Editors note: On Jan. 4, the parent company of TPI, Information Services Group Inc., acquired Compass, the premier independent global provider of business and information technology benchmarking, performance improvement, data and analytics services. This TPI Top 5 was co-authored by one of our new Compass colleagues.
The end of an outsourcing contract term is considered an ideal time to drive improvements in rates and services. But many clients go into a renegotiation under-prepared and overly confident, believing they have more leverage than they actually do. The result is a missed opportunity to address problems and strengthen the relationship.
Here are the TPI Top Five keys to optimizing your end-of-contract review:
1. Baseline existing operations. Conduct a quantifiable, fact-based analysis of the existing environment. Include all IT services – outsourced as well as internally delivered. Understand existing costs, prices, and service levels in the context of market standards. Identify where costs are competitive and where gaps exist, and use this knowledge to inform decisions on how services might be expanded, consolidated, repatriated, or re-sourced to multiple service providers. If prices are competitive, shift the focus to governance issues, facilitating innovation, or improving process efficiency.
2. Be specific. Following the baseline, define your objectives and expectations for improvement. While kicking out the incumbent may be too expensive and risky and is often a last resort, identifying one service tower to rebid or repatriate could be feasible. Don’t be vague and expect the service provider to be “creative,” but don’t dictate how the service provider delivers. Rather, outline a framework within which the provider team can work.
3. Get boardroom support. You need the backing and support of senior management to be successful. This won’t happen on its own. Show that the sourcing strategy addresses constantly evolving business requirements and is delivering on strategic requirements. Define the potential risks and benefits of various operational scenarios, and outline options that best align with business needs.
4. Walk the talk. Evaluate sourcing alternatives in the context of business strategy, and be willing to pursue those alternatives if necessary to support that strategy. Don’t go to RFP simply to drive down service provider prices. When evaluating the value propositions of prospective vendors, ensure a level playing field. This enables a more effective review and demonstrates your commitment to change, motivating the incumbent to improve the status quo.
5. Look inward. Don’t put the onus of improvement solely on the service provider. Assess your internal operations and processes to identify how you can help leverage efficiencies and economies of scale. Are custom requirements necessary across different business units? Do you really need 20 flavors? You will likely discover that vanilla will suffice in most cases. This helps enable the “commoditization” of standardized services, which, combined with appropriately tensioned pricing mechanisms, can drive significantly lower unit costs and more effective demand management.
To negotiate your most advantageous contract you have to come into the process knowing where you stand and where you ultimately need to go. The experts at TPI and Compass can help you meet your outsourcing objectives through industry experience, our extensive contract databases, and specialized knowledge of your industry and the associated service provider landscape.