The process of selecting the right outsourcing provider and building an agreement that brings both immediate and long-term value can be difficult and grueling. Fortunately, there are experts in the field who do this for a living and can bring tremendous value to you in a short timeframe. Here at Alsbridge, we frequently see savings in our deals of up to 25 times (or more) the initial fees over the life of the contract. How? By realizing more recurring cost savings, getting to contract closure much quicker, and most importantly ensuring that the agreement is flexible enough to continue delivering value to you through the life of the contract. Here are four things a sourcing advisor can bring to the table:
Level Playing Field How many years of experience do you and your senior leadership have in negotiating outsourcing agreements? How much of that experience was obtained in the past three years? It’s probably not enough experience to get the value that you should from an outsourcing agreement. With so much change and consolidation occurring in the IT outsourcing space, you need to level the playing field as you prepare to negotiate with outsourcing providers. By working with an external sourcing advisor, you immediately bring dozens, if not hundreds, of years of negotiation experience to your side of the table and will gain valuable insight into best practices for creating a sustainable outsourcing agreement.
Improved Cost Savings Cost arbitrage is probably your immediate reason for pursuing an outsourcing relationship with a third-party provider. While you should expect to find cost savings compared to your current IT structure (and perhaps even meet/exceed your goal), history shows us that by engaging an external sourcing provider you can realize additional cost savings. At Alsbridge, we typically achieve additional cost savings in the 11%-16% range. We often see that the mere presence of an external outsourcing advisor will incent the provider to quickly get to the right price point for the services being discussed.
Shorter Negotiations As the saying goes, “time is money.” It is not unusual to spend 12-24 months working with potential outsourcing providers before you actually sign the final contract and start your transition. This lengthy process is costly for both you and the provider(s) in terms of resources expended. It is even more costly for you, since every month that passes without a new agreement is a month that you are paying much more for your IT services than you should. Engaging an external outsourcing advisor can help shave months off of the negotiation lifecycle by bringing industry knowledge, market price knowledge and outsourcing best practices to bear. Our history at Alsbridge shows that when we are engaged in the negotiations process, it can be as much as 55%-72% faster than doing it on your own.
Sustainable Outsourcing Relationships While most effort in negotiating an outsourcing agreement is focused on scope, price and service levels, there are many other components of a high-value, sustainable outsourcing relationship that an external sourcing advisor can help achieve for you. These components include flexibility, personnel handling, continuous improvement and governance. Without proper attention and expertise in these areas, many agreements become outdated within 2-3 years. This heavily contributes to “value leakage” because the provider continues delivering what is no longer needed or valued by the client. An external sourcing advisor will bring additional perspective to each facet of the outsourcing agreement and help ensure that it is created to be valuable and sustainable over time.
There are other very good reasons for considering the services of an external outsourcing advisor, but you get the point. Remember, the outsourcing providers do this for a living and their sales and solutioning teams are quite experienced in negotiating the terms of an outsourcing agreement. Whether you are considering outsourcing for the first time or are preparing to renew and renegotiate an existing outsourcing agreement, it is imperative that you work with a partner who will help you through the selection, negotiation and transition processes.
About the Author: John Meyerson is a senior research analyst for Alsbridge, Inc. and ProBenchmark, which supports Outsourcing Leadership. Outsourcing Leadership, http://www.outsourcingleadership.com/ , is the unbiased source for information on outsourcing, benchmarking and shared services. Find the latest news, trends and sources of research and consulting through our home page, newsletter and events.