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All things come to an end, but when it comes to outsourcing it isn’t like the end of the school term, when children are frantic with excitement at the prospect of endless days of summer and no work. With outsourcing there is no calm, relaxing “summer break.” You are either in your deal, in a new deal, or you have to run things yourself. There is no down time.
Probably the biggest issue for mature users of outsourcing is knowing what to do next.
Looking back at the beginning of the deal, the initial gains from outsourcing were pretty easy to deliver: consolidate and share, improve process efficiency, re-locate to a low cost location. These are the main drivers of cost reduction in any shared services or outsourcing solution. But four or five years down the track, as the end of term looms, what options do clients have to drive more value?
In Alsbridge’s experience, clients have plenty of option. As the capabilities of the outsourcing market develop and evolve, client requirements change, and technology marches on. The key is to develop an end of term strategy which takes into account changes in the market, the unique dynamics of any client situation, and also recognises that end of term strategies work both ways. Smart outsourcing suppliers will also be looking at the end date and figuring out how to retain and expand the contract.
The main options are clear:
Or some combination of the above…
When you are facing the end of an outsourcing agreement, keep in mind that a lot will have changed in the outsourcing market since the last time you signed a deal. More efficient delivery models combined with new suppliers and greater competition typically drives down prices over time – so the deal that was competitively priced five years ago will almost certainly be over the market today. Alsbridge has seen a plethora of new, and often competent and innovative, suppliers entering the market in all the mature outsourcing domains, as well as greater efficiency in the approaches to knowledge transfer and transition which drive down the cost of change. The impact of significant technology shifts (most notably Cloud) certainly have a step change effect on ITO pricing and service delivery, and may well have a significant impact in the applications and BPO space too. Locations too are constantly changing. The location which offered the best value for your money five years ago may have become over-heated and expensive. New cities and countries have become aware of the inward investment benefits from hosting outsourced centres and are competing aggressively for the rights to them.
The key is not to sleep-walk into the end of term. You need time. End of term strategies should be carried out about two years before the contract term ends. You will need a few months to carry out the strategy and if you decide to renegotiate or retender you would be wise to allow yourself 9-12 months to complete the process (it could be quicker, but it often isn’t). Also, make sure you have some rights to extend the existing deal on reasonable terms should it all take longer than expected.