Insight

The three options when an outsourcing contract ends

Outsourcing buyers: Establish your renegotiation strategy at least nine to twelve months prior to the end of your contract's term.

Extend, divide or terminate

When an outsourcing contract is nearing its end, the buyer must make a strategic decision based on its own unique situation: extend the contract in its current form, divide it between the incumbent and another or several parties, or terminate it with the existing provider.

The decision should not be hastily made, as possible opportunities may be missed or the solution may be worse than the problem. Conducting a critical review of the current outsourcing arrangement, and weighing the alternatives in terms of the desired future state, will help decision makers come to the right conclusion.

Key things to keep in mind:

1. Don’t wait until it is too late – Waiting until the final year of the contract not only limits the options but also results in extended transition duration and additional cost.

2. Get your facts straight – Always use a fact based approach to decide which option to choose at the end of the contract term.

3. Changing the provider may not solve everything – Governance is extremely important and investing in right governance competencies is integral to realize the value of the relationship.

4. Transition is never seamless – Although new service providers may make it sound easy, it never is and the risk associated with the change is typically high.

5. Change management is not optional – The value of change management is often under estimated and/or ignored. It is important to effectively navigate through the change as an organization.

6. Engage business stakeholders – It is crucial to effectively communicate to the business teams and make them feel like they are engaged in the overall decision making process.

 

Read our comprehensive guide to learn more about how to proactively approach the end of an outsourcing contract.

Extend, divide or terminate: The three options when an outsourcing contract ends

Buyer perspectives: Outsourcing contract renewals and renegotiations