A THREE-STAGE APPROACH TO EFFECTIVE CONTRACT RENEGOTIATIONS

Transcription

1 A THREE-STAGE APPROACH TO EFFECTIVE CONTRACT RENEGOTIATIONS October 14, 2014! Donald Mones, Former VP, Vendor Management, Viacom! Hemant Puthli, Senior Partner & Advisor, Neo Group!

2 2 NEO GROUP OVERVIEW! Since 1999, we have been helping clients achieve business objectives and address business challenges by leveraging global services and sourcing.! We have a singular focus on the global services supply chain.! We achieve outcomes through deep IP, real-time analytics, globally recognized experts, proven methodologies and co-creation with our clients.! We deliver results through three distinct and linked solutions and services: Our Featured Clients include: ADVISORY SERVICES GOVERNANCE SOLUTIONS SUPPLY MONITORING & ANALYTICS

3 3 TODAY S PRESENTERS Donald Mones Former VP, Vendor Management Viacom Hemant Puthli Senior Partner & Advisor Neo Group

4 4 QUICK POLL What has been your greatest challenge in previous vendor contract renegotiations?!

5 5 QUICK POLL With regards to your current vendor contracts, when will your current agreements expire?!

6 6 CONTRACT RENEWALS: A PERSPECTIVE Significant changes have occurred over the course of most in-place contracts:! Many in-scope services may be 10-40% less today as a result of factors such as cloud, automation, more remote services, etc..! Changes in the buyer s world (the client and the client s business ecosystem) and/or in the seller s world (the incumbent service provider and the global sourcing industry)! Changes at the level of business strategy/ organization structure business processes/ legal and regulatory framework/ service delivery/ engagement and pricing models/ and so on! Contract renewals are a key opportunity to re-align sourcing strategy and operating models! Important to view the opportunity window from a strategic perspective! That view should include market, organizational, operational, financial and legal dimensions!

7 7 RENEGOTIATION OPTIONS Renego-a-on Con-nuum Auto Renew Benchmarked Renego-a-on Delivery Model Change Rebid Change Provider Uninformed Renego-a-on Scope Change Rebid Keep Provider

8 8 CONTRACT RENEWALS: WHAT S REQUIRED A comprehensive change analysis can help in making and prioritizing decisions on the future course of action! Early, informed preparedness is key to success! It is recommended that the process of trying to arrive at how to handle the renewal be initiated at least months before the end-date of the contract term! However, its never too late in the cycle to change the paradigm before extending, terminating or changing!

9 9 QUICK POLL How long in advance do you typically begin your renewal/renegotiation process?!

10 10 NEO ENGAGEMENT RENEWAL FRAMEWORK The Neo Group framework enables organizations to determine the optimal course of action and its implementation in a proven, three-stage approach:!! 1. Discovery 2. Impact Analysis 3. Execution!

11 11 STAGE 1: DISCOVERY! Discovery Understand the market, organizational, operational, financial and legal dimensions! Change Assessment What is the process and level of change required! Benchmarking Do you know where your operational performance stands in comparison to your peers?! New Models Identify and build your new business case!!

12 12 STAGE 2: IMPACT ANALYSIS Impact Analysis Review and identify gaps in your operations model and potential areas of failure.!! Gap Analysis Identify your current state as it compares to your to be state through quantitative and qualitative analysis! Scenario Envisioning Identify potential problems and opportunities! Recommendations Create contingency plans and identify cost benefit analysis to your proposed solutions!

13 13 STAGE 3: EXECUTION Execution!! Benchmark and Renegotiate (with incumbents) Role consolidation standardize existing roles, add new (future-oriented) roles; normalize across incumbent vendors! Benchmark per consolidated and normalized roles! For each vendor, identify rate card items that are above or below benchmark rates! Set negotiation targets based on differences thus identified!! Requirements Definition and Partner Selection (new vendors) Short-list vendors from the industry! Define requirements and discuss with vendors to co-develop solutions! Down-select based on solution quality, delivery capability assessment, site visits, references, pricing! Negotiate and finalize! Sign fresh contracts!

14 14 QUICK POLL How far above/below an industry benchmark are you typically willing to go for rate card negotiations (what is your cut off point)?!

15 15 STAGE 1: DISCOVERY, WHERE CHANGES HAVE OCCURRED Demand! Supply! Environmental Forces! Customer & Industry" Global Sourcing Industry" Entities Engaged! Functional Organization" Services Provider/ Vendor Organization " Internal! (Client Enterprise)! External! (Supplier Markets)!

