Last Updated October 31, 2018

Law and Practice

Authors



Luther Rechtsanwaltsgesellschaft mbH (Cologne) has more than 380 lawyers and tax advisers in ten national and six international offices, of which 16 specialise in outsourcing in the offices in Cologne, Frankfurt, Essen, Berlin and Stuttgart. The firm's key areas of practice are technology, media and telecommunications, data protection law, IT security, and public procurement law in the field of IT.

Market developments in IT outsourcing include an increasing tendency for service providers to position themselves as drivers of innovation. We observe increasing numbers of combinations of outsourcing and software as a service (SaaS) and/or cloud services. IT outsourcing projects also place greater focus on ancillary services such as HR management/administration, sourcing and data analytics.

In business process outsourcing, we observe that initial fixed durations tend to be shorter than in the past, which puts the provider under some pressure in terms of the amortisation of investments. Further, it seems that customers are requesting models wherein the provider works with equipment provided by the customer (the 'operator model').

Frankly, most projects seem simply to ignore new technological developments such as AI, robotics, blockchain and smart contracts, since the reasons for an outsourcing decision (first generation) are driven by other considerations. However, in Germany we expect to see more and more machine-to-machine (M2M) communication, along with the upcoming digitisation of insurance companies and banks. In other segments, such as supply chain, major parts of processes are partly or fully automated. We assume that this will lead to a significant increase of the IT-related share of projects, even in the case of those which are not expressly concerned with IT outsourcing.

New technologies such as M2M communication and the development of IT structures with flexible networked systems increase efficiency and quality. For companies, digital work means greater flexibility through the cloud, an increase in mobile applications and end devices, increasingly on a global scale and without time limits. The new technologies also have an impact on user and product searches, on research and object marketing as well as on transaction management. The increasing speed of development will mean that providers will more frequently be required to adapt their services during the term of a contract. Accordingly, careful negotiation of contracts with regard to change requests is of the essence.

In some specific markets we observe a kind of consolidation. Providers concentrate on big projects like showcases and are willing to invest in order to gain market share, irrespective of profitability. We are already seeing instances where what seems to be a comfortable situation for the customers at first glance leads in the end to quality issues and risk of premature exits from bigger projects.

Due to IT and data being a key factor for productivity, data analytic services and data management services are getting more and more important for providers.

With regard to commercial outsourcing, we observe a number of highly sophisticated remuneration models, combining an open-book approach with a bonus-malus scheme dependent on the achievement of productivity targets.

Finally, customers are trying to keep better control by providing key assets on their own, in order to make a transition to another provider easier.

Luther Rechtsanwaltsgesellschaft mbH

Anna-Schneider-Steig 22
50678 Cologne

+49 221 9937 0

+49 221 9937 110

cologne@luther-lawfirm.com www.luther-lawfirm.com
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Authors



Luther Rechtsanwaltsgesellschaft mbH (Cologne) has more than 380 lawyers and tax advisers in ten national and six international offices, of which 16 specialise in outsourcing in the offices in Cologne, Frankfurt, Essen, Berlin and Stuttgart. The firm's key areas of practice are technology, media and telecommunications, data protection law, IT security, and public procurement law in the field of IT.

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