Marc Stark, Director, KPMG Shared Services and Outsourcing Advisory

The Extended Global Enterprise (EGE) is the next level of maturity in global business services. In this model, leading companies are going beyond labor arbitrage and transactional processing. Instead, they’re breaking down functional silos and assembling capabilities – whether retained, outsourced, shared or distributed around the world – into seamless processes.

Ultimately, any enterprise of scale will eventually need to pursue an EGE to continue delivering value in global services. But some organizations may be farther along than others. If your sourcing strategy is still uncertain, what should you do with your outsourcing contracts in the meantime?

The key is to build flexibility into long-term outsourcing agreements, enabling you to move forward with service delivery while the strategy takes shape. With the right contract structure, your current relationships can eventually be subsumed into a larger EGE initiative.

To keep your options open, consider stipulations such as the following:

• non-exclusivity, permitting you to use more than one service provider
• partial termination rights, enabling you to turn off certain parts of the services
• discrete pricing elements, ensuring that services in your contract are priced separately
• optimized term length, creating flexibility while enabling providers to recoup their costs.

Keep in mind that just because an EGE may be on the horizon doesn’t mean you have to renegotiate every deal. You may have the flexibility you need in smaller, shorter-term agreements. For others, it may come down to timing: Depending on the schedule for an EGE implementation, it may make more sense to let your contract ride out than to renegotiate it.

The point is to look at your current contracts with an eye to the future, addressing short-term tactical requirements while keeping a flexible position should the strategy change.

For more information on creating flexibility in outsourcing contracts, please see our paper Keeping Your Options Open with Flexible Outsourcing Agreements. For more from KPMG on this topic, visit the KPMG Shared Services and Outsourcing Institute.

Filed under: Contract Review & Negotiation, Global Business Services, Outsourcing by EquaTerra