nasscom bpo summit 2012: masterclass i beating the benchmar clause - chris pattacini

© Alsbridge 2011 Confidential and Proprietary www.alsbridge.com

Alsbridge Europe22-24 Ely Place

London, EC1N 6TEUnited Kingdom

Tel: +44 (0)207-242-0666Fax: +44 (0)207-242-0667

Email: [email protected]

Alsbridge Americas3535 Travis St., Suite 105Dallas, TX 75204United States of AmericaTel: +1 214-696-6410Fax: +1 214-239-0698Email: [email protected]

September 6, 2012

BPO Benchmarking: Beating the Benchmark Clause

Speaker: Chris [email protected]

© 2011 Alsbridge, Inc. Confidential and Proprietary 2

The Sourcing and Benchmarking advisor


Summary of Services

The Service Provider Support Program gives you the vehicle and data to communicate to your chosen market, generate targeted leads,

sell at the right price and retain/expand your clients

Communication of capabilitiesto 120,000 targeted buyers

Intelligent leads driven by over2 million contacts per month

Real time market pricing powered by the revolutionary toolkit

Retention and expansion of accountsthrough relationship alignment program


The ProBenchmark Difference

SaaS Application forNon-invasive Data Collection

Real Time Pricing Toolfor Consistent, Defendable

Price and Service Intelligence

Up to the Minute Reportingand Sourcing Strategy Analysis

Vast Repository ofPrice and Contract Data

Market Leading Service and PriceDefinitions and Standards


BPO Market - Price Trends – F&A Example

F&A rates have been droppingdespite local wage increases

• Driven by competition, economic pressures & market awareness

However, the market remains inefficient, with significant pricevariances

FAO year-on-year price change

4-5% annual decline, 8% two year

Q3 2012 FAO Prediction

Continued decline of 3-5%

Procure to Pay Example


Benchmarking Types

Price Benchmark• Measures the “price” competitiveness of a contract• Some firms use “cost plus” analysis of internal delivery for comparisons

Process Maturity Benchmark• Assesses process maturity against targets, or market standards• May reflect specific industry requirements

Relationship Benchmark• Designed to evaluate the effectiveness of the relationship• Helps to evaluate the effectiveness of the client’s governance model; also

used as “marriage counseling”

Contract Benchmark• Evaluates contract terms to ensure they are market competitive

Price Benchmarks are the most common BPO benchmark used today and often the only benchmark written into outsourcing transactions


Price Benchmarking is a Double-edged Sword

When written and executed properly, price benchmark clauses ensure that the pricing remains competitive with the market over time

This allows clients to sign longer term contracts, thereby creating greater relationship stability and longevity for both the client and vendor

For vendors not tracking the market, price benchmarks cancause problems

Un

it C

ost

– R

un

Rat

e

Year 1 Year 5Contract Year

Year 2 Year 3 Year 4

Market Price

Base Contract Cost

Mar

ket

Pri

ce R

isk

Contracts that get too far out of market can result in friction between the client & provider – causing some clients to switch providers


Terms found in Benchmark Clauses

What Alsbridge Sees in Contract Terms Vendor Risks/Observations

The benchmark is to be performed at the client’s request, starting after transition/stabilization (12-18 months), plus no more frequent than once every 18-24 months thereafter

Client may chose not to benchmark, causing the price to shift away from market

A listing of “pre-qualified” benchmarking firms in the contract that prevent delays when the benchmark starts

Often some firms listed do not provide benchmarking services, cannot benchmark BPO services

The client is allowed to benchmark all the services, or just a portion of the services (typically individual processes or tower basis)

The vendor’s price is not aligned to market on a process or tower basis

The vendor’s price must be at or below a “target” market price, determined by the independent benchmarking firm

Some vendors agree to more aggressive targets, driving results lower over time

A price reset, or service modification is required going forward, when the vendor’s price is determined to be “above market.”

Some contracts allow for termination of the services when price is too high; some have retroactive pricing adjustments


Price Benchmarking Best Practices

Allow the benchmarking firm the flexibility to execute their benchmark approach – do not require the following in the benchmark clause:

• Large numbers of peers, or require the results “statistically accurate” • The vendor’s price be below the lowest 25th percentile• When peers are used, placing too many limitations on peer selection

Allow both client and vendor to review the results prior to finalization, so that errors and omissions can be fixed, but let the benchmark firm have final say

Allow the benchmarking firm to anonymously reuse data gathered during the benchmark for future benchmarking work

• This ensures that sufficient market data remains available

Require the benchmarking firm serve as an “independent third party” so that it can resolve disagreements with the benchmark using its professional opinion


Price Benchmark Clause Alternatives

Clients find the traditional benchmark clause to be ineffective

• Costly, time consuming & often leads to a dispute of the results

Clients are more likely to perform their own benchmark or proactively monitor the market

• Much more efficient and less costly• Clients can test market prices & develop a

strategy to address gaps (e.g., execute the clause, renegotiate, re-bid services)

