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End-of-Term Strategy: Unlocking Hidden Deal Remote Infrastructure Management: Signs of an
Value impending “crisis of genre”?
Synopsis: Date and time:
Everest experts will highlight how the end-of-term Tuesday, October 13, 2009
stage can force organizations to assess the value 10:00 a.m. CDT / 11:00 a.m. EDT
achieved from their current outsourcing efforts and
build next-generation outsourcing engagements Speakers:
focused on driving broader sets of value for both Ross Tisnovsky, Vice President, Research, at
buyer and supplier. Everest
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2. Q&A
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3. Introductions
Katrina Menzigian Betty Breukelman
Vice President, Research Engagement Director
Everest Group Everest Group
kmenzigian@everestgrp.com bbreukelman@everestgrp.com
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5. Introduction
Late last year, Everest conducted a webinar on End-of-Term Strategies (ETS) for
outsourcing contracts discussing market changes and considerations when developing
an ETS
In today’s discussion, we shall delve deeper into a best-practice framework to compare
the current outsourcing agreement against the market development and to assess
alignment of potential value levers for expansion
Some of the key questions that we will explore include:
What is an ETS?
What key dimensions should be considering in reviewing an existing outsourcing
agreement?
What market changes could influence your ETS?
What are the key value drivers for an ETS?
What ETS strategic options should be considered?
What is the high-level ETS development timeline?
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6. Agenda
Introduction
What is an End-of-Term Strategy?
Key dimensions of reviewing a current outsourcing agreement
Understanding sourcing market changes
End-of-Term Strategy options available
Key takeaways
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7. An end-of-term event provides several opportunities to
buyers, incumbent suppliers, as well as non-incumbent
suppliers
Non-incumbent supplier Buyer opportunities
opportunities Review the value derived from
Target buyers that might be the outsourcing engagement
looking for another suppliers against the original objectives
because of one or more of the Understand recent changes in
following: the marketplace across key
The incumbent supplier is dimensions (i.e., process,
exiting the market solution, supplier, and pricing)
The overall satisfaction with and evaluate how best to
the incumbent supplier is benefit from it
low Identify how best to modify the
Buyer’s future existing deal to access
considerations are not enhanced value- creation and
aligned with incumbent capture opportunities
supplier’s strategy Realign the overall sourcing
strategy with the current and
future considerations
Incumbent supplier opportunities
Build on the success of the existing relationship
by enhancing value through scope expansion
Restructure the engagement to align it with the
supplier’s go-forward strategy
Renegotiate to ensure margin protection/
improvement
Exit contracts that cannot be aligned with margin
expectations
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8. What is an End-of-term Strategy?
An organization currently in an outsourcing services contract that is coming to an end
should consider developing its end-of-term strategy (ETS)
An end-of-term strategy (ETS) is a strategic plan to review an outsourcing relationship
and re-evaluate your sourcing strategy. The key questions that should be addressed
are:
Did the relationship achieve its original objectives?
Is the agreement currently achieving its value potential?
How has the outsourcing market place changed?
What needs to be done in advance of and post the end of the deal term?
Having a well-thought out ETS in place enables the organization to:
Leverage market opportunities
Correct prior limitations associated with the existing contract
Re-align with business objectives and goals
Strengthen and maximize value from supplier relationship
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9. Agenda
Introduction
What is an End-of-Term Strategy?
Key dimensions of reviewing a current outsourcing agreement
Understanding sourcing market changes
End-of-Term Strategy options available
Key takeaways
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10. Review of the agreement and the market changes uses
the following four dimension framework
Dimensions of current agreement review
Process review sub-dimensions: Solution review sub-dimensions:
Scope Technology
Performance management Global sourcing
Operational infrastructure Governance
Transition
A. Process B. Solution
C. Supplier D. Contract
Supplier review sub-dimensions: Contract review sub-dimensions:
Supplier portfolio Contract size and duration
Supplier strategy and focus Pricing
Supplier capability Key terms and conditions
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11. Assess outsourced Process maturity and review the
current Solution to identify major gaps and levers to
expand value
Dimension Sub dimension Brief description
Assessing the process coverage and degree of outsourcing to
Scope identify opportunities for evolution
A. Process
Performance Assessment of type and purpose of metrics, number of SLAs,
management performance levels, and enforcement strategy
Review of transition methodology, resources, engagement
Transition modes, and timelines/cost
Assessing the underlying technology solution in terms of
Technology ownership, fragmentation, and deployment options
B. Solution
Comparing the global sourcing adoption to the global sourcing
Global sourcing market maturity from process and delivery location
perspectives
Assessing the governance structure in place to address
Governance operational and strategic aspects
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12. Evaluate Supplier profile and Contract elements to
identify evolution themes for next stage of relationship
Dimension Sub dimension Brief description
Assessment of client’s overall supplier portfolio strategy in
Supplier portfolio terms of having a single-supplier strategy versus multi-
supplier strategy
C. Supplier
Supplier strategy Examining current supplier’s strategy in the market and
& focus assessing their alignment with client’s objectives
Supplier Evaluating current supplier’s capability across key parameters
capabilities (such as scale, scope, technology capabilities, and delivery
footprint) and its positioning as compared to other suppliers in
the market
Contract size & Comparison of contract size and duration with market average
duration in view of the stage of the relationship
D. Contract
Assessment of the pros and cons of current pricing structure
Pricing and indicative overall pricing levels along with pricing evolution
opportunities
Terms & Coverage of key terms and conditions with potential key
conditions additions to formalize in the next stage of relationship
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13. Agenda
Introduction
What is an End-of-Term Strategy?
