Renegotiate - The Right Way, Right Away Now’s The Time to Talk with Your Service Providers – All of Them. by: Mark Robinson, Executive Director for EquaTerra Click here to take a pdf of this article with you. Click here to view the related Webcast. The world changed - quickly and without mercy. At this point the why doesn’t matter. What matters is how your organization handles the current and upcoming challenges. Our advice: take a thorough, quantitative look at your service provider contracts. If your situation has changed – whose hasn’t? - it’s time to renegotiate. We’re in a new economy with new rules. It’s not only fair, it’s good business practice to reevaluate everything – every service level, every contract and the value of every service provider relationship. What’s more, given the environment, your service providers are expecting it. As always, attitude is everything. The best approach to renegotiation under these circumstances is “we’re in this together.” Your service providers are smart, rational businesspeople who understand your need for flexibility. And just as your organization may now have strong reasons to renegotiate, your service providers have every incentive to keep you as a customer. So, if you come to the table well prepared – and willing to “give to get” – you can reasonably expect to rebalance your current contracts to achieve urgent business objectives. One of the challenges you’ll face: Your team will have six factors on which to simultaneously focus – scope, quality, volume, volatility, flexibility and risk. They cannot be considered separately; changing one means others also need to change. The good news is that each of these six factors gives you opportunity to get more value out of your provider relationships. Which combination of the six yields the results you’re after depends on your present and projected business needs. But realizing the object of renegotiation is to rebalance the mix gives you and your service providers room to maneuver. This give and take is crucial. Stride in with a heavyhanded approach and you could encounter time-consuming roadblocks, litigation and all the disruptions that come with switching providers under duress. A Roadmap for Success Be very clear about your business intentions – Take the time to meet with your business leaders to understand their strategies for surviving these turbulent times. Synthesize their input and then translate those strategies into a set of goals and objectives you hope to achieve from your portfolio of service providers. Confirm those goals and objectives with your stakeholders. Now you have a list of carefully defined business outcomes you will be seeking through renegotiation. Take a holistic approach – Perform a thorough review of your existing portfolio of contracts, screened against your now-documented business needs. Look at the portfolio in aggregate to identify opportunities to rebalance the allocation of work among service providers, concentrating on those who have proven themselves most historically capable of aligning with your business objectives. Then look at them individually, reviewing the scope of each contract, the nature of the services, service-level agreements and the overall performance of each of your service providers. Finally, map the changes you would want to make in each of the six categories we discussed above to meet those business needs. Do the numbers – Now that you have the details, run models to find a way to rebalance the mix of services, service providers and service-level agreements to meet your new business objectives. Remember, knowledge is power. Your strongest bargaining chip is a thorough understanding of where you are and where you want to be. But don’t just focus on your immediately identifiable needs. Imagine possible scenarios that might play out in the future, such as large swings in your demand for services, major acquisitions or divestitures or stronger government regulation. From there, determine what provisions you may need to put in place to accommodate these scenarios. What advisors bring to the negotiating table In this environment, speed is essential, missteps can be fatal and the proper tone is crucial. Those are three primary reasons organizations engage advisors for renegotiation. The right advisor will provide a team that, unlike most organizations’ internal teams, has renegotiated contracts many times before. Further, an advisor’s team typically has established a relationship with your service provider and, given the times, recently renegotiated contracts with them. This can save tremendous time and optimize the outcome, because your advisor probably already knows how – and how far - your providers are likely to move. Additionally, a competent, experienced advisor already has industry data to use in benchmarking your providers against current market performance and pricing. This information is crucial to maintaining a strong position as negotiations proceed. The flip side of that coin is advisors are also able to promote a reasonable – less emotional - stance, knowing both sides must give some to get some. Their ability to arbitrate and keep discussions moving is often key to success. Bottom line, an advisor will pay, not cost, by providing current data, insight into a service provider’s business strategy and by negotiating skillful compromises that accomplish near-term objectives while preserving the integrity of valuable relationships. Gather business intelligence – Preparation cannot stop with your calculations and projections. You’ll want to investigate your providers’ businesses, too. How are they doing financially in light of the recent upheavals? Are they hedging against risks by launching a new offshore facility to take advantage of lower-cost locations? Have they lost any big contracts? Have they renegotiated contracts with other organizations? Much of this information is in the public domain, relatively easy to access. Knowing these things can provide insight into what your service providers’ bargaining positions may be and what may motivate them. Assemble the right team – Experience shows it’s a mistake to attempt to renegotiate a contract using only the account team, service management and governance people on both sides. Although they must be involved, they are typically focused on near-term issues and actions. They lack the big-picture outlook - and executive presence - necessary to substantially renegotiate contracts. Pragmatically speaking, these teams also need to preserve an effective relationship so that they can work well together after the revised deal has been struck. Residual tensions from the negotiation can make that difficult. So make sure your service provider’s corporate staff is aware of your intention to renegotiate and is engaged in every step of the process. Also, identify and engage a corporate champion from your side to act as the focal point for your negotiating team. Present a solid, factual, respectful case – Everyone knows things have changed, so your service providers are likely expecting your call. If you’ve done your homework you will have plenty of facts and figures to make your case. But remember, it’s not just what you say, but how you say it. Your opening statement will not only set the tone for negotiations, it could also influence the outcome. An effective approach sounds like this: “We’ve done a detailed review of your services and we believe we have a clearer picture, given recent changes in market conditions, of where we need to go. We’d like to sit down and discuss things.” Signaling a willingness to cooperate puts everyone at ease and creates an environment that encourages dialogue. Instill a sense of urgency – This is not a time for bluster or bluffing. After clearly communicating your objectives and attempting to find “the middle way” to achieve those objectives, let your providers know that if certain actions are not taken by certain dates you are prepared to pursue alternatives. And mean it. Conclusion Enter negotiations with the idea that you will need to make accommodations, just as the provider will. The intent is to forge a common understanding of possible solutions and then find ways to converge on acceptable outcomes. And keep in mind, business is cyclical. Weathering adversity together often forges strong bonds that can prove advantageous when times change – and they will. About EquaTerra EquaTerra sourcing advisors help clients achieve sustainable value in their IT and business processes. Our advisors average more than 20 years of industry experience and have supported over 2000 transformation and outsourcing projects across more than 60 countries. Supporting clients throughout the Americas, Europe, and Asia Pacific, we have deep functional knowledge in Finance and Accounting, HR, IT, Procurement and other critical business processes. EquaTerra helps clients achieve significant cost savings and process improvement with internal transformation, shared services and outsourcing solutions.