In Renegotiating a Sourcing Deal, Preparation is Everything

“By failing to prepare, you are preparing to fail.”
—Benjamin Franklin

Enterprise leaders often want to know when is the right time to begin a renegotiation with a service provider. And I’d like to propose a very simple and pragmatic answer: you should start renegotiations with your service provider when you are prepared. In fact, preparedness is the answer for any sourcing scenario, regardless if you feel your service provider is doing a good or bad job, or if this is your first sourcing engagement. 

What do I mean by preparedness? I mean solidifying a strategy, building consensus around the sourcing objectives and assessing scope and organizational readiness. I mean considering if the needs of the organization have changed, discerning if the original business case for sourcing still applies or creating a new business case based on today’s needs and environment. Preparedness is no small task. We find it takes companies a full 18 months to do it right if preparedness has not been on their minds throughout the services lifecycle.

Contract expiration is just one of many time-sensitive events that can trigger a need for action. You may be experiencing a change in senior leadership, major competitive threats, regulatory issues, rapid growth or decline, merger, acquisition or divestiture. The organization may be shifting to cloud-based services, software-as-a-service or agile methodology. Perhaps you’re experiencing a significant decline in service quality or management differences with your provider.

No matter the reason you may be considering renegotiating a contract, consider these Top 5 areas to prepare for your next sourcing deal:

1. Get a handle on your operations. Do you want to continue outsourcing the services you have been outsourcing? Would alternative methods of delivery help you accomplish your business objectives? Consider the pros and cons of repatriating certain services, implementing automation in the back office or taking infrastructure and applications to the cloud. Pull together the appropriate IT and business unit team members to review your existing environment, measure it against the market and collaborate on solution design as a way to foster consensus on your scope and desired outcomes.
2. Look at the services and the numbers. The market is different now than it was three years ago. Cloud computing and intelligent automation have reduced an enterprise’s need for teams of people and datacenters full of infrastructure – and this has changed the way we measure effectiveness and efficiency. If you go with a non-competitive renegotiation, conduct a third-party benchmark or adopt Technology Business Management practices to identify services that are misaligned with current market pricing and establish target pricing. Even if you re-compete the business on the open market, you’ll have the information you need for your specific environment and solution.
3. Explore your options. Most IT and business process environments today are the result of multiple providers delivering integrated services – which means contract portfolios are a hybrid of outsourced, insourced and cloud-based services. This is truer all the time as enterprises increasingly take advantage of new solutions from niche providers, as-a-service models and emerging technologies. Though they hold the potential for greater productivity and growth, complex environments require strong governance models and cross-functional management that may not have been necessary at the creation of your last contract. Know what is possible in today’s market before you sign on a dotted line – and make sure the documents reflect clear expectations so you can fully leverage your investments.
4. Gauge the relationship. After a few years, sourcing buyers and their service providers develop a way of doing business. Complacency often creeps in, and subpar communications can rankle even the best-intentioned teams. Take time to measure the cultural, operational and strategic well-being of your existing relationship by conducting a satisfaction benchmark of both your team and the provider’s team to better understand what works and what needs attention. Use this knowledge to address deficiencies during your renegotiation, or, if you choose to go to market, use this as a reality check about how your company interfaces with a sourcing provider to create an optimal partnership next time around.
5. Don’t let surprises sneak up. At the midpoint of your sourcing contract, begin identifying the risks of doing nothing, of exercising a renewal option or of renegotiating on the current statements of work with a new service provider or a new method of delivery. Remember to focus on the impact to the end user; today’s digital workplace users expect personal, contextual and secure experiences. Though recycling an existing agreement as the basis of a new contract may be appealing, the previous transaction may have involved a different method of delivery, a different provider’s tolerance for risk or a less innovative solution – and today’s market is moving entirely too fast to use stale ideas.

A renegotiation is not just a business obligation – it is an opportunity for innovation and growth. Contact me to discuss strategic planning, price and satisfaction benchmarking, Technology Business Management, governance and operating model support to make the most of your renegotiations!

About the author

Garry Stanis offers more than 39 years combined service-provider and client experience in various business development and procurement leadership roles. He has an excellent track record in designing, developing and implementing cost-effective, high performance IT solutions over a wide variety of industries, including high-tech, manufacturing, retail, and oil & gas. Drawing from a long career in the service-provider community, he brings a variety of views of outsourcing to the table, including solution development, operational aspects, and client needs analysis. Garry has a diverse background in IT, procurement, and business development and possesses global business experience in Europe, Asia-Pacific and Latin America.