End of Term, Which Way Next? | Sherpas in Blue Shirts

Posted On December 16, 2010

As many of you are aware, I am afflicted with a love of motorcycles, specifically Harley Davidson’s. So during the limited time I’m home, I spend as much of it as possible riding. My wife usually joins me on the bike, as does Pip, our Yorkie, who sits on my wife’s leg with his face in the slipstream, absolutely loving it. For anyone concerned about Pip’s safety, no worries…we have him outfitted in a do-rag and Doggels (goggles for dogs), and wearing two harnesses with safety straps attached to me so he can’t fall off.

Recently, the three of us were riding and approached a ‘highway ends’ sign. Technically the highway ended but the road didn’t; rather, we were provided options for other highways and local roads. We were approaching the decision point at about 60 mph and had to think about what to do next. Our  decision was impacted by various factors: 1) how the bike was running; 2) how tired we were getting; 3) how much longer we wanted to ride; 4) what the weather was doing; and 5) whether we wanted to take the longer lake road or the inland route, which was less scenic but closer to home.

What we faced is very similar to the thinking required when developing an end of term strategy (ETS). You should consider an ETS not as the end of the road but as a series of new roads, any of which you can take. And you determine your going forward roadmap by understanding the roads that lie ahead, establishing how to go about making the road choice decision, and ultimately selecting the one that is right for you –whether old, new, still under construction road or an off road build-it-your-selfer.

The common set of factors you must consider when developing your ETS include: 1) how the relationship has been performing and whether or not it is still productive; 2) what needs to be changed in the services scope expanding/contracting; 3) how the sourcing objectives need to change to align with current business objectives; and 4) what market, technology and delivery model changes need to be addressed.

When facing an ETS, there are typically six roads for you to consider:

Renew: Sign on for the same contract, terms and conditions, pricing structure, and service levels, with minimal changes.

Renegotiate: Modify one or a limited number of elements in your outsourcing contract, e.g., price and service levels.

Restructure: Rethink the structure of key contract provisions, key business terms, and in-scope processes.

Re-compete: Terminate your existing contract and enter into a competitive bid process with potential suppliers, and select one or multiple providers to replace the current services agreement.

Repatriate: Terminate your current outsourcing contract and bring previously outsourced services back in-house.

Hybrid of the above strategies: In a multi-process outsourcing agreement, certain processes may warrant different strategies so, in effect, the overall strategy is a combination of the various strategies.

One key, and often misjudged, factor is when to develop your ETS. Waiting too long can be disastrous because you can run out of road. You need to leave adequate time not only to develop the strategy and roadmap but also to make course corrections as you may well face substantial challenges during implementation. For example, there may be difficulties in execution, such as a failure in negotiations of restructuring an existing relationship, or in the transition of services from the incumbent to a new supplier. In most cases, the best time to start the development of the ETS is 18 to 24 months before contract expiration. This timing may change depending on the outsourced processes and the complexity of the environment.

The ETS creation process should be collaboratively undertaken, with the buyer and supplier, and structured to drive more value, both financial and operational, into the relationship. If your organization plans ahead, and invests the proper time and resources, it should be able to develop an ETS that drive the most appropriate decision on the best direction to take – one that is in alignment with its current and future objectives.

Back to our motorcycle ride with Pip…we took the lake road and kept riding.

Everest Group Executive Viewpoints icon Related Articles