We have learned from experience that even the best laid contracts can accrue inefficiencies and transformation gaps in execution. Challenges emerge as buyer-provider objectives and expectations begin to diverge, and the statement of work does not keep up with the evolving technology and innovation.
As an enterprise moves forward with its digital transformation plans and projects, it may encounter various hurdles that could put a strain on the buyer-provider relationship. The service provider might not be keeping pace with the fast-changing market in terms of pricing, commercial model, service levels and technology leverage. The buyer wants to optimize, and right-size outsourcing spend whereas the provider is focused on account growth. These are only a few of many typical outsourcing scenarios that are faced by companies today.
Buyer-provider value gap
The technology and skills markets are continually evolving and along with them, the expectations around the yield, benefits, and what’s truly premium. What happens is that the gap between the client’s expectation and the value delivered by the provider starts to widen, resulting in a lack of alignment in execution and expected outcomes.
The following chart illustrates the three value gaps that may emerge in the course of an IT-BPO relationship, which can begin to materialize from the signing of the contract.
It takes significant time and effort to get every aspect of the IT-BPO partnership completely right, hence the need for a periodic calibration of the solution, business case, and underlying baselines.
A proactive checkup can sustain a trusted enterprise relationship and keep your transformation agenda on track
Whether your company is midway through its digital initiative or close to the end-term of the outsourcing arrangement, a proactive contract health check can prove to be beneficial. This exercise provides an unbiased review of the relationship compared to contemporary best practices, costs in comparison to current market rates, and actual service levels compared to the contract and the customer’s real needs.
The last two dozen contract health checks led by Wavestone yielded an average reduction of 40% in total cost of ownership via equitable improvements implemented to the scope, solution, metrics, and pricing arrangements.
From our experience, there is invariably a 15% to 20% potential to optimize each contract. Wavestone-led contract health checks in 2017 and 2018 uncovered an additional 20% to 25% tangible cost benefits from transformative solutions for over 75% of the enterprises involved.
At Wavestone, our Contract Health Checks are performed by highly tenured industry advisors on every engagement, as opposed to inexperienced spreadsheet analysts housed in research back-offices, which may be the case even within specialist advisory firms.
Besides getting an accurate snapshot of your contracts, you will also receive guidance to close the value gaps and prioritize next steps through two roadmaps:
- An opportunity roadmap identifying tangible improvement levers such as a continuous improvement charter and a rate-and-skills recalibration, which will enable transparent and equitable negotiations between the two parties
- A prioritization roadmap for the identified opportunities that balances benefits,
delivery timelines, and risk
Wavestone Contract Health Check Framework
The Contract Health Check can be commissioned or funded by the enterprise, the service provider or both parties in a joint relationship investment.
The review comprises four pillars:
- Scope assessment
- Delivery model, metrics, right-sizing, right-skilling
- Technology maturity including automation leverage
- Governance structure
Analyze gaps in provider reported versus user-perceived performance, applicability or accuracy of service credits, service level coverage and stringency metrics recalibration.
Financial assessment of contracted versus current spend trajectory, TCO benchmarking, nomenclature recalibration, revisit ARC and RRC and pricing modes, corrective actions on continuous improvements.
Review key clauses that impact the business case and have proven to be especially cumbersome.
Degree of alignment and progress towards goals or vision, governance leadership and communication effectiveness, perceived partnership, cultural fit among others.
Sarthak is a seasoned executive with deep expertise in IT and business process transformation mandates, end-to-end sourcing programs, and outsourced contract optimization.
Read More His experience spans a broad range of industries including manufacturing, consumer products, and financial services. Before Wavestone, Sarthak served as the head of pricing advisory at Everest Group, where he established and led the pricing advisory practice, making it the fastest-growing division in the history of the firm. He was also management consultant at Ernst & Young, where he specialized in strategic sourcing, process optimization, and market-entry strategies. Sarthak holds an MBA in finance and systems from Symbiosis International University in Pune, and a bachelor’s degree in engineering from the R.V. College of Engineering in Bangalore.
- Sarthak is a seasoned executive with deep expertise in IT and business process transformation mandates, end-to-end sourcing programs, and outsourced contract optimization.
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