The business rationale for outsourcing has expanded beyond cost savings, as today’s outsourcing relationships often also must drive innovation, agility, and resilience. That’s why many CIOs are working to establish more strategic partnerships with their outsourcing vendors.
“The challenges businesses face today aren’t just about doing more. They’re about doing things differently,” says Mike Manos, CTO at Dun & Bradstreet. “Businesses need to adapt their approach to their total talent pool to stay competitive and responsive to the market.”
Now more than ever, IT leaders need to review their outsourcing approaches on a variety of fronts to ensure they’re delivering business value and not exposing their organizations to increased risk.
Anthony Caiaifa, CTO at SS&C Technologies, says “several forces make 2025 a natural inflection point” for outsourcing strategies. Among them, he says, is the fact that AI is transforming IT operations, with AIOps, predictive analytics, and AI-enhanced cybersecurity shifting the value of outsourcing from simple support to strategic enablement.
Cyber risk has also never been greater. As a result, ensuring outsourcing partners are compliant, resilient, and proactive in their security postures has become increasingly essential.
Global talent shortages — particularly in cybersecurity and advanced cloud skills — are also widening, making it unsustainable to keep everything in-house. “Even large IT departments struggle to hire specialists,” says Bill Young, CTO at RightClick Professional Services.
The definition of talent has also evolved. What used to be a decision between insourcing and outsourcing now must include increasingly intelligent digital agents. Leaders must first ask, What work will realistically remain for people?
As a result of such forces, industry observers believe now is the time to review outsourcing contracts. “If you’re not renegotiating and actively re-engaging with service providers, you risk falling behind almost immediately,” says Dave Borowski, a senior partner in West Monroe’s Operations Excellence practice.
Moreover, in a hypercompetitive environment, IT service providers are willing to offer more pricing concessions and productivity commitments than ever before, creating a window for CIOs to capture significant cost savings and service improvements if they’re smart about it.
“Outsourcing strategy must evolve. The pace of change is too fast, the competitive environment too fierce, and the technology ecosystem too complex for business-as-usual,” Borowski says. “If you don’t rethink your approach now, you’ll fall behind in months.”
IT leaders must deliberately categorize and prioritize what they outsource, revisit existing contracts, approach new deals differently, and carefully consider how service providers can work with their organizations to improve business outcomes.
The following 10 key questions can help guide your outsourcing strategy overhaul.
How does our AI strategy impact our outsourcing choices?
AI raises unique challenges CIOs must account for in their outsourcing arrangements that go beyond computing requirements.
“CIOs must recognize outsourcing partners are no longer only providing infrastructure; they are providing governance frameworks,” says SS&C’s Caiaifa. “Selecting a partner with the ability to manage AI responsibly is critical.” To address this, IT leaders can ask for bias detection, explainability tooling, and compliance with emerging regulations like the EU AI Act.
Moreover, as AI becomes embedded in workflows, CIOs also need IT service providers capable of co-creation. “Outsourced teams must work seamlessly with internal teams to accelerate experimentation, deployment, and measurable outcomes,” says Manos of Dun & Bradstreet, which is working with multiple AI partners because LLMs can deliver vastly different results.
“Outsourced vendors must be aligned both contractually and through the selection process, with a focus on producing outcomes and demonstrating shared alignment with all partners,” Manos says. “Having a partner with deep expertise — or a contract that offers strategic flexibility — can make a meaningful difference.”
Teza Mukkavilli, CISO of Tekion, says the cloud platform provider for automotive retailers has been re-evaluating every outsourcing relationship through the lens of its AI-first strategy.
“We’re quickly scaling AI across systems, but with one non-negotiable rule: [Car] dealer data stays secure and never touches public domains. Any partner we work with must match that commitment,” he says. “If a vendor can’t scale with your innovation agenda and protect your data, they’re not a partner — they’re a liability.”
Are we equipped to manage a multi-sourced environment?
Organizations are seeking best-in-class providers, but without the internal talent and governance models to integrate and oversee them, performance will suffer.
“This is one of the most underestimated challenges in outsourcing strategy,” says SS&C’s Caiaifa. “Multi-sourcing requires strong vendor management, contract oversight, and a service- integration-as-a-discipline approach — something many CIOs underinvest in.” Never assume providers will collaborate, he adds. “In reality, they often optimize for their own scope.”
IT leaders should establish integration offices or governance boards to manage interdependencies.
Can our outsourcing engagements keep pace with technological change?
Outsourcing arrangements today must be designed for adaptability. Technology is evolving faster than the contractual cycles of most organizations. Multi-year deals have left enterprises locked into outdated models, unable to adapt to rapid advances such as generative AI.
“Static outsourcing models won’t cut it anymore,” says Dun & Bradstreet’s Manos.
CIOs should shift toward dynamic, outcome-based partnerships that adapt as business needs innovations dictate. “Most outsourcing models were built for stability, not agility. But with AI, cyber risk, and regulations evolving rapidly, flexibility isn’t optional,” says Tekion’s Mukkavilli. “CIOs should demand modular, testable partnerships that evolve with the business.”
Caiaifa recommends flexibility mechanisms such as evergreen clauses, technology refresh cycles, and joint steering committees that allow for mid-contract recalibration. “The caveat is: Flexibility must be balanced with cost predictability,” he says. “Contracts should specify change mechanisms clearly to avoid disputes.”
How should our ERP platform influence our outsourcing strategy?
With all the emphasis on emerging technologies, your outsourcing strategy must still you’re your ERP into consideration.
Software companies are pouring massive resources into embedding AI — especially agentic AI — into their core platforms. “That means CIOs need to continually ask, ‘What can I do within my own technology ecosystem that I used to outsource?’” West Monroe’s Borowski says.