16 16 DRIVERS: WHAT CHANGES MIGHT HAVE OCCURRED What might change Business: " Industry Structure! Customer Segments! Business Processes! Compliance Imperatives! Customer Needs/ Expectations! What might change Industry: " Players (New Entrants/ Exits)! Delivery Locations! Service Maturity! Engagement Models! Pricing! What might change Function: Strategy/ Architecture! Services Portfolio! Organization Structure! Sourcing Strategy! Vendor Management! What might change Vendor: " Business Strategy! Delivery Capability/ Capacity! Account Management! Engagement Models! Pricing!

17 17 DISCOVERY: SUPPLY MATURITY Recruitment & Staffing! Training! Performance Evaluation! Focus on HCM! HR team capability! HRM Processes Service depth! Delivery methodologies! Project & Performance management! Q&A! Service! Capability! Founda'onal Elements Building Blocks Alignment of management! Management depth! Leadership Capability Organization Structure Market orientation! Clarity of vision! Capability to handle growth! Empowerment! Customer A/C Management Account management set-up and capability! Attention given to issues! Value-addition! Creating goodwill! Technology Edge Focus on new and emerging technologies! Technical thought leadership! Knowledge sharing!

18 18 STAGE 2: IMPACT ANALYSIS Gaps in Strategic Objectives! Legal/Terms! Operating/Engagement Model! Financial! Pricing!

19 19 SERVICES PORTFOLIO REVIEW Develop a roadmap for Services based on Cost and Value! Total Cost of Service Delivery! High! Low! Value Delivered to Business! High! Low! Reengineer to Reduce Cost! S6 Sunset & Retire! S4 S2 S5 S7 Retain As-Is! S3 S1 Innovate to Add Value! S8

20 20 SERVICE COMPONENT DRILL-DOWN Portfolio of Services! S1 S2 S3 Sn Drill-down into each Service! Objectives Structure Process Scope Scale Metrics & CSAT Management Overhead Methods & Tools Capability: Roles Capacity: FTEs Resourcebased Pricing! Servicebased Pricing! Service Components Cost Drivers Pricing Models

21 21 CUSTOMER S PERSPECTIVE Getting to the hand shake between buyers and seller! Know the objectives before beginning contract discussions! Allow enough time for reviews, redlines, refinement & business stakeholder updates! Have decision makers in the room or readily available to resolve escalations! Understand the other sides overall goals (financial, market, reputation, political)!

22 22 THE CUSTOMER S OBJECTIVES FOR THE RENEGOTIATION Objectives: Achieving cost savings! Accommodating changes in scope! Resolving performance or schedule issues! Addressing new, emerging or changed threats or risks, e.g. with respect to security, regulatory, industry challenges! Responding to technological change, legal change business change! Implementing a new sourcing strategy! e.g. multi-sourcing!

23 23 QUICK POLL Other than cost savings, what is the most common reason to consider renegotiation (as opposed to auto-renewal)?!

24 24 BATNA = BEST ALTERNATIVE Win Win! adj. Of or being a situation in which the outcome benefits each of two often opposing groups: a win-win proposition for the buyer and the seller.!! BATNA - Know your best alternative to a negotiated alternative - BATNA stands for Best Alternative to a Negotiated Agreement.!!! The acronym was derived after research on negotiation conducted by the Harvard Negotiation Project.!

25 25 THE IMPACT OF CULTURE

26 26 CULTURAL TYPES

27 27 THANK YOU FOR JOINING US! Questions? Feedback? We d love to hear from you! Atul Vashistha Chairman & CEO atul@neogroup.com Hemant Puthli Senior Partner & Advisor hemant@neogroup.com NEO GROUP GLOBAL HEADQUARTERS 6200 Stoneridge Mall Road, 3rd Floor Pleasanton, CA 94588, USA ASIA-PACIFIC HEADQUARTERS No. 36, 3rd Floor Prestige Garnet, Ulsoor Road Bangalore , India AMSTERDAM, NETHERLANDS AUSTIN, TEXAS BOGOTA, COLOMBIA LONDON, UK NEW YORK, USA ATLANTA, USA SAO PAOLO, BRAZIL SILICON VALLEY, USA SYDNEY, AUSTRALIA