Outsourcing: The Third Time Around

As we move into 2012, we are noticing an ever increasing number of outsourcing contacts being renegotiated or recompleted. This is due to the huge volume of major deals completed in the last decade. Over the past 5 years there have been a far greater number of mid major ITO/BPO deals; as well as early and second stage offshore deals initiated. We are seeing C-level executives very concerned over managing their near and future needs; burdened by non or barely working outsourced relationships. Even worse, this concern extends to insourced shared services groups, who cope with the same problems as external vendors, trying to support business unit requirements at market competitive prices; while trying to keep the budget growth in check as they remain technologically & strategically competitive. Current research has indicated that in several shared services grounds are grappling with the same spotty customer’s satisfaction and middling economic savings that external providers are criticized for.

TBI has been involved in several renegotiations and re-competes in recent years. We find that the smaller, more narrowly focused niche deals generally have a better chance to maintain and deliver the goals of the original outsourcing contract. However, even here, in specialized areas like network and desktop, we have often found a significant need for program office development and opportunities for savings.

Some recent examples that we have experienced include the development of a 19 country strategic WAN plan and implementation that resulted in a 40% saving for a $10 billion Minerals Company, a 20% increased savings over a global HQ outsourcing deal at a $5 billion unit of a consumer product giant and the coordination, consolidation and implementation of an insourced data center, server, desktop and network security arrangement that spanned 60 countries for a major insurance company. That last project, netted the company a 70% saving over the existing internal budget, as well as a strategic plan to manage it, going forward. We are in the midst of helping a very large global retailer renegotiate a desktop outsourcing deal that has DOUBLED their budget for this area over the past three years. Essentially, this occurred because the proper oversight was not put in place after the extensively negotiated.

The great myth in outsourcing is that vendor’s transition and migrate contracts well. An equally incorrect myth is that the contract, no matter how well and extensively negotiated, can manage the outsourcing relationship by itself. As to the former, the vendor and their key teams are usually on to the next deal before the ink dries on the contract you so diligently have negotiated. As for the latter, the contract is a static document and outsourcing is a term for a relationship between multiple parties whose needs and capabilities are constantly changing.

The ONLY way to stay ahead of this never ending problem is to install at the beginning, or at the latest; midterm, the appropriate governance procedures and program office methodologies to manage the vendor relationship. This is true for BOTH internal and external providers.

Our experience has showed that, if you do it right, the odds for achieving your financial and business requirements long term, in either an insourced shared services environment or an external outsourcing deal improve by at least 50%.

That’s a meaningful number that should be taken very seriously.

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