When an Ugly Business Partnership Turns into a Mutually Satisfactory Cooperation: A Case Study on Fixing a Broken Outsourcing Agreement
By Farid Mohammadi
Situation
A North American entertainment company had been struggling with an incumbent service provider for over five years on a seven-year contract. There were ongoing formal disputes between the two organizations because customer and application groups were displeased with the provided services. Further, the continual business interruptions forced the incumbent to pay penalty charges, and the client could not gain benefits from the contractual commitment to keep the environment updated and current.
The client analyzed the contracts and realized that the incumbent supplier was not behaving in good faith and not living to the commitments it made for service level delivery and upgrades to the technical environment. They were suffering from a costly broken outsourcing agreement, and although the client managed to deal with disputes on its own, the result was unfruitful.
The client contacted a digital consultation company to redefine its operating model and sourcing strategy and set the transformation agenda for the future.
Approach
The digital consultation company approached the issue via three stages consists of Target Operating Model, Contract Renegotiation, and Go to Market Strategy. Each phase lasted three to five months, with the overall project lasting approximately one year.
The objective was to provide a fair assessment of the contract, costs compared to the current market, and the service delivery based on the contract and the customer’s real needs. Further, they interviewed the client’s infrastructure management and application groups’ leadership and the service provider’s account management team to find a best-fit option.
Based on the given results, the client separated the mega-contract into three components:
1) Managed services, 2) Data-center hosting services, and 3) hardware.
They decided to renegotiate the contract with the incumbent service provider, and if they failed to meet the objectives recognized, the client would take the RFP to market.
Insight
The digital consultation company’s analysis showed the service costs were 30% higher than market rates, and the service provider owed the client up to $20 million on unfulfilled contract commitments. The reports also revealed that the service levels and measurements concealed the real performance issues the client was facing. The client also realized that the contract terms were far more limiting than current contracts regarding the flexibility in volumes and ability to change.
Advice and Strategy
The experts in the digital consultation group proposed an appropriate strategy to resolve the issues and renegotiate the current agreement with the incumbent. They suggested that if the service provider fails to meet the terms, they could take the proposal to market.
The incumbent truly believed that it was offering a better overall value than other competitors, and so the client would not risk finding another service provider. Therefore, they were reluctant to meet the client’s proposed demands.
“By providing the client with a detailed investigation of the situation, the digital consultation group was able to work with the service provider to reach a more mutually satisfactory result.”
The Data
There were three critical issues in this project:
1) Costs (which were about 30% too high),
2) Flexibility (where the client could choose the hardware vendor, for example), and
3) Performance
The hired consultation group identified the mentioned points in the Target Operating Model and the RFP, which came in the last phase of the engagement.
The Results
The digital consultation group successfully helped the client achieve the 30% goal for the cost savings and negotiated improvements in the service levels to represent the business’s needs more closely. Further, the operating model's transformation, including automated monitoring and response, analytics, and an orchestrated build process, added additional benefits.
Thanks to the experts’ analytical solutions, the client will achieve a 60 to 80% reduction of time and cost to commission new environments, build out cloud capabilities, and automate the monitoring and response to alerts in the environment.
The solution thus provided better availability of capabilities, notably in customer-facing applications, which helped the client lower the costs and get better service and functionality from its service provider partner.
