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A Three-Stage Approach to Effective Contract Renegotiations

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A Three-Stage Approach to Effective Contract Renegotiations

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Actionable recommendations and techniques to instate a proactive contract renegotiations approach within your own organization.
How to perform a detailed assessment of your current sourcing needs with regards to your current vendor capabilities.
How to understand the cost basis for the current set of services in market time.
Techniques for effective negotiations.
How to streamline outsourcing relationships and leverage them to retain a competitive edge in the marketplace.

Actionable recommendations and techniques to instate a proactive contract renegotiations approach within your own organization.
How to perform a detailed assessment of your current sourcing needs with regards to your current vendor capabilities.
How to understand the cost basis for the current set of services in market time.
Techniques for effective negotiations.
How to streamline outsourcing relationships and leverage them to retain a competitive edge in the marketplace.

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A Three-Stage Approach to Effective Contract Renegotiations

  1. 1. 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!
  2. 2. 2 © 2014 Neo Group Inc. Proprietary !   Since 1999, we have been helping clients achieve business objectives and address business challenges by leveraging global services and sourcing. !   We have a singular focus on the global services supply chain. !   We achieve outcomes through deep IP, real-time analytics, globally recognized experts, proven methodologies and co-creation with our clients. !   We deliver results through three distinct and linked solutions and services: NEO GROUP OVERVIEW ADVISORY SERVICES GOVERNANCE SOLUTIONS SUPPLY MONITORING & ANALYTICS Our Featured Clients include:
  3. 3. 3 © 2014 Neo Group Inc. Proprietary TODAY’S PRESENTERS Donald Mones Former VP, Vendor Management Viacom Hemant Puthli Senior Partner & Advisor Neo Group
  4. 4. © 2014 Neo Group Inc. Proprietary QUICK POLL 4 What has been your greatest challenge in previous vendor contract renegotiations?!
  5. 5. © 2014 Neo Group Inc. Proprietary QUICK POLL 5 With regards to your current vendor contracts, when will your current agreements expire?!
  6. 6. © 2014 Neo Group Inc. Proprietary 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!
  7. 7. © 2014 Neo Group Inc. Proprietary 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  
  8. 8. © 2014 Neo Group Inc. Proprietary 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!
  9. 9. © 2014 Neo Group Inc. Proprietary QUICK POLL 9 How long in advance do you typically begin your renewal/renegotiation process?!
  10. 10. © 2014 Neo Group Inc. Proprietary 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 !
  11. 11. © 2014 Neo Group Inc. Proprietary 11 ! 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
  12. 12. © 2014 Neo Group Inc. Proprietary 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 !
  13. 13. © 2014 Neo Group Inc. Proprietary 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!
  14. 14. © 2014 Neo Group Inc. Proprietary 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)?!
  15. 15. © 2014 Neo Group Inc. Proprietary STAGE 1: DISCOVERY, WHERE CHANGES HAVE OCCURRED15 Customer & Industry" Functional Organization" Global Sourcing Industry" Services Provider/ Vendor Organization " Internal ! (Client Enterprise)! External ! (Supplier Markets)! Demand! Supply! Entities Engaged! Environmental Forces!
  16. 16. © 2014 Neo Group Inc. Proprietary 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!
  17. 17. © 2014 Neo Group Inc. Proprietary 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!
  18. 18. © 2014 Neo Group Inc. Proprietary STAGE 2: IMPACT ANALYSIS 18 Gaps in Strategic Objectives! Legal/Terms! Operating/Engagement Model! Pricing! Financial!
  19. 19. © 2014 Neo Group Inc. Proprietary SERVICES PORTFOLIO REVIEW 19 Sunset & Retire! Innovate to Add Value! Reengineer to Reduce Cost! Retain As-Is! Total Cost of Service Delivery! ValueDeliveredtoBusiness! Low! Low! High! High! Develop a roadmap for Services based on Cost and Value! S1 S2 S3 S4 S5 S6 S7 S8
  20. 20. © 2014 Neo Group Inc. Proprietary 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! Drill-downintoeachService! Cost  Drivers  Service  Components     Resource- based Pricing! Service- based Pricing! Pricing  Models  
  21. 21. © 2014 Neo Group Inc. Proprietary 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!
  22. 22. © 2014 Neo Group Inc. Proprietary 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!
  23. 23. © 2014 Neo Group Inc. Proprietary QUICK POLL 23 Other than cost savings, what is the most common reason to consider renegotiation (as opposed to auto-renewal)?!
  24. 24. © 2014 Neo Group Inc. Proprietary 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. !
  25. 25. © 2014 Neo Group Inc. Proprietary THE IMPACT OF CULTURE 25
  26. 26. © 2014 Neo Group Inc. Proprietary CULTURAL TYPES 26
  27. 27. © 2014 Neo Group Inc. Proprietary NEO GROUP GLOBAL HEADQUARTERS 6200 Stoneridge Mall Road, 3rd Floor Pleasanton, CA 94588, USA ASIA-PACIFIC HEADQUARTERS No. 36, 3rd Floor Prestige Garnet, Ulsoor Road Bangalore 560 042, India AMSTERDAM, NETHERLANDS AUSTIN, TEXAS BOGOTA, COLOMBIA LONDON, UK NEW YORK, USA ATLANTA, USA SAO PAOLO, BRAZIL SILICON VALLEY, USA SYDNEY, AUSTRALIA THANK YOU FOR JOINING US! 27 Questions? Feedback? We’d love to hear from you! Atul Vashistha Chairman & CEO atul@neogroup.com Hemant Puthli Senior Partner & Advisor hemant@neogroup.com www.NeoGroup.com www.GlobalSupplyRiskMonitor.com

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