News @ TPI
Inaugural TPI Research Report Determines Principal Reasons for Surge in Contract Renegotiations
Findings Show that Few Organizations Renegotiated Contracts because of Service Dissatisfaction
HOUSTON, March 20, 2007 TPI, the world's leading advisor to global corporations on all facets of service-delivery strategies for business-support operations, today announced the findings of a research report that tracked outsourcing relations at dozens of companies across diverse industries. The report found that lack of focus on contract management and changes in client needs were the key drivers for restructuring outsourcing agreements. Rarely are contract restructuring driven by dissatisfaction with service provider performance.
Seeking to provide a clearer understanding of why outsourcing contracts are restructured — renegotiated, extended and renewed — TPI surveyed more than 40 organizations across multiple industries that have recently restructured or renegotiated outsourcing contracts providing IT infrastructure, human resources, multi-process, and other scope of service. Respondents to the survey answered 30 questions about the breadth and depth of their outsourcing agreements, from how they were handled at the outset, to how they are managed, to how they were ultimately renegotiated. The research report summarizes their experiences.
“Counter to what some might believe, the reconsideration of an outsourcing agreement is not so much an indication of a failure in the relationship as it is an opportunity to secure a better outcome for all involved,” said Stuart Harris, partner and data management Center of Excellence leader at TPI. “In fact, contract renegotiations often are obligatory simply to keep pace with developing business trends — not because of any slip-ups on the part of the service provider.”
It’s often said that the only way to ensure maximum value is through careful, persistent attention to detail by all parties involved. The report supports this: 89 percent of respondents either agreed or strongly agreed with the statement, “The problems (with contracts) were due to our organization placing more emphasis on setting up the contract than on managing it.” Similarly, 69 percent of respondents either agreed or strongly agreed with the statement, “The problems were due to inexperience of managing outsourcing contracts.”
According to the research report, companies are primarily motivated to renegotiate outsourcing contracts because of a fundamental change in their business, not because of service delivery problems with their service providers. Only 17 percent of those surveyed reported dissatisfaction with the quality of services and strongly agreed that “The problems were due to the service provider(s) failing to deliver on promises.” The reasons most often cited for restructuring outsourcing contracts included:
- Issues with service pricing
- Contract expired
The renegotiation process often leads to improved contract terms, extended contract durations, higher satisfaction levels and stronger relationships between the client and the service provider. According to the report, 56 percent of companies indicated that renegotiating their outsourcing contracts proved effective.
“The manner in which an outsourcing relationship is managed is as important as the attention given to forging the outsourcing relationship,” Harris says. “Good management requires the active participation of the client and the service provider to ensure that the scope of services being provided and expectations are realistic. It is also imperative that the clients take on greater responsibility of managing the relationships with their outsourcing service providers, and their internal business units that are the consumers of those services.”
About the Report
In the summer of 2006, TPI surveyed 40 companies across diverse industries in Europe and North America gathering feedback on the enterprises’ experiences in restructuring and renegotiating outsourcing contracts. Original contract-signing dates ranged from 1995 to 2006, with 56 percent signed between 2000 and 2003, inclusive. Original contract terms ranged from one to 10 years, with 64 percent ranging from three to seven years and 25 percent signed for 10 years.
For more information about this survey, please contact Stuart Harris, partner and data management Center of Excellence leader at TPI, or download the report directly from TPI at http://www.tpi.net/pdf/researchreports/Restructuring_ResearchReport Jan_24_07.pdf.
About TPI
TPI is the founder and innovator for the sourcing advisory industry, and the largest sourcing advisory firm in the world. We are expert at a broad range of business support functions and related research methodologies. Utilizing deep functional domain expertise of accomplished industry experts who possess extensive practical experience, TPI collaboratively works with organizations to help them optimize their business operations through the best combination of insourcing, offshoring, shared services and outsourcing. For additional information, visit www.tpi.net.