• Often performed with a relationship or contract benchmark to address other issues

Traditional benchmark clauses are giving away to new-age benchmarks, that provide greater value to both parties, and prevent further animosity


Preparing for the Benchmark

Portfolio AnalysisDefine your services and

develop your MSRP

RFP/Bid Screening

Determine where to spend your business

development effort

Price CertificationCompare your bid price to market before releasing to

your customers

Price NegotiationInform your negotiation strategy with the latest

market prices

BenchmarkDetermine market

competitiveness of your existing accounts

Play ‘What If’ across using scenario

analysis

Quickly ID gaps in pricing and ID price drivers and

their impact on price

Pre-test pricing scenarios to find the

best price

Inform your pricing lifecycle using market

price comparisons


Use Benchmark Data to Remain Competitive

Questions to Answer How many deals last year were not

aligned with market?• When you lost, were over market? • When you won, were you under market?

Can you quantify the amount that you were above or below market?

How many negotiations did you go into when the client pressed you for further price concessions?

How does your company confirm a bid price is market competitive prior to release to a client?

Have you ever been caught short by a benchmark of your contract price?

Strategies for Success Evaluate new ways to understand

market dynamics and price trends Provide validation of deal prices prior to

submission to clients Provide price information to the sales

teams before putting bids together Qualify out bids where price gaps are

too large Produce client reports to demonstrate

price competitiveness Proactively monitor in progress

transactions for price variances and address before they get too far out of market

Understanding market price dynamics can help you improve win rates on with new clients at the same time, ensure you retain existing clients


Summary and Questions & Answers

Update your benchmark clauses to reflect the current market realities Don’t sign up for benchmark terms that have been proven to not

work Consider alternatives to traditional benchmarking clauses Frequently test in-progress contract prices against the market before

they get too far out of market – not just when its time to benchmark Develop a market sensing program throughout the entire pricing

lifecycle to understand market price dynamics and trends


Ben [email protected] +1 214-696-6410

Rick SimmondsManaging Director

[email protected]+44 (0)207-242-0666

Americas Europe

www.Alsbridge.com

Alsbridge Europe22-24 Ely Place

London, EC1N 6TEUnited Kingdom

Tel: +44 (0)207-242-0666Fax: +44 (0)207-242-0667

Email: [email protected]

Alsbridge Americas3535 Travis St., Suite 105Dallas, TX 75204United States of AmericaTel: +1 214-696-6410Fax: +1 214-239-0698Email: [email protected]


The ProBenchmark Model – Pricing Benchmark

Parametric models delivered via a Software-as-a-Service (SaaS) tool.Calibrated using 1000’s of actual contract prices, complemented by deep

market price insights.


Price Benchmark: Sample Output

Overall, the Provider contract is approximately $1 million above the current market prices

The R2R function contributes approximately 90% of the pricing difference from target market prices• The R2R tower is $895,000 above

current market prices• The O2C tower is $103,000 below market• The P2P tower is $218,000 above market

Accounts Payable Analysis

Service ($, thousands)Current Spend

Market Price Variance %

P2P - A/P & T&E 1,897$ 1,679$ 218$ 13%O2C - Cash Applications 2,014$ 2,117$ (103)$ -5%R2R - General ledger 2,764$ 2,014$ 750$ 37%R2R- Reporting 523$ 378$ 145$ 38%Total 7,198$ 6,188$ 1,010$ 16%

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

Current Spend Market Price

$1,897 $1,679

$2,014 $2,117

$2,764 $2,014

$523

$378

P2P - A/P & T&E O2C - Cash Applications

R2R - General ledger R2R- Reporting

$-$200 $400 $600 $800

$1,000 $1,200 $1,400 $1,600 $1,800 $2,000

Current Spend Market Price

Customer Service Payment Processing

Expense Accounting Invoice Processing


$810

$986

$1,447

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

Do

llars

Per

Mo

nth

Market Low Market High Current Spend

Unit Price

Invoice Processing

Payment Processing

Customer Service

$2.93

$3.92

$6.15

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

Do

llars

Per

Mo

nth


Unit Price

$0.82

$1.04

$0.78

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

Do

llars

Per

Mo

nth


Unit Price

$-

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

Procurement Agent Level 1

Procurement Agent Level 2

Procurement Coordinator Level 1

Procurement Coordinator Level 2

Sweeper

Non-Production Procurement

Low Quartile Market Client

$-

$5.00

$10.00

$15.00

$20.00

$25.00

Financial Operations Accountant Level 1



EPS


$-

$5.00

$10.00

$15.00

$20.00

$25.00

Audit Support Specialist - Level 1

Relocation Support Specialist - Level 2

Foreign Operating Support Specialist -

Level 2

Customer Service Level 1

Reconciliation Specialist

Travel Accounting


Price Reporting can be accumulated by tower or sub tower (above) or broken down by FTE types within a tower or sub tower (below)

Price Benchmark: Sample Output

nasscom bpo summit 2012: masterclass i beating the benchmar clause - chris pattacini

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