Randy Wiele, Director, KPMG LLP
The brave-hearted souls tasked with tackling end-of-contract-term decisions or other event-driven changes to information technology outsourcing (ITO) agreements know all too well that many things have changed since they inked their first, second, or even third deal.
While the traditional objectives of ITO were primarily around operational stability, lower cost, enhanced service levels, and access to new technology, today’s buyers are also looking for value-added services, innovation, flexibility, and scalability. Since the market is now full of third and fourth generation ITO deals, buyers are more knowledgeable about how to do sourcing deals and what they want and expect, and providers are more willing to accept risk and include innovation and flexibility in their deals to help ensure increasing value over the lifetime of the contract. And of course cloud, software-as-a-service (SaaS), and associated management tools have dramatically altered service delivery and sourcing design models.
All these technology and commercial improvements can be highly compelling as they may enable IT organizations to deliver transformation for their businesses, and drive value for their users and profits to the bottom line.
Yet, whether an ITO contract change is an expiration-driven renewal, a company event-driven restructuring, a real or perceived provider performance-driven rebid, or internally driven insourcing, there are numerous factors KPMG recommends a buyer consider to help ensure satisfaction and success:
- Proactively and fully assess new contract objectives as far in advance as possible; in the case of contract expiration, 12–18 months prior, even if the contract has been amended several times during its life cycle.
- Benchmark current price and service levels against other contracts of similar scope and size.
- Evaluate the quality of the relationship with the service provider objectively, rather than subjectively.
- Understand the market, individual providers’ abilities to deliver on objectives, and the financial, commercial, and legal components of negotiations.
- Focus on the facts, instead of perception, when planning a renewal, restructuring, or insourcing initiative. As history is the best indicator of the future, look at how the service provider is performing, the value it is delivering, its willingness to innovate, etc. Also look at the performance of internal teams.
While making the renewal, a restructure, rebid, or insource decision is not simple, and requires considerable up-front work, the above actions go a long way towards helping to develop a strategic road map for the whats, whens, and hows.
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