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Why CIOs can't wait to renegotiate their outsourcing contracts

Stephanie Overby | July 28, 2015
Rapidly changing business and technology needs are forcing IT leaders to renegotiate their IT outsourcing contracts and rethink their sourcing portfolios sooner rather than later. Here’s how to do it.

4. Retrofitting. Mobility, data analytics, social, Internet of Things there's a growing list of technologies increasingly important to bringing the business to market that may not be in existing outsourcing deals. In some cases, a company may decide to seek out new deals focused exclusively on that, but in most cases it doesnt make sense, says Masur. You have to examine existing deals and figure out how to layer them in.

5. Reconciling. This is the sort of recalibration that has typically gone on during the course of an outsourcing deal. Customers go back and renegotiate existing terms in areas where price or performance are out of line or where the business needs have increased or lessened.

4 ways to manage potential challenges when renegotiating an IT contract mid-stream

There are a number of potential impediments to reworking IT deals mid-stream--some within the client organization and others built into outsourcing contracts. But they can be managed says Masur.

1. Change management. Most companies dont focus enough on this, says Masur. Change is scary; it creates uncertainty. Both outsourcing customers and clients get used to the status quo. If changes are made to contracts, equal effort must be made to manage the change in people's work lives and processes or the new deals will fail to deliver.

2. Availability of Internal talent. IT leaders need to determine whether they have the ability to perform the kind of cost-benefit analysis to renegotiate existing contracts. If not, they'll need to bring in third parties. Likewise, if moving to a multisourced model, they need to make sure they have the skills in-house to manage the new model.

3. Negotiating leverage. Outsourcing customer must figure out how to get and keep it. How you do these things may depend on nature of the relationship with your existing provider, how willing and capable you think they are, how cooperative they've been in dealing with change, and how well they've been performing to date, Masur says.

4. Financial considerations. Transition expenses, termination charges, and other sunk costs can potentially erode the potential cost savings of reworking deals. Many contracts are structured in a way that makes it difficult to do this, says Masur. IT leaders can, however, renegotiate things like termination fees and build other sunk costs into new deals which have significant savings associate with them.

"There are challenges and impediments [to renegotiating existing outsourcing deals]," says Masur. "But there are lots of ways to address and minimize them. There's nothing that can't be overcome if you are aware and build them into the strategy."

 

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