All contracts end. Some on a positive note, others… not so much. Clients might choose to terminate a provider’s contract or craft a new deal, exercise an option year with a favored incumbent, or send some or all of the work out for bid. Whatever the decision, the choice needs to be well-considered.
In the old days of outsourcing, that choice was pretty straightforward: renew with the incumbent provider or rebid the work to the open market in hopes of finding a better deal. In today’s multi-vendor environments, however, the considerations have become far more complex. With interdependent providers deeply ingrained in core governance functions, rebidding often grows increasingly risky, expensive and potentially disruptive. Simply defaulting to renewal, on the other hand, presents its own set of risks.
To further complicate matters, a contract “renewal” rarely means maintaining the status quo. Indeed, even the smoothest renewal requires adjustments to respond to evolutions in technology as well as changes in the business climate or market conditions, necessitating updates to the Statement of Work (SOW), Service Level Agreements (SLAs), contract terms and conditions (T’s & C’s), or pricing schema (not to mention the price itself). Such revisions oftentimes lead to protracted negotiations.
Under these circumstances, negotiating individual contracts and managing specific providers one at a time is not enough. Rather, it becomes imperative to view the sourcing process holistically, taking a strategic perspective. This approach analyzes interdependencies among providers, anticipates future needs, considers key decision and action points over the life of multiple contract terms, and allows the management team to rise above the fray of daily tasks. That said, a complementary tactical action plan is also essential – one that assesses market trends and conditions, provider capabilities and challenges, business requirements and alternative provider options on an ongoing basis.
This ISG white paper, co-authored by a senior IT leader at Boeing, discusses how an effective sourcing strategy requires a comprehensive and regimented process to address business needs, ensuring that decisions to renegotiate, renew or rebid contracts in a multi-sourced environment are made for the right reasons.
About the authors
John Lytle
John has 35+ years of providing global enterprises with practical, yet strategic vision to drive meaningful change through complex programs, that extend business value through the effective use of today’s exploding Digital capabilities. John is a senior leader for many multinational enterprises in Capital Goods manufacturing. John leads the North American Industrial Manufacturing segment for ISG and is regarded as a global thought leader, regularly advising on emerging technologies and operating model changes to drive innovation.
