Commitment Matters Blog

 

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As-a-service contracting

Posted by Tim Cummins | Jan 14, 2017 11:01:49 AM

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.

Topics: contracting excellence, performance management, contract management

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