Issue link: https://www.e-digitaleditions.com/i/86587
HROA Report are surprises, both sides should consider why they don't have prior knowledge of the problem. The renewal process should be like a performance review with an employee, discussing the good and the bad, while resolving any problems for continuous improvement. Equally, the directors recommend to document both what is working—and what isn't—in the contract. During the renewal process, it is important to remember that its business not personal. If change is considered, it's for the betterment of the organisation. It's crucial to be quite factual as opposed to being governed by emotion. Bringing in an external advisor can really help both sides to be objective. If there is friction between the provider and the buyer organisation, an advisor can help prevent snap decisions based on emotion from being made. Clients should ask themselves why they are retendering and why they are not considering re-partnering with someone that they have worked with for three to 10 years. Buyers should be mindful that going through a tough renewal process and 'roughing up the current provider' might damage the relationship because things will never be the same again. Renewal can be a time when one party feels powerful—and they want to use that power as a bargaining chip. The bigger the relationship, the more difficult it is on both sides to feel that you can affect it. Using an external advisor can bring back rational and maturity to these discussions. Advisors Guidance Whether renewal or extension, decisions should be based on a strong business case: scope, price, benchmarking, financials, total cost of change, and critically, an assigned budget for any cost of change. There is a misconception that you have to go to the market every time a contract is expiring and this isn't true. If you are fortunate to be in a pre-renewal stage, take time to refresh the statement of work on an ongoing basis to help a smoother renewal process. If the contract objectives have been achieved, think carefully about what you would like to achieve next. Again there is no reason this has to wait until renewal time. It can be part of the continuous improvement clause. True innovation requires investment. Be sure to build it in the contract, and set money aside to achieve it. But be realistic as suppliers are now starting to say no to contracts that will not be feasible for them What Does This All Mean? Both buyers and service providers need to recognise that original contracts were constructed in a different outsourcing environment from today's. Buyers should understand that requirements of service providers have changed particularly around the commercials, and around the adoption of more standard processes and operating models. Buyers should also be mindful that many systems may have been custom built for them in the original contracts. As such, when changing to another provider, services and systems may not necessarily be bought off the shelf. It may require a huge integration exercise that should be factored into the plan and costs. Buyers need to recognise that difficulty comes with transition. It is not just the transactional cost, which includes Transfer of Undertakings (Protection of Employment) Regulations fees that can be significant, but also the upheaval of systems, processes, and ways of working, putting pressure on the business when the focus should be on delivery. If the decision is made to change service providers, it is crucial that buyers are able to articulate their transition plan for all parties—the costs, responsibility, and timescales. This involves understanding the changes that need to occur internally for buyer organisations to update technology and consume the service. Additionally, it's an interesting phenomenon that buyers are not realising that the cost of tendering is increasing at an enormous pace. The cost of tendering for business 10 years ago is a fraction of what it is today. As such, the directors all recommended benchmarking exercises. This is an important part of setting up a good business case as well as allowing businesses to see the situation objectively. Sometimes the cheapest business case scenario is not the best business case. Consider soft benefits and the risks associated with those various scenarios to understand which one you are going for in the end. With the benefit of history, both parties have the opportunity of putting right what they got wrong the first time around. However a cherry-picking contract should be avoided. For example, in the case of the provider, there will be things that were very costly to deliver, problematic or uneconomic in their business model. On the buyer side, there may be some services they would like to bring in- house or selectively source in other ways. This can result in a monster of a contract that doesn't suit either party and breaks end-to-end processes. Services should be kept holistic—bringing certain pieces out of the contract can be very damaging. Going forward, the directors think with the evolution of the renewal process, some of the deals will become fragmented and others may be move towards a multi-source model. The term 'renewal' may be misleading as it can often be an incredibly competitive new bid process with the added complexity of history. A majority of the objectives from the original contract will have been achieved. The challenge is to come up with a set of new objectives and to think more strategically about what is desired from the function before sitting down for negotiations. The last generation models and the early days of this industry were all about lift and shift, offshoring, cost taking, and improving services. That's largely been done. What is available now from HRO and BPO is much more strategic business outcomes having rebuilt the platform. It's time to step back, pause, reconsider, and rebase the relationship on the future not on the past. Emma Darke is a management graduate at Xchanging, and Faye Holland is the global executive director of the HROA. SUMMER 2012 | www.hroglobal.com [39]