lower prices or a recognized brand. So part of the journey towards competitive differentiation is the development of new commercial models and contract offerings.

As-a-service contracting is an example of this journey. It is another step in the evolution away from a world where suppliers offered products and made the customer responsible for their use and performance. It was only 25 years ago that the technology sector denied even basic commitments such as interoperability between products. Customers were required to sign ‘Selection and Use’ clauses that eliminated supplier responsibility for the results achieved. Then, we started to see the emergence of solution selling, where products and services were bundled. Much of the drive behind this was price pressure and ‘commoditization’.

At about the same time, ‘outsourcing’ started to develop – moving entire processes or business activities to a supplier and thereby shifting responsibility for performance. But still the results were often disappointing, the costs higher than expected and the levels of flexibility and innovation challenging. ‘As-a-service’ models seek to address some of those issues – though it seems they are having varying levels of success.

A survey being conducted by IACCM and advisory firm ISG is revealing some fascinating insights to the realities of ‘as-a-service’ contracts. It illustrates a significant divide between customer expectations and aspirations and business reality. For example, in many cases anticipated savings are not being realised because customers do not implement use controls; levels of flexibility are often not as great as expected or carry a higher cost; security concerns may be hard to address unless the customer is willing to think in new and different ways.

One of the key challenges that has emerged is the short supply of individuals with the knowledge needed to structure and negotiate ‘as-a-service’ contracts. In a webinar yesterday, it became evident that this model remains relatively complex and high-risk because there are not yet any industry norms or standards  (what should the terms and conditions look like? What are the characteristics of a good supplier?) and both suppliers and buyers are having the wrong conversations (sales people either don’t understand the key issues or are reluctant to discuss them with their customers).

The IACCM/ISG survey remains open for input until the end of January and it promises valuable insights and advice for both suppliers and customers of ‘as-a-service’ offerings. Those who participate will receive a copy of the report.

3 Comments
  1. Peter Westerhof LL.D MIM permalink

    This is very much a déja vu for me, having designed and implemented full contract management for ITIL Service Management in the 90’ies. Since then it has time and again baffled me how ‘much ado about nothing’ was – and is – created on this subject.
    A service is a service; define the service characteristics, define requirements and constraints, define a self-correcting PDCA-process focussed at mitigating deviations, and your contract is basically done.

    • Peter, Thanks for your comment. As we discussed in yesterday’s webinar (and as the report will explain), it is actually this assumption of as-a-service just following traditional paths that is resulting in many of the subsequent problems and disappointments. While I appreciate that the areas you mention are common to all services agreements, the environment in which these arrangements are being struck is very different from that of 25 years ago. For example, as-a-service has to take account of far more onerous data security and cybersecurity needs; it has to balance the wish for low cost with the demand for high security; things like audit rights are quite different from the way they were even 15 years ago. The sophistication of performance and change requirements, the ability to switch providers, the right to demand added or improved services are all examples of regular ‘sticking points’ and areas in which the market is still learning. I hope you will find the eventual report useful and thought-provoking because, even though the legal framework may not be much different, the nature of the commercial priorities and how they are addressed has changed.

      • Interesting that you mention ‘data security and cybersecurity needs’, since those are simply part of the service delivered based on the requirements as stated by the client. From the ‘As-a-Service’ paradigm it is essential that the client states the ‘What’, not the ‘How’. In that sense security classifications are non-functionals to the client, since all service *must* be delivered within those constraints by the service provider. This also in essence has not changed in decades. It’s all about ‘Governance & Compliance’.
        As for “the wish for low cost with the demand for high security”, well who all know where that has lead us.

        Monitoring to ‘run the service’, and change management to ‘change the service’ are simply part of the PDCA-cycle. There is – or needs – to be little sophistication about that. Better still ‘Keep it as Simple as Possible’.

        The same goes for “the ability to switch providers”, usually called ‘Transition Management’ or ‘Retransition’. Since it is about a service, it suffices to use the current service description as a RFI/RFP in the tender process.
        Actually this is a much overlooked aspect, more often than not resulting in failed outsourcing programmes.

        Looking forward to the report.

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