outsource issue 31 - (Page 111)

THE BACK END The Deal Doctor Paul Morrison, Alsbridge Paul Morrison is Partner and Head of BPO and Shared Services Practice at Alsbridge. He has over 16 years’ consulting and sourcing advisory experience and is a former director of the NOA. Problems in the outsourcing area? Cold sweats and nervous spasms? The Deal Doctor will see you now... Innovate, schminnovate “Innovation has been long on promise but short on results in our outsourcing relationship. Why?” Procurement Manager, Swindon. In these hard economic times, innovation offers the promise of new business value in old and tired outsourcing contracts. A better tool, a tweaked process, a disruptive technology – any number of changes large or small may result in cost-reduction, service improvement or even better business outcomes (happier customers or better finances for example). Chuck in a sensible way of splitting the benefits between supplier and client, and innovation can brighten even the dullest outsourcing relationship. Easy. That is the promise. The reality of innovation is more problematic. What do we mean by innovation? How should it be captured in the contract? Who should lead? What is the right formula for allocating gainshare? And why is nothing happening!? Two fundamental misconceptions hamstring thinking on these and other innovation questions. Get past these and you improve your chances significantly. Firstly, innovation is not a one-size-fits-all phenomenon: there are several distinct modes of innovation in an outsourcing context, ranging from incremental continuous improvements, project-byproject innovation, up to more radical innovation. Each requires different mechanisms, skills and governance. Treat innovation as just one lump, and then any thinking innovation will be blunted by vagueness from the start. Secondly, innovation does not just happen by itself. Innovation may start with a moment of inspiration, but it can only be delivered with the horsepower of effort and investment. Good ideas may be bubbling up across your organisation, but without dedicated time and resourcing to promote, harvest and implement new ideas, then they will remain just that: ideas. Transactional action “We are being pressured to introduce transactional pricing for our Finance BPO deal. Is this a good idea?” Concerned Contract Manager, Stockholm. Transactional charging is bread and butter for many types of outsourcing such as data centres, recruitment or payroll. But others such as F&A stubbornly cling to more “basic” mechanisms, particularly pricing based on FTEs. The rationale for upgrading to transactional pricing is clear. It focusses on the units of output that really matter, such as the number of invoices or payments, and helps to focus behaviour within your organisation (to cut back on excessive usage of a particular service). So transactional pricing can give transparency and put the spotlight on the volume of service consumed. But there are challenges. Firstly, defining the transactional metrics in sufficient detail can be very complex. In the case of finance, the idea of “charging by invoice” is clear – but which invoice types, and how the charge should be allocated between them (and what is a fair price to pay) may be less clear. Some processes are simply not suited to transactional pricing, and in the case of Finance, whilst AP/P2P may be a relatively easy candidate, all organisations struggle when it comes to pinning down R2R for transactional pricing. A lot here depends on the level and quality of process, productivity and volume information that is available to both you and your supplier. Next, transactional pricing may ultimately not provide more relevant information than an FTE model. If your Finance operation is highly globalised and labourintensive, the most important cost driver actually may be the number of FTEs in each of your key locations. If you lose sight of this, a bland blended costper-unit may get in the way of extracting other benefits, such as labour arbitrage. Transactional pricing offers extra sophistication for many outsourcing buyers. But pricing is a complex, nuanced business. Look before you leap! If you’d like to submit a question for the Deal Doctor to diagnose, please email Paul at paul.morrison@alsbridge.eu www.outsourcemagazine.co.uk p111 deal doctor APP.indd 111 ●● ●●●● 111 22/3/13 11:37:47 http://www.outsourcemagazine.co.uk

Table of Contents for the Digital Edition of outsource issue 31

Upwardly Mobile
Keys to Driving Supply Chain Outsourcing Success
Biography of a Carve-Out
Culture and Values
Redefining the Law Firm Delivery Model
Sharing the Glory
Norn Ironman
Breaking the Outsourcing Conundrum
NOA Round-Up
Back from the Summit
Losing the Race Before You Put On Your Trainers
Innovate to Accelerate
Comparing Clouds
People Power
Making an Impact
Home or Away?
Dead and Buried?
So What Now?
The Legal View
Top Ten
NelsonHall Round-Up
Sourcing Sage
Online Round-Up
The Deal Doctor
Inside Source
The Last Word

outsource issue 31