When IT outsourcing contracts are up for renewal, many business leaders are tempted to opt for the ease of auto-renewal rather than considering their outsourcing plans and goals strategically. Here’s how to decide whether to replace your IT outsourcing contract or renew an existing one.
Think strategically about IT outsourcing contract renewals
Your outsourcing contract may be approaching its renewal point, but your team is busy, so you simply let your contract renew without a second thought. On the contrary, your contract renewal reminder is a great time for a strategy check-in. Reconsider your goals, needs, and budget for the upcoming contract period, as well as the results and deliverables provided by your outsourcing partner during the previous period. Do an assessment of your current relationship:
- Are you meeting your budget targets?
- Are the service levels all green, but you and/or your users are unhappy (i.e., the watermelon syndrome)?
- Has the provider introduced innovation (e.g., cloud, automation, AIOps, DevOps, etc.) into your environment? Do they offer fresh ideas on a continual basis?
- Is your relationship positive, open, and transparent, or has “vendor fatigue” become an issue?
Going out to bid can bring you fresh, innovative ideas from new providers, and it might just light a fire under your existing provider.
According to Mark Lewis, head of outsourcing at the Berwin Leighton Paisner law firm, chief information officers (CIOs) should think strategically rather than tactically as renewal deadlines approach: “First, strategically, how they can benefit from either renewing the current contract or going to the market potentially for a new provider or providers? It is tempting for CIOs to consider at a tactical level the disruption and cost of retendering.”
While switching providers will be more disruptive on a tactical level, it’s essential for CIOs to consider the higher-level benefits and costs, as well as the overall strategy.
Consider these three tips for thinking strategically about your contract renewals:
- Give yourself plenty of time. Start your evaluation at least two years before your current contract expires.
- Don’t work in isolation. Consider using sourcing advisory services to identify the best providers for your specific goals and requirements.
- Diversify your IT contracts. Instead of having one provider tackle everything, consider choosing two or more outsourcing providers to concentrate on different business needs (e.g., innovation vs. maintenance) and provide increased focus and specialization.
Questions to ask before renewing your IT contract
As you think through your IT contract renewal, ask yourself and your team these questions to ensure a thorough evaluation of your current provider:
- How can we decrease our current spend? IT providers who consistently increase rates may be a cause for concern. A good partner minimizes spend while maximizing results.
- What changes do you want to see in IT in the upcoming years? Can your current provider help navigate these changes or updates? The IT landscape is moving faster than ever before, and planning ahead for change will ensure your IT providers deliver the results you want.
- What other resources or options are available? Even if you’re happy with your current provider, considering competitors and other contract options well before your current contract is up for renewal gives you more leverage, regardless of your decision.
When to replace your IT outsourcing contract
Ultimately, there will be times when renewing your contract isn’t the right option. Here are three key indicators for when switching to a new provider is worth the disruption:
1. You’re not getting the level of service or results you want. Whether this is based on financial results, lack of innovation, key metrics or projects, or another aspect, if your service level or deliverables have been disappointing, it’s time to consider other outsourcing providers.
2. You want to take advantage of new technologies your current provider doesn’t support. IT moves fast in 2023, and your provider should be able to keep up. If you want to take advantage of new technologies, such as cloud computing, mainframe digitization, artificial intelligence, automation, etc., and your current provider doesn’t support those options, you should consider other resources. You could also outsource certain elements of your IT to multiple providers. If your current provider is offering excellent maintenance, outsource your innovation goals to another provider while keeping your current team on board to minimize disruption and increase specialization.
3. The partner relationship isn’t working. The most common cause of contract decline is poor contract governance due to communication issues, a cultural mismatch, misaligned expectations, and so on. If this is the case, attempt to renegotiate your current contract or move to a new provider. In either case, don’t repeat the same mistakes with your new contracts.
After all, successful, sustainable contracts and partnerships are built on good relationships. This is why the Windsor Group focuses on matching businesses with providers who are the ideal partners to reduce costs and increase business value. If you need help with objectively assessing your current situation and deciding on contract renewal or other options, connect with an expert from the Windsor Group today and ask about our industry unique engagement model.