Wavestone recently attended the Global Sourcing Association’s (GSA) Sourcing Predictions 2018 event in London, at which several senior industry figures highlighted their forecasts on how the IT industry is likely to change in 2018.

It was widely predicted that we are on the cusp of massive change in IT sourcing. In this post, Wavestone takes a look at these predictions and provides our view on what we can expect.

The key themes discussed here are:

  • Anything As a Service
  • Digital transformation and Cloud Services migration
  • Process Automation
  • Agile enterprise
  • Internet of Things (IoT)
  • Offshoring rebalancing

We take a look at each of these predictions in sequence, and then review how each of these highly disruptive trends will affect contract drafting and negotiations practices.

ANYTHING AS A SERVICE

In 2017, Anything As a Service saw 20% annualised growth; while traditional IP/BPO revenues are flat-lining! Industry experts are expecting to see even more widespread adoption of Software, Platform and Infrastructure as a Service models during 2018.

Industry leaders have identified three types of organisation that will benefit substantially from this migration. These are

  • Software As A Service providers, who will leverage upon pre-existing, successful niches e.g. Salesforce
  • Large global consulting players, leveraging their pre-existing global scale
  • “Collaborators”, who will lean on their ability to create a combination of capabilities within a supplier ecosystem (including startup players) to meet the customers’ business needs. These Collaborators will be willing to cannibalise their own revenues in order to strengthen the long-term relationship with the customer by meeting their business needs more effectively.

Wavestone has also observed this Anything As a Service growth pattern. We would however anticipate a fourth category of independent IT consultancies, capable of disrupting the marketplace and driving this agenda for customers.

DIGITAL TRANSFORMATION AND CLOUD SERVICES MIGRATION

At Sourcing Predictions 2018, industry experts predicted even more widespread implementation of Digital Transformation programmes and Cloud Services Migration. It was also observed that these two trends are frequently inseparable, and commonly treated together. Digital decision making is increasingly taken outside of the traditional IT function and this requires stakeholder engagement across different parts of the business.

Financial Services will seek to collaborate more with Fintech players. However, it is predicted that the onboarding of Fintech solutions, into large banks for example, will become a more prevalent issue and that old-style procurement approaches will need to be modified. This represents a particular challenge for large organisations, as they find it difficult to rapidly change business practices.

Wavestone has also observed this Digital Transformation and Cloud Services Migration growth pattern, and the correlation between the two topics. In addition, we are seeing a massive increase in expectation from customers regarding the successful implementation of Digital Transformation programmes on the one hand and the capacity to manage cloud migration ‘at scale’ on the other.

PROCESS AUTOMATION

Industry experts also predicted the single biggest impact on sourcing practices will come from the adoption of process automation.

79% of companies in a recent survey indicated that they have done nothing to implement process automation as of yet … but it is predicted that they will, and that the process of adoption is set to accelerate massively. Process automation is also projected to cause massive change right across supply chains and fundamentally disrupt the delivery model for services.

Furthermore, it is likely that this will prove highly disruptive to offshoring practices and the evolution of the client facing ecosystem as technologies like Text2Voice, Voice2Text and Chatbots drive growth.

Wavestone has been monitoring the development of Robotic Process Automation (RPA) and the disruptive impact it brings to service management operating models in particular; and as such advocate the predictions made at Sourcing Predictions 2018. We would further state that the anticipated sourcing disruption occurring will be much less than that created by the following wave of AI and machine learning …. which is running just on the heels of Robotic Process Automation!

AGILE ENTERPRISE

The adoption of the Agile Enterprise as a concept, and the associated use of DevOps implementation methods has been a significant trend for some years. However, at Sourcing Predictions 2018, industry experts predicted that the expected acceleration in the adoption of other key sourcing trends provide further stimulus for developing the Agile Enterprise.

Wavestone fully agrees with this assessment, and thinks this will be greatly aided by the Autumn 2017 launch of VeriSM©, by the IT Service Management Forum.  VeriSM© is the successor to ITIL V3, and provides a best practice framework that integrates ITIL, Agile, Lean 6 Sigma, Scrum and other techniques into a single target operating model that is aligned to each organisation’s specific objectives. Deployed correctly, this will greatly transform the successful implementation of the Agile Enterprise.

INTERNET OF THINGS

At Sourcing Predictions 2018, statistics were provided showing an increase in connected devices from c.6 billion today to c.50 billion by end-2020.

Wavestone has observed many client organisations seeking to develop its own IoT strategy and carry out enabling network optimisation evaluations, to understand how this will contribute to the Digital Transformation of the Enterprise, and enhanced business processes e.g. improved supply chain monitoring.

