While there are increasingly fewer first generation outsourcing opportunities, a large number of IT outsourcing (ITO) and business process outsourcing (BPO) deals are coming up for renewal over the next 18 months. With US$90 billion in total contract value at stake, the renewal market provides cause for excitement or concern, depending on where your organization stands.
If you are a service provider with hefty contracts coming up for renewal through end of 2014, and have yet to agree to terms with the clients, you should be worried. Very worried. Chances are that your competitors have already formed teams of “hunters” and are circling your prized relationships, waiting to pounce. The reality is the incumbency win rate is falling from the 90s to the mid 80s, and is likely to plummet further, as buyers see renewal time as an opportunity to implement positive change:
- In a challenging business environment, enterprises are looking to alter contract structures to bring in stronger accountability for outcomes from service providers
- Buyers are increasingly open to unbundling large, sole-sourced contracts, thereby undermining relationship profitability as incumbents lose the opportunity to cross-subsidize deal components
- Enterprises are also using renewal time to shape and execute portfolio level strategies, as they seek to use more aggressive offshoring, leverage specialized and smaller niche players, or consolidate portfolios across a few key service providers
Following are several key components Everest Group recommends you include in your defend (your own) and attack (your competitors) contract renewal game plans:
- Pinpoint vulnerable accounts and establish executive level connects long before the contracts come up for rebid
- Identify competitors that may be eyeing your relationships
- Address key concerns from clients. This can be tricky because your clients may not necessarily open up to your account managers. Having an outside-in perspective helps
- Anticipate hearing, “There’s nothing wrong with you guys, we just decided to change our direction.” Here, you need to consider how well aligned you are with your customers. Can you walk your talk, and their walk? In certain cases, you might need to evaluate whether you want to end up cannibalizing your own revenues as the client wants to move to new operating models.
- Identify competitors’ accounts under threat, and the clients’ key concerns
- Pin down clients’ pain points and their associated fit with your capabilities. But note that these first two activities are challenging without having a neutral party the buyers can open up to
- Generate focus within the sales organization. Have dedicated sales teams going after specific accounts, armed with messages that are likely to resonate, and are aligned with the prospects’ thinking
- Beware of inheriting the poisoned chalice! There are certain accounts you want to avoid (and that your competitors will be happy to let loose)
It is unlikely that you will need just a pure offense or defense game plan. You might have to fight tooth and nail to retain certain relationships, but if you go about it the right way, there are large opportunities for incremental shifts in market share.
Let the US$90 billion dollar party games begin!
For drill-down data and insights into outsourcing transaction trends by function, geography, industry, and service provider type, and implications for key stakeholders (both buyers and suppliers), please see Everest Group’s newly released report, “Impending Contract Renewals: A Futuristic View of the Renewals Market Place.”