If an ERP platform can generate reports, manage expenses, or automate workflows with embedded AI, the decision isn’t just insourcing versus outsourcing; it’s insourcing vs. outsourcing vs. is my ERP already doing this for me? “That’s a very different calculus than even a few years ago,” Borowski says.
Are our IT services contracts written for the AI era?
Now is a good time to consider whether the original business case for outsourcing relationships still holds. “[Organizations] have become comfortable using the standard playbook of cost savings and productivity. They are using the same for AI-led advantages as well. This is short-selling the impact they can derive from AI,” says Yugal Joshi, partner at Everest Group, adding that labor costs have also gone down and “should continue to go down with scaled AI adoption.”
Historically, outsourcing deals locked in one-time productivity gains, which plateaued until renewal. “But given how quickly tools are emerging, you can’t afford to wait years to benefit,” says Borowski. “Contracts need to be far more dynamic, with mechanisms that let clients capture cost and productivity improvements as new capabilities become available — not just when the deal refreshes. Otherwise, providers reap the margin benefits while clients miss the savings.”
Particularly for “keep the lights on” deals, as AI will radically reduce the effort required to maintain systems, manage help desks, and perform upgrades, says Anil Cheriyan, longtime CIO and CTO and founder of Phase IV Ventures. IT leaders should make sure their agreements account for these improvements and put in place mechanisms for capturing and using these savings to fund new initiatives.
Are we directing enough of our outsourcing spend to innovation?
Many deals — cloud contracts, in particular — emphasize uptime, patching, and “keeping the lights on.” The real question CIOs should ask is whether their outsourcing investment is helping them build competitive advantage.
“Outsourcing partners should bring expertise in cloud-native analytics, AI adoption, and automation — not just infrastructure management,” says SS&C’s Caiaifa. “In our experience, embedding an innovation roadmap within outsourcing agreements changes this dynamic.”
“By working with external partners, companies can explore technologies such as AI without taking away from their core operations and overextending their employees. However, the key is to make sure innovation efforts are tied directly to business goals so each new initiative contributes to your competitive advantage instead of simply introducing an additional process,” advises Peter Fidler, president and founder of WCA Technologies.
Research firm Gartner advises IT leaders to develop a formal innovation plan in their outsourcing agreements, as well as establishing an innovation committee to ensure outsourcing partnerships deliver.
Is our vendor management function adept at emerging risk management?
Advances in AI demands specialized skills, governance, and ethical and regulatory oversight. Organizations and their IT service providers must be aligned technically and strategically.
“Companies need to revisit their outsourcing contracts and ensure that they are being protected, not just from the standard technical controls and risk standpoint, but [also in terms of] risks related to tools, data, processes, and access,” says Dun & Bradstreet’s Manos.
Does the vendor have the right to train their AI engines on the client’s contracted code bases? How do you ensure insights resulting from work done on your organization’s behalf aren’t leveraged for other customers? Are there protections against code, data, or document exfiltration to public or personal development code repositories?
“The systems and frameworks around these kinds of agents and capabilities are very powerful,” Manos says, “but you still need to safeguard your own intellectual property.”
Are our outsourcing decisions weakening our security posture?
“There is increasing evidence of providers being hacked, resulting in the compromising of clients’ systems,” says Everest Group’s Joshi. “Enterprises should ensure providers have a lot better cybersecurity posture internally, in addition to delivering these services to clients.”
Security should be embedded into outsourcing engagements — not bolted on later, advises Tekion’s Mukkavilli, who insists that all AI agents are designed with strict data controls.
“Every CIO should adopt a similar ‘security-first’ outsourcing stance to protect innovation velocity and customer trust,” he says, adding that the security, compliance, and data residency should be evaluated on a regular basis.
Do we know who has access to what?
As data crosses borders, geopolitical issues become a concern. “Organizations face growing constraints regarding who can handle sensitive work, making it important for them to know their supply chain contractors list,” Manos says. “They need to ask themselves: who can access the data, who can see the code, and whether or not outsourcers have access to customer-specific environments.”
Manos adds: “Not including provisos around AI and its access to your data, source code, and IT documentation could lead to some risky and unexpected outcomes.”
AI and tool-driven development can complicate things further as they learn the client’s environment, development efforts, infrastructure, and processes. Working with partners with these kinds of tools and capabilities offers significant benefits to your organization, but IT leaders need to be vigilant in the global outsourcing landscape.
How realistic are our outsourcing business cases?
Technology-driven cases can fail to fully deliver on their promised benefits. “If you’ve tied outsourcing decisions to [certain] assumptions — we don’t need to outsource because we’ll automate — you may find yourself with gaps when automation underperforms,” West Monroe’s Borowski says. “Outsourcing can flex up and down, but only if you’ve got the right partner and the right deal. Otherwise, you’re left with stranded work you didn’t anticipate.”
CIOs need to apply a more rigorous, risk-based lens to their business cases before letting them drive their sourcing decisions.
IT leaders should continually address their business cases for outsourcing — as well as the questions above. “It’s not just a good time to rethink outsourcing strategies — it may be the best time in recent history to do it,” Borowski says. “The question isn’t whether IT leaders should be reevaluating; it’s how quickly they can.”
These reviews should become regular practice. “Outsourcing is no longer a ‘set it and forget it’ decision,” says Tekion’s Mukkavilli. “CIOs must treat it as a living strategy that gets revisited annually against new technologies, regulatory requirements, and business needs.”
Read More from This Article: 10 outsourcing strategy questions every IT leader must answer
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