CASE STUDY SAV I NG $80 MI L L I ON WI TH AN I NNOVAT I V E SOURC I NG APPROACH
A major North American travel and transportation company was approaching the expiration of contracts covering IT services outsourced to a Tier 1 service provider with which it had maintained a long-term contractual relationship over a period of more than 10 years. The scope of the contract encompassed almost all areas of infrastructure such as mainframes, help desks, and distributed systems. The contract was due to expire in a year and a half, and the client wanted to ensure that they had sufficient time to conduct a thorough analysis of their IT environment. Specifically, they wanted an in-depth assessment of the contractual relationship and to ensure that they had time to switch to a best-fit service provider, if necessary. The move was meant to support the company’s business and IT strategy in a fast-changing economic, regulatory, and technology environment, while also lowering costs, improving service delivery, and avoiding early termination liabilities.
SAVING $80 MILLION WITH AN INNOVATIVE SOURCING APPROACH I 2020 © WAVESTONE
Working closely with the client, we developed a best-fit sourcing strategy that aligned the client’s sourcing activities toward key business outcomes, with emphasis on cost improvement, best practices, as well as technology optimization and transformation. The client wanted to extend its relationship with the service provider as it would lower the risk and costs associated with a transition, but only if the service provider could transform the IT environment and put in place a robust IT service management (ITSM) foundation at a market-competitive price. However, the initial revised bids from the service provider did not meet the criteria, which led us to present a detailed critique of the bids with clear direction on how they needed to be improved. In parallel, we began to source bids from other vendors, analyzing them, and initiating discussions on the pros and cons of each option. We also created a client-specific financial case, based on market-driven service costs, to be used to determine the true savings of every bid. Finally, we examined the balance of trade in the relationship to paint an accurate picture of the spend and service delivery between the client and service provider.
A P P ROAC H
The combined impact of these analyses changed the negotiation dynamics and information asymmetry from being, more favorable to the sole-sourced service provider, to being more favorable to the client. This shift didn’t go unnoticed by the service provider, who later presented a solution that was transformative in nature, while substantially reducing client costs and incorporating ITSM best practices. We then negotiated a revised contractual arrangement with new service levels that provided greater insight into service deliv- ery and improved controls and flexibility to meet the client’s changing business needs. Our work with the client indicated that the client lacked the necessary capabilities to manage the service provider and contract on an ongoing basis to ensure that the contractual commitments would be met. This led us to create a vendor management framework and processes for managing the service provider, as well as a plan to expand the client’s VMO capability to include other Tier 1 service providers.
The sourcing space is changing rapidly with new approaches to sourcing, transition, service delivery, service level management, and more. Therefore, any contractual relationship that was issued more than three years ago should be reviewed for value and cost to the client. Often, clients who have had a long-term relationship with a particular service provider are reluctant to change because they’re unaware of how the market has evolved in terms of services, pricing, and best practices. But it is critical for them to understand these changes before entering into a new contract or renewing an existing one. On the other hand, service providers in a sole-source environment will usually not present their best pricing and solution up front because it requires investments and reduces revenue streams. Plus, service providers usually have more information on the cli- ent environment and the marketplace than the client’s IT team, so it would be beneficial to engage an independent third party to review a contract with a data-driven, fact-based approach. Revising a contract is not enough in itself to ensure a successful outcome. It’s essential to have strong vendor management capabilities within the organization to ensure that the relationship and services continue to be delivered and improved according to the revised contract. Where there is a balance of trade considerations, clients must engage the service provider’s business, sales, and delivery teams to ensure that all aspects of the relationship are discussed. Additionally, it is important to understand and model the benefits and costs of such relationships to improve one’s negotiating position.
2020 © WAVESTONE I SAVING $80 MILLION WITH AN INNOVATIVE SOURCING APPROACH
As a result of Wavestone’s work, the client saw a significant cost reduction of more than $80 million in ongoing service costs, much beyond the client’s initial expectation.
SAVING $80 MILLION WITH AN INNOVATIVE SOURCING APPROACH I 2020 © WAVESTONE
R E S U LT S
Over the course of the previous contract, the relationship between the service provider and client had deteriorated. But with our help, the client did not have to change providers, and both parties enjoyed a renewed relationship. The improvements we delivered include: / A significant cost reduction of more than $80 million in ongoing service costs / Major improvements in service delivery processes, tools, and technology, with an emphasis on transforming and optimizing the client’s IT environment / An improved commitment to meeting balance-of-trade objectives / Strong executive-to-executive relationship and ongoing engagement agreement at the highest levels of the organization / A restructured service level management framework with greater emphasis on critical services, and the flexibility to adapt to changing needs / Additional contract terms and clauses to address security and compliance concerns / New vendor management capabilities to ensure compliance to contract terms and ongoing governance of the relationship / Reduced transition risk
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About Wavestone US
Wavestone US provides a peer-to-peer approach to IT optimization and transformation. As the North American arm of Paris-based global management and IT consulting firm Wavestone, it has supported the transformations of more than 200 Fortune 1000 companies across a wide range of industries. Wavestone US is unique in that it offers a practitioner’s perspective on IT strategy, cost optimization, operational improvements, cybersecurity, and business consulting. It is the company’s mission to help clients successfully deliver their most critical transformations and achieve positive outcomes. Driving businesses forward through digital transformation is what we call “The Positive Way”.
In a world where knowing how to drive transformation is the key to success, Wavestone’s mission is to guide large companies and organizations in their most critical transformation projects, with the ambition of a positive outcom for all stakeholders. That’s what we call “ The Positive Way ”.
Wavestone brings together 3000 employees across 8 countries. It is a leading independent player in the european consulting market. Wavestone is listed on Euronext Paris, and recognized as a Great Place To Work®.
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