Against the backdrop of the predicted increase in number of devices, Wavestone fully expects to see a massive increase in Proof of Concept initiatives and trial implementations.

OFFSHORING REBALANCING

Industry experts predicted that offshoring of services will become less and less important as automation services grow.

From Wavestone’s perspective, this is because physical location becomes less and less important from a cost consideration when processes are automated. Once labour rate arbitrage is taken out of the equation, the service management benefits of offshoring become less compelling!

Wavestone therefore predicts that the main Offshoring / BPO providers will look to enhance the value of their service offering by moving away from people-centric process work to higher value propositions from 2018 onwards.

CONTRACT DRAFTING AND NEGOTIATING CHANGES

Sourcing Predictions 2018 also saw a leading industry legal expert predict several significant changes in the treatments used during IT contracts drafting and negotiation, resulting from the key trends highlighted above.

Among the key changes he predicted, and absolutely endorsed by Wavestone were:

  • Revised oversight of Fintech collaboration contracts
  • Changes in contractual liability clauses
  • Adaptation to Agile development methods
  • Handling of more function-specific cloud deals
  • Handling catastrophic failure in AI and Machine learning systems
  • Handling of RPA error liability
  • Handling or regulatory obligations
Oversight and management of Fintech collaboration contracts

In 2018, Financial Services players will seek to collaborate more with Fintech players. Contractually, this raises several issues such as the need to be commercially innovative, how to manage a limited capital base, and how to achieve influence and control through equity participation rather than more traditional contract sanctions.

Changes in contractual liability clauses

The handling of liability is likely to change quite substantially, specifically in cloud based deals where there is limited opportunity to back off liability to the cloud services provider.

Contractually, this raises a large number of issues such as how to manage the quantum of caps e.g. in AWS infrastructure deals, how to differentiate between fines and claims (in the context of GDPR), how to apply ‘super caps’ on fines, how to treat the conflicts between warranties, indemnities and unlimited liabilities clauses, gross negligence, deemed direct losses and loss of profit.

Adaptation to Agile development methods

Agile software development methods are based upon the iterative, incremental development of solutions to reflect the rapid evolution of business requirements. At the core of this approach there is no certainty around what the final solution will look like and deliver, indeed only a high-level vision of the finished product exists at the outset! Each Scrum will determine the outcome of that Sprint.

Contractually, this raises the issue of effectively defining the Kernel i.e. the concept of the minimum viable product.

Handling of more function-specific cloud deals

Function-specific cloud deals create a number of contract drafting challenges. In some respects, the end user has no remedy at all if the solution does not work! It has been observed that this can act, and will act, as a break on large scale cloud programmes!

In 2018, it is expected that some of the contract logic from traditional outsourcing contracts will be imported within cloud contractual arrangements to address this problem. In particular, further consideration will likely be given to how benchmarking clauses may facilitate better cloud service provider management.

Handling of catastrophic failure in AI and Machine learning systems

At Sourcing Predictions 2018 it was pointed out that, within traditional contracts, the concept of liability or fault was based upon the concept of human error. However, with AI and Machine learning systems, you can presume that the system will make the same error repeatedly and that there will be the potential for greater risk of catastrophic failure.

Wavestone would encourage organisations to review their existing contracts to identify required updates arising from AI and Machine learning systems transformation and implement these within the ongoing contract change control and continual service improvement processes.

Handling of RPA error liability

A similar problem is encountered with process automation solutions and the handling of system created errors. Where does the liability reside for these errors? Should it be the Service Provider, or the should it be broken-down between the parties? Who bears the most risk?

Wavestone would encourage organisations to review their existing contracts to identify required updates arising from Process Automation transformation and implement these within the ongoing contract change control and continual service improvement processes.

Handling or regulatory obligations

The last topic predicted to trigger significant change in the treatments used during IT contracts drafting and negotiation is that of regulatory compliance. In the past, the contract language used was largely principles-led, however, these clauses are likely to become much more prescriptive in defining compliance requirements.

From a regulatory perspective, the Fintech sector is significantly under-regulated in comparison to the large Financial Services players. This has created an uneven playing field and this can expect to be addressed during 2018.

SUMMARY

Wavestone recently attended the GSA’s Sourcing Predictions 2018 event in London, at which several industry figures highlighted their forecasts on how the industry is likely to change in 2018. At the event several senior industry figures predicted that we are on the cusp of massive change in IT sourcing.

In this post, Wavestone have taken a look each of these predictions and provided our view on what we believe the industry can look forward to during 2018. And yes … we are indeed on the cusp of massive change in IT sourcing practices!