Five Emerging Themes in Enterprise ‘As-a-Service’ Contracting

In 2016, we saw continued strong adoption of As-a-Service offerings by ISG clients looking to increase business flexibility, reduce costs and gain access to new capabilities. We also saw a number of clients transforming their own traditional products into services, often delivering them to their end customers As-a-Service.

While As-a-Service adoption is accelerating in both the front and back office, one area that is often overlooked is contracting – both the execution of the contract and the ongoing management of the relationship. As many of you know firsthand, As-a-Service offerings can add significant business value, but given their highly standardized nature, integrating them into long-standing contracting and provider management relationships can be disruptive.

In response to this disruption, ISG launched a research agenda in 2016 focused on discovering how As-a-Service impacts enterprise contracting. A key aspect of this agenda is a joint study with the International Association for Contract & Commercial Management (IACCM) that explores what As-a-Service contracts and relationships look like today, what challenges businesses are facing as the industry moves to As-a-Service, and how the As-a-Service trend may affect companies over the next three years. If you’re interested in taking the survey, you can access it here.

Based on an initial look at the data, we see five emerging themes:

1. As-a-Service benefits are heavily weighted to the business, not IT. The three most-often cited benefits to buyers all can be categorized as non-technical: increased business agility, better alignment of supply and demand and reduced capital costs.
2. Price and performance guarantees are becoming increasingly important. Moving to a large-scale, standardized platform (e.g., SaaS and IaaS) means less flexibility in the initial service offering design, so buyers are looking for better contractual levers, like committed service levels, to ensure ongoing performance.
3. Addendums are the primary way buyers are reducing risk. Although nowhere near perfect, inserting company-specific addendums (such as security policies) appears to be the primary method for reducing As-a-Service risk. Coming in a close second is avoiding risk in the first place by not moving sensitive data or intellectual property into the As-a-Service offering.
4. Many companies have analyzed the operating model impact of As-a-Service, and are taking proactive measures with their staff. Many respondents are recognizing that a major transformation is underway, and nearly half of respondents have trained their staff on how to evaluate, negotiate and manage As-a-Service agreements.
5. Neither buyers nor providers appear to be ready to contract based on the buyer’s business results. More than half our respondents indicated that neither buyers nor providers are prepared to go to contract based on the buyer’s business results. The second most common response so far is that buyers are ready to build a contractual relationship based on their business results, but providers are not ready.

I recently joined IACCM President Tim Cummis in a webinar to discuss these and other preliminary results. Listen to a replay of Ask the Expert: Emerging Best Practice Ideas in As-a-Service Contracting. And let me know what you think about these preliminary results.

ISG Insights subscribers will be able to access the full results and the final report in March.