Vienna, Va.—September 18, 2014—As first- and second-generation business process outsourcing (BPO) deals approach their expiration dates, optimization and outsourcing advisory firm Pace Harmon recommends four tips to maximize the contract renewal options.
“Technology advances continue to drive BPO’s evolution from a labor arbitrage savings play into a more complex process optimization and transformation position,” said Paul Singer, a principal of Pace Harmon. “It is essential to understand what’s in your contract way before the expiration date to provide enough time to define the key levers to pull to ensure the agreement drives the right business outcomes.”
Pace Harmon offers the following guidance at BPO contract renewal time:
- Start early. Begin contract evaluations 12 to 18 months prior to their renewal or expiration date to reassess objectives, strategy, and overall performance expectations to ensure enough time for evaluating alternative delivery approaches and providers. Identify contract gaps and document improvement opportunities. Develop a recommended framework to engage the incumbent, and if required, other providers.
- Assess the delivery model. Evaluate how effective the current delivery model is at meeting strategic and tactical objectives. If objectives are not being met, determine what needs to be changed to ensure cost savings are delivered, performance is improved, innovation is nurtured and services are delivered from the best location (e.g., in house, onshore, nearshore, offshore).
- Revisit performance metrics. While service level agreement (SLA) reports may show green, that doesn’t mean there isn’t room for improvement or that they satisfy business needs. Use this time to assess current performance metrics, and understand what is important to your business so you can go into the next round with a precise and detailed view of desired outcomes.
- Benchmark. Rather than collect benchmark price data, create a tailored total cost of ownership (TCO) model for the desired service delivery model to identify the key negotiation levers (e.g., automation, labor costs, innovation, geography, security, disaster recovery) to drive the outcomes needed to maintain, or improve, your business case.
“To get the most value from the BPO contract renewal process, allow enough time to fully understand what the contract allows and does not allow so a plan can be developed to close gaps and get meaningful business outcomes,” added Singer.
Pace Harmon’s clients include Fortune 500 and middle-market companies spanning industries such as telecommunications, life sciences, financial services, manufacturing, technology and energy.