Key dimensions of reviewing a current outsourcing agreement
Understanding sourcing market changes
End-of-Term Strategy options available
Key takeaways
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14. In the HRO marketplace, 82% of buyers are extending
outsourcing contracts nearing term
Outsourced to a third party
Status of HRO Deals
Percentage 1
Extension
100% = 34
82%
3
Repatriation
12%
Multi-process
HRO deal 2
Transfer
6%
Key reasons behind a high number of extensions are:
Buyer-supplier relationship
Buyer’s HRO solution
Market dynamics
HRO buyers went through intensive renegotiation and/or restructuring to extend their existing
contracts
Sample size: End-of-term decisions in 34 HRO transactions
Source: Everest Research Institute (2009)
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15. Buyers nearing an end-of-term strategy will likely need
to reevaluate the sourcing strategy for each HR process
A. Process
Share of extended HRO transactions by
changes in process scope
Number of transactions
Process market drivers
A shift from full-scope approach to componentized
100% = 28 approach
Supplier improvements in service level metrics,
Scope expansion reporting, and tracking
Buyers are more knowledgeable and more selective
7%
in the service level metrics they choose to purchase
Majority of extended contracts have scope stability
with a significant percentage of extended contracts
reducing scope of services
Scope
reduction 39% 54% No scope
change Impact to buyers
Outsource end-to-end service delivery model vs.
bundled transactional and strategic processes
Existing agreement must be reviewed to ensure
currency and applicability of the service levels being
applied
Buyers should understand the maturity of the
More than one-third of buyers that extend processes outsourced
contracts towards term-end reduced the Multi-vendor strategy option maybe ideal instead of
scope of services single-supplier option
Sample size: 28 HRO transactions that buyers extended towards the end of contract term
Source: Everest Research Institute (2009)
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16. HRO buyers are increasingly adopting global sourcing
as part of their solution set
B. Solution
Share of HRO transactions that will near term end during 2010-12 by offshore component
Number of transactions
100% = 111 100% = 45
1-25% of service
offshore
13%
>75% of
service offshore 36%
No offshoring
59% 41% Some offshoring
component component
42% 25-50% of
9% service
50-75% of service offshore offshore
Solution market drivers Impact to buyers
Shift in market preferences from pure offshoring Buyers should leverage suppliers’ global delivery
towards global sourcing centers of excellence to service global operations
Buyer’s adoption of supplier standardized solutions Global sourcing provides buyers advantages of labor
offerings that allows for easier transition of services to arbitrage, increased capacity, and access to large
global delivery locations talent pool
Buyer increased comfort with global sourcing to deliver Buyers should place greater importance on location
similar or better quality of service optimization
Sample size: 111 HRO deals that will expire during 2010-2012
Source: Everest Research Institute (2009)
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17. Suppliers are increasing in scale, capabilities, and
service offerings
Share of HRO transactions near term end during C. Supplier
2010-2012 by incumbent supplier
Number of transactions
Supplier market drivers
Consolidation of the supplier marketplace
100% = 111 Suppliers have acquired shared services and captive
operations from buyer community
Others1 Emergence of niche market suppliers
Xchanging Suppliers have new service offerings based on changing
Wipro 8%
Convergys 3% technologies; i.e., RIMO
3% ADP
27% Many suppliers have changed their focus on specific
ACS 3% geographies, market segments, processes, service
5%
delivery models, and technology platforms
NorthgateArinso 7%
Impact to buyers
Ceridian 8% 15% Buyers should conduct research and due diligence to
Accenture understand the current supplier landscape, supplier
9% capabilities, and their solution offerings
IBM 14% Supplier’s current strategy and focus will impact their
Hewitt motivation to renew contract and willingness to invest in
the future relationship
ADP, Accenture, and Hewitt account for 56% of the
total deals that will near term end during 2010-2012
1 Caliber Point, ExcellerateHRO, Fidelity, Logica, Steria, and TCS
Sample size: 111 HRO deals that will expire during 2010-2012
Source: Everest Research Institute (2009)
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18. There is a shift in market preferences from FTE-based
pricing to variable-based pricing
Pre 2005
Pricing structures used within different buyer segments D. Contract
2006-July 2008
Percentage
3K-15K employees >15K employees Contract market drivers
segment segment There has been a shift from ‘big-bang’ approach to
100% = 118 82 ‘phased’ approach
There is a shift from FTE-based pricing to volume-based
pricing plus incentives
42% 77%
Base cost plus Variable pricing allows buyers flexibility to scale up or
variable price down based on changing business requirements
31% 49%
Suppliers offer variable pricing structures that bundles
license costs, technology costs, and process delivery
58% 21% costs
Variable price
68% 44%
Impact to buyers
Buyers can consider a ‘phased’ approach to test supplier
solutions and solidify relationships
Fixed base 0% 2% Buyer should reassess pricing structures to alignment
plus 0% 3% with requires for flexibility and scope and delivery model
It is not an ‘either-or’ decision - FTE-based pricing and
volume-based pricing can both co-exist in the same
contract
0% 0%
Fixed price
2% 5%
Sample size: 200 transactions signed as of July 2008 for which data is available
Source: Everest Research Institute (2009)
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19. Agenda
Introduction
What is an End-of-Term Strategy?
