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Next Generation Outsourcing: Revenue vs. Cost William A. Tanenbaum

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What is New About Next Generation Outsourcing?

Traditional outsourcing focused in back-office IT and business processes Next Generation outsourcing focuses on front-office Cost savings vs. revenue generation Goal of Next Generation Outsourcing is faster, more targeted product development Faster road products desired by customers

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What Does Next GenerationOutsourcing Need?

Data Data Analytics From Internet of Things From customer engagement software and processesSocial MediaThird party data

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Example of Business Case

Retail store combines in-store and on-line customer information Combine databasesAnswer the question: “Are You “You?”– Solve for different attributes in different sales

channels– Artificial difference in contemporary world

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B2B As Well As B2C Airliners as an example Similarly, truck and farm tractor product features B2B costs are generally greater than B2CData-driven, Next Generation outsourcing can reduce costs

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Health Care

Same issues apply to use of IoT in health careUse of mobile devices and connected devices is prevalent and important part of hospital and remote careOutsourcing contracts must address health care-related liability

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Health Care (2) Vendors are now Additional HIPPA and EMR considerations apply that do not apply to PII in the pure retail or B2B contextDigital medicine vendors are now statutory “business associates” with concomitant statutory obligations

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Internet of Things IoT = connected (often inexpensive) devicesSensors Cameras in mannequin eyes in retail stores Collect and analyze data Outsourcing addresses both phases – Making sense out of data– Improving data and means of collecting it

Mobile devices and location-aware features, etc.

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Retail Customer Consent

Presently very open issueUndisclosed IoTWhat is a connected device Location awareIs consent in TOU consent? Mobile devices as IoT and more

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What Types of Outsourcing?

IT0, for IT operations and data center management Use of data scientists as a form of business or knowledge process outsourcing BPO for understanding and refining business processesData driven businessesHealth care, not just traditional business

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What Will Be Different?

New functions, e.g., (connected) device deployment and management Sensor data management and verificationMaking Big Data Useful– Data collection– Analytics on data– Business decisions based on analytics– Converting decisions into business outcomes

Failure of step 4 short-circuits business use

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What Changes? New providers New outsourcing firms Specialties such as data scienceOften data scientists are “free” because “bundled” with data analysis Change in outsourcing model: outsourcing customer less likely to allow providers to use outsourcing “outputs” for next customers

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Data Sharing vs. Data OwnershipIP ownership of data is difficultData sharing comes closer to business objectiveStructuring data sharing licensesIP derivative work ownershipIndemnities? Scope? Carve-outs?

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Cyber-Security Heightened in Next Generation Outsourcing because of customer-facing natureTwo-thirds of data breaches caused by third party IT providers Insider problem – background checksMultiplied by multiple providers, data source, different data licenses Need to negotiation

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Cyber-Security and IoTConsider new paradigm: – Cooperative resolution vs. material breach– For external attacks– Exclude provider employees, subcontractors, etc.

Key consideration is prompt resolution vs. paralysis for dispute posturing Similar to some approaches to malware

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IP and Next Generation Outsourcing

Controlling use and ownership of new IP, especially from collaborative developmentsUse of business drivers to allocating IP ownership and license and license rights Drivers are different in using outsourcing to support front-office revenue generation

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What is Different in Next Generation Outsourcing?

Traditional arguments for allowing provider ownership not apply to front-office outsourcingBorrowing IP structure from Silicon Valley co-development technology agreements But problem with “category 3” Solution may be standing or ad hoc arbitrators

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IP Regimes Copyright authorship vs. patent inventorshipTrade secrets are propriety as long as secret Controlling same Modify standard confidentiality provisions

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Questions and AnswersWilliam A. TanenbaumArent Fox LLP, New York and San FranciscoWilliam.Tanenbaum@arentfox.com