Another Strategic Sourcing Option
Another Strategic Sourcing Option
Another Strategic Sourcing Option
I recently shared a story about a global service provider who was blindsided when, after a ten-year relationship, their client decided to go to market seeking a competitive bidding process rather than renewing their contract. The explanation was that despite the green scorecard, there was dissatisfaction with the service provider’s performance.
The service provider was perplexed to learn this and the client was frustrated that the service provider didn’t have a clue about the dissatisfaction. What we learned was that they lacked an effective governance program that would have enabled them to preserve and achieve the intent of their partnership.
While this client chose to go to the market and seek another solution and service provider, we have also worked with organizations who have decided to take a different path. One I will call embarking upon a strategic renewal.
When Is a Strategic Renewal the Right Strategy?
So, what does a client-service provider relationship that is a good candidate for a strategic renewal look like, and how do you decide that it is the right option for you? Consider the following questions:
- Do both parties agree that the partnership is valuable enough to invest the time, effort and resources to take it to the next level?
- Does your current service provider have the capability to provide the services required by the strategic partnership you envision for the future?
- Does a foundation of trust exist between the parties, or at least the mutual desire to move towards a collaborative model built on a foundation of trust, as well as the mutual confidence it can be achieved?
- Are you confident that you have, or have access to, the expertise, tools and market knowledge required to ensure your new partnership is structured correctly, competitively priced and set up to succeed?
If so, you may want to discuss a strategic renewal with your team, your partner, and your strategic advisors.
Strategic Renewal vs. Contract Extension
A strategic renewal is very different from a contract extension. A contract extension is often simply an amendment to an existing contract that extends the term, maybe with a negotiated reduction in price and a few minor adjustments to the scope. It can usually be handled through procurement.
When you commit to a strategic renewal, your goal is to take the partnership to a more advanced level of trust, innovation, integration, and performance. It generally requires entirely new commercial, contractual, and governance models for the new agreement. The process requires specialized knowledge, objectivity, expertise, and access to market information that most procurement organizations do not have on their own.
Strategic Renewal vs. Go-To-Market
It is tempting to think that a strategic renewal is an easier, less costly, or less time-consuming option than a go-to-market exercise – and it can be. But that should not be the main consideration in selecting a strategic renewal strategy.
The real potential advantage is the ability to collaborate with a service provider with first-hand, historical knowledge of how the client firm is organized, their corporate culture, their needs, what is working within the current relationship, and where there is room for improvement. When both parties are committed to taking the partnership to the next level, digging deeply into their current delivery, commercial and relationship models, and assessing their opportunities for improvement, it is highly likely that you will end up with a much more on-target, innovative and insightful solution than what you would receive by going to the market through a traditional RFP process.
How It Works
What does a strategic renewal look like? Following are the key steps in the strategic renewal process.
Define Desired Outcomes and Key Objectives
It is critical to consider what is important to your company enterprise-wide and how those strategic goals and objectives align with your real estate strategy. Is flexibility important? What about global consistency in service delivery? Brand? Transparency and trust? The ability to attract and retain talent? Is innovation or sustainability critical to your firm? What about total cost of ownership or cost reduction? Well defined goals and objectives will help the team effectively assess the current state.
Now you know where you want to be going. Understanding where you are today and how it compares to where you want to go enables you to identify the gaps that are prohibiting you from getting there.
Assessing the Current State
I think one of the most damaging mistakes an organization can make when embarking on any outsourcing initiative – including a strategic renewal – is not taking the time to assess what is happening today and really think through what is working well and where the challenges lie. Getting a non-biased perspective of how the collective organizations are functioning both from a tactical delivery perspective as well as from a strategic account management vantage is instrumental in effectively developing the future state.
A comprehensive approach includes the following:
- An organizational analysis and assessment
- Financial analysis and assessment
- Service delivery analysis and assessment
- Technology analysis and assessment
Developing the Future State Strategy
The future state strategy is the model that will ultimately achieve the defined desired outcomes and key objectives. It should include:
- A comprehensive operating/delivery model.
- A detailed commercial model.
- A carefully constructed governance platform.
- A clear contractual structure.
Once the future state strategy is defined and assembled into an ask package, the service provider can propose a delivery strategy that aligns with the desired outcomes and key objectives of the partnership moving forward. In a strategic renewal environment, there is opportunity to collaborate and solve for today’s challenges and grow the partnership in a more robust and effective way for the future.
