Sign up IT contracts with care

January 10, 2012: In the case of organizations looking for long term Information Technology contract, they must give importance to flexibility and efficiencies of cloud based delivery models.  Organizations which depend on managed serviced sometimes doesn’t get the desired quality, flexibility and responsiveness. The cloud model brings better opportunities for the companies, but companies are sometime constrained by the long term contracts they have signed with service providers.

Most of the organizations and buyers are demanding for flexibility and responsiveness in addition to reduction in cost. The organizations are facing increased pressure from competitors as they have shifted to cloud in terms of capital and operating resources in order to drive innovation and value. This puts the company in a flawed and indefensible competitive position. The company might be in a position where the service provider may not offer cloud based services that might improve the companies position.

Being in a long term contract with a service provider does not mean that the companies are out of options. Majority of the managed services have designed and developed considering the cloud and this gives the companies the opportunities to renegotiate with the existing vendor or to find a new service provider who offers cloud services that fit into the business and workloads.  

The management should properly review the contract and should be well informed about the details of the contract before meeting the service provider or cloud vendor. The process negotiating the contract should be given proper attention along with minimum volume commitments and the course of action in the case of workload exceeding the minimum level.

Another major factor that the management should pay attention is the work volume. The focus should be on work volume and not on dollars. In most of the cases agreements are developed based on the units of work carried out in each time period and not based on dollar volume.

The organization should first determine the group of workloads that are best suited for cloud migration. Create a list of workloads and make use of this to deal with the service provider or cloud vendor. In some of the cases the service provider might not be equipped to provide highly reliable and cost effective cloud services. In that case it is better to shift to a new service provider who offers cloud services.

In the future, vendors will be different from what are now. The capabilities will be different and the value proposition will be different.

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