Key dimensions of reviewing a current outsourcing agreement
Understanding sourcing market changes
End-of-Term Strategy options available
Key takeaways
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20. Developing an ETS should be a collaborative, comprehensive,
and non-threatening process designed to identify how to best
leverage the different ETS options by process
Renew Renegotiate Restructure Re-compete Repatriate
Re-sign existing Modify one or a Re-think the structure Terminate existing Terminate current
contract terms with limited number of of key contract contract and enter outsourcing contract
minimal changes elements of an provisions and key into competitive bid and bring previously
outsourcing contract, business terms, and process with outsourced services
e.g., price and re-think in-scope potential suppliers to back in-house
service levels processes evaluate and select
one or multiple
suppliers to replace
the current services
agreement
Buyers should take six key questions under consideration in choosing their sourcing option
1. To what degree will each sourcing option lead to lower ongoing costs and equal or improved services?
2. What is the approximate one-time cost of each sourcing option?
3. What is the risk of executing each option?
4. What is the effort and duration of implementing each option?
5. How can a client maximize its negotiating leverage?
6. To what extent is the sourcing option strategically aligned?
The optimal sourcing approach is one that is most likely meet a buyer’s targeted outcomes
Examples of outcomes: Financial return Service quality
Legal and compliance Acceptable risk
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21. Buyers should initiate an ETS at least two years before
the end of current contract term, earlier if inclusive of
transition assistance period
ILLUSTRATIVE
End of term
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012
ETS Renew
Renegotiate Transition1
Re-compete Transition1
Repatriate Transition1
Restructure Transition1
Re-compete Transition1
Repatriate Transition1
Re-compete Transition1
Repatriate Transition1
Repatriate Transition1
1 Example assumes current agreement contains provision for transition and transition assistance
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22. Agenda
Introduction
What is an End-of-Term Strategy?
Key dimensions of reviewing a current outsourcing agreement
Understanding sourcing market changes
End-of-Term Strategy options available
Key takeaways
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23. Key takeaways: Best practices for unlocking value
from the end-of-term process
A combination of the buyer’s business strategy, solution requirements,
the desired buyer-supplier relationship, and market dynamics will
influence buyer’s end-of-term decision
Buyers are recommended to conduct a strategic review of their current
outsourcing agreement, investigating any major gaps that exist in the current
scope, solution delivery model, supplier relationship, and contracting terms
A thorough understanding of market dynamics, the supplier landscape,
contracting trends, and buying patterns will help identify opportunities to
improve contract competitiveness
The comparison of the current outsourcing agreement to market trends will
enable buyers to identify value levers and implement a strategy that can
effectively meet current and future objectives
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24. Q&A
Attendees will receive an email with a link to download today’s webinar presentation. To access a
recorded audio version of this webinar, please contact Ben Kuhn (bkuhn@everestgrp.com)
For advice and assistance regarding End-of-Term Strategy, please contact Everest:
Katrina Menzigian, kmenzigian@everestgrp.com
Betty Breukelman, bbreukelman@everestgrp.com
For background information on Everest, please visit:
www.everestgrp.com
www.everestresearchinstitute.com
Thank you for attending today
To ask a question during the Q&A session
Click the question mark (Q&A) button located on the floating tool bar in the bottom right of your
screen. This will open the Q&A Panel
Be sure to keep the default set to “send to a Panelist”
Then, type your question in the rectangular field at the bottom of the Q&A box and click the send
button to submit
24
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