a three-stage approach to effective contract renegotiations

A THREE-STAGE APPROACH TO EFFECTIVE CONTRACT RENEGOTIATIONS

Donald Mones, Former VP, Vendor Management, Viacom!Hemant Puthli, Senior Partner & Advisor, Neo Group!October 14, 2014!

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TODAY’S PRESENTERS

Donald Mones Former VP, Vendor Management Viacom

Hemant Puthli Senior Partner & Advisor Neo Group


QUICK POLL 4

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


QUICK POLL 5

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


CONTRACT RENEWALS: A PERSPECTIVE 6

§  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!


RENEGOTIATION OPTIONS 7

Uninformed Renego-a-on

Rebid Keep

Provider

Benchmarked Renego-a-on Auto Renew

Renego-a-on Con-nuum

Scope Change

Delivery Model Change

Rebid Change Provider


CONTRACT RENEWALS: WHAT’S REQUIRED 8

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 12 – 18 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!


QUICK POLL 9

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


NEO ENGAGEMENT RENEWAL FRAMEWORK 10

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 !


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!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 !!

STAGE 1: DISCOVERY


STAGE 2: IMPACT ANALYSIS 12

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 !


STAGE 3: EXECUTION 13

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!


QUICK POLL 14

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


STAGE 1: DISCOVERY, WHERE CHANGES HAVE OCCURRED 15

Customer & Industry"

Functional Organization"

Global Sourcing Industry"

Services Provider/ Vendor Organization "

Internal !(Client Enterprise)!

External !(Supplier Markets)!

Demand! Supply!

Entities Engaged!

Environmental Forces!


DRIVERS: WHAT CHANGES MIGHT HAVE OCCURRED 16

What might change – Business: "•  Industry Structure!•  Customer Segments!•  Business Processes!•  Compliance Imperatives!•  Customer Needs/

Expectations!

What might change – Function: •  Strategy/ Architecture!•  Services Portfolio!•  Organization Structure!•  Sourcing Strategy !•  Vendor Management!

What might change – Industry: "•  Players (New Entrants/ Exits)!•  Delivery Locations!•  Service Maturity!•  Engagement Models!•  Pricing!

What might change – Vendor: "•  Business Strategy!•  Delivery Capability/ Capacity!•  Account Management!•  Engagement Models!•  Pricing!


DISCOVERY: SUPPLY MATURITY 17

Founda'onal Elements

– Building Blocks

Leadership Capability

HRM Processes

Customer A/C Management

Organization Structure

Technology Edge

Service!Capability!

• Service depth!• Delivery methodologies!• Project & Performance management!• Q&A!

• Alignment of management!• Management depth!

• Recruitment & Staffing!• Training!• Performance Evaluation!• Focus on HCM!• HR team capability!

• Account management set-up and capability!• Attention given to issues!• Value-addition!• Creating goodwill!

• Focus on new and emerging technologies!• Technical thought leadership!• Knowledge sharing!

• Market orientation!• Clarity of vision!• Capability to handle growth!• Empowerment!


STAGE 2: IMPACT ANALYSIS 18

Gaps in

Strategic Objectives!

Legal/Terms!

Operating/Engagement Model!

Pricing!

Financial!


SERVICES PORTFOLIO REVIEW 19

Sunset & Retire! Innovate to Add Value!

Reengineer to Reduce Cost! Retain As-Is!

Total Cost of Service Delivery!Va

lue

Del

iver

ed to

Bus

ines

s!Low!

Low!

High!H

igh!

Develop a roadmap for Services based on Cost and Value!

S1

S2

S3

S4

S5

S6

S7

S8


SERVICE COMPONENT DRILL-DOWN 20

S2

Objectives

Structure

Process

Scope

Scale

S1 S3 Sn

Metrics & CSAT

Management Overhead

Methods & Tools

Capability: Roles

Capacity: FTEs

Portfolio of Services!

Dril

l-dow

n in

to e

ach

Serv

ice!

Cost Drivers Service Components

Resource-based Pricing!

Service-based Pricing!

Pricing Models


CUSTOMER’S PERSPECTIVE 21

§  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)!

Getting to the “hand shake” between buyers and seller!


THE CUSTOMER’S OBJECTIVES FOR THE RENEGOTIATION 22

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!


QUICK POLL 23

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


BATNA = BEST ALTERNATIVE 24

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. !


THE IMPACT OF CULTURE 25


CULTURAL TYPES 26


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THANK YOU FOR JOINING US! 27

Questions? Feedback? We’d love to hear from you! Atul Vashistha Chairman & CEO [email protected] Hemant Puthli Senior Partner & Advisor [email protected] www.NeoGroup.com www.GlobalSupplyRiskMonitor.com