Outsource Issue 30 - (Page 111)

THE BACK END THE DEAL DOCTOR Is your outsourcing relationship sick? Our new problem-solving clinical professional kicks off his residence with a couple of textbook cases, dissecting matters with surgical precision… Benchmark Barriers “Our price benchmarking discussions have got seriously bogged down. Is this normal?” Frustrated, Frankfurt. You are not alone. Checking the price of a deal against the market might be well established in ITO and increasingly in BPO, but benchmarking is not always an easy conversation to have with your supplier. What should be done and dusted in four to six weeks can drag on for months, descending into a form of trench warfare around definitions and normalisation. Obviously a fair benchmark requires decent comparability between contract and market rates (by law at this point I must use the phrase “comparing apples and oranges”). The trick is therefore for a contract’s benchmarking provisions to give enough clarity on the analysis to be performed, without suffocating it with unrealistic demands. For example, if the clause requires a benchmark against deals with the same scope, industry, location, contract value, supplier tier, complexity and systems, this can result in only a handful or even no data points being suitable for benchmarking comparison. Overly prescriptive benchmark clauses can be unenforceable. Your contract’s benchmarking provisions were probably agreed years ago and rewriting them now may not be realistic. So move on and take matters into your own hands with “off-contract” benchmarking. This legitimate and common practice gives you the ability to test the market on your terms, rather than in strict accordance with the contract. The off-contract benchmark should still be well run, open, and thorough, but it sidesteps the endless methodological debate with the supplier. Whilst this means there will be no automatic remedies, this route provides quick access to good market information, which in turn can inform decision making on deal renewal, extension or re-competition. Whack-a-supplier? “The client’s procurement team is grinding our sales team into the ground. Should I be concerned?” Supplier Sales Lead, London. Procurement teams are having a wonderful Great Recession. With spending under ever-closer scrutiny, procurement managers preside over outsourcing negotiations with growing swagger. This has created many better, leaner deals, weeding out most of the bloated and incoherent projects that have previously given outsourcing a bad name. However there are cases where buyers play the “bad cop” role with a little too much verve. Unfortunately for your sensitive sales execs, hard bargaining is part and parcel of doing an outsourcing deal – it is a buyer’s market! Although “robust procurement” rarely ends in tears, brinkmanship in negotiation is often unavoidable. But there are big risks here for both client and supplier. Excessive positioning can derail or delay the deal (didn’t the client want to conclude this negotiation in five weeks?!). And there comes a point where squeezing more from the supplier becomes counterproductive. Procurement might like to play ‘whack-a-mole’ with the terms of a deal, but each blow of the hammer can push up a problem elsewhere. Forcing a final price reduction may be a stroke of genius when it comes to reporting savings, but be paid for with a more junior delivery team. So although cutting the supplier to the bone may feel good to some buyers, it can be a risky business. The very best deals, and the very best procurement managers, know how to quit while they are ahead. Just don’t expect procurement to give you an easy ride any time soon. 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. 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 111 ●● ●●●● http://www.outsourcemagazine.co.uk

Table of Contents for the Digital Edition of Outsource Issue 30

Peering through the fog
Who moved my world
Bringing on the beeb
Courting the commentariat
Everyone is responsible
Our survey says
Fast money
Smarten up
Seeing the biggest picture
NOA round-up
Embracing enterprise innovation
Customer matters
Application development outsourcing
India: rules for offshoring
Talent gap
The Professionals
Book learning
The outsourcing jigsaw
The legal view
Top ten
NelsonHall round-up
Online round-up
The deal doctor
Inside source
The last word

Outsource Issue 30