Seize the Opportunity in Outsourcing Renegotiations (Part 1)

Spend Matters would like to welcome a guest post from Vantage Partners. This is the first post of a six-part series focused on outsourcing renegotiation, from anticipating it to transitioning post-renegotiation.

Renegotiation is a fact of life for nearly every outsourcing deal. Industry research shows that more than half of deals are renegotiated before their term expires, many within the ?rst two years of deal signing. With so many older deals coming to term, and newer deals more often incorporating shorter terms (more like 3-7 years vs. 8-10 years), renegotiation is becoming an inevitable activity in the outsourcing industry.

For many, just the word "renegotiation" conjures up unpleasant images -- precious time wasted in endless haggling over price and service levels, personal relationships damaged as companies ?ght for every dime, old wounds (and new ones) torn open just as they were healing, and embarrassment as every slipup or underachievement is not only exposed, but highlighted, to senior management. Given the typical modes of negotiating outsourcing contracts at the outset, it's no wonder we're horri?ed by the prospect of renegotiating. Many outsourcing negotiations start out as a bake-off that lasts for months, where providers spend a lot of money to trot out their best and brightest, and buyers (along with their advisors) push to take cost out and get better service. After many endless nights of horse trading, a deal is struck and a whole new group of people is brought in with the unenviable task of making it all work.

But the good news is that buyers and providers have a huge asset in every renegotiation that they don't have in their initial negotiations: knowledge. Even in a short amount of time (two years or less), buyer and provider have learned a lot about one another's expectations and ways of operating, about the outsourced environment and what it takes to deliver effectively, and the true cost of providing services in a way the buyer needs them. And with this knowledge comes an opportunity -- a chance to learn from the past and create the deal you would have created at the outset had you known better. A chance to set a new foundation for the kind of relationship you want (and need) to be successful.

Often, however, we don't take advantage of the opportunity that renegotiating presents because our assumptions about renegotiation as a threat become a self-ful?lling prophecy. That is, because renegotiation is so threatening, we are tempted to do some things along the way that inevitably lead to worse results. But if we change our mindset and look at renegotiation as an opportunity, we take some very different steps that can lead to much more desirable outcomes. Let's take a look at the process of renegotiating, and what we might be tempted to do when we view renegotiating as a threat, and some alternative steps we can take to get more out of our renegotiations when we leverage them as an opportunity.

In the next part of this series, I will discuss how to anticipate renegotiation and think about proactively preparing to renegotiate at the sign of common "triggers."

- Sara Enlow, Principal at Vantage Partners

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