NASSCOM BPO Summit 2012: MasterClass I Beating the Benchmar Clause - Chris Pattacini

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  • NASSCOM BPO Summit 2012: MasterClass I Beating the Benchmar Clause - Chris Pattacini

    1. 1. BPO Benchmarking: Beating the Benchmark Clause Speaker: Chris Pattacini chris.pattacini@alsbridge.comAlsbridge Americas Alsbridge Europe3535 Travis St., Suite 105 22-24 Ely PlaceDallas, TX 75204United States of America September 6, 2012 London, EC1N 6TE United KingdomTel: +1 214-696-6410 Tel: +44 (0)207-242-0666Fax: +1 214-239-0698 Fax: +44 (0)207-242-0667Email: EnquiryUSA@Alsbridge.com Email: EnquiryUK@Alsbridge.com© Alsbridge 2011 Confidential and Proprietary www.alsbridge.com
    2. 2. The Sourcing and Benchmarking advisor© 2011 Alsbridge, Inc. Confidential and Proprietary 2
    3. 3. Summary of Services Communication of capabilities to 120,000 targeted buyersRetention and expansion of accountsthrough relationship alignment programReal time market pricing powered by Intelligent leads driven by overthe revolutionary toolkit 2 million contacts per month 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© 2011 Alsbridge, Inc. Confidential and Proprietary 3
    4. 4. The ProBenchmark Difference SaaS Application for Market Leading Service and Price Non-invasive Data Collection Definitions and Standards Real Time Pricing Tool for Consistent, Defendable Price and Service Intelligence Up to the Minute Reporting and Sourcing Strategy Analysis Vast Repository of Price and Contract Data© 2011 Alsbridge, Inc. Confidential and Proprietary 4
    5. 5. BPO Market - Price Trends – F&A Example  F&A rates have been dropping FAO year-on-year price change despite local wage increases • Driven by competition, economic 4-5% annual decline, 8% two year pressures & market awareness  However, the market remains inefficient, with significant price variances Procure to Pay Example Q3 2012 FAO Prediction Continued decline of 3-5%© 2011 Alsbridge, Inc. Confidential and Proprietary 5
    6. 6. 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© 2011 Alsbridge, Inc. Confidential and Proprietary 6
    7. 7. Price Benchmarking is a Double-edged Sword  When written and executed properly, price benchmark Base Contract Cost clauses ensure that the Unit Cost – Run Rate Market Price Risk 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 Market Price the client and vendor  For vendors not tracking the market, price benchmarks can Year 1 Year 2 Year 3 Year 4 Year 5 cause problems Contract Year Contracts that get too far out of market can result in friction between the client & provider – causing some clients to switch providers© 2011 Alsbridge, Inc. Confidential and Proprietary 7
    8. 8. Terms found in Benchmark Clauses What Alsbridge Sees in Contract Terms Vendor Risks/Observations The benchmark is to be performed at the client‟s Client may chose not to benchmark, request, starting after transition/stabilization (12- causing the price to shift away from 18 months), plus no more frequent than once market every 18-24 months thereafter A listing of “pre-qualified” benchmarking firms in Often some firms listed do not provide the contract that prevent delays when the benchmarking services, cannot benchmark starts benchmark BPO services The client is allowed to benchmark all the The vendor‟s price is not aligned to services, or just a portion of the services (typically market on a process or tower basis individual processes or tower basis) The vendor‟s price must be at or below a “target” Some vendors agree to more market price, determined by the independent aggressive targets, driving results benchmarking firm lower over time A price reset, or service modification is required Some contracts allow for termination going forward, when the vendor‟s price is of the services when price is too high; determined to be “above market.” some have retroactive pricing adjustments© 2011 Alsbridge, Inc. Confidential and Proprietary 8
    9. 9. 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© 2011 Alsbridge, Inc. Confidential and Proprietary 9
    10. 10. 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© 2011 Alsbridge, Inc. Confidential and Proprietary 10
    11. 11. Preparing for the Benchmark Portfolio Analysis Inform your pricing Define your services and Quickly ID gaps in pricing lifecycle using market develop your MSRP and ID price drivers and price comparisons their impact on price RFP/Bid Benchmark Determine market Screening competitiveness of your Determine where to spend existing accounts your business development effortPlay „What If‟ across Pre-test pricing using scenario scenarios to find the analysis best price Price Negotiation Price Certification Inform your negotiation Compare your bid price to strategy with the latest market before releasing to market prices your customers© 2011 Alsbridge, Inc. Confidential and Proprietary 11
    12. 12. Use Benchmark Data to Remain Competitive Questions to Answer Strategies for Success  How many deals last year were not  Evaluate new ways to understand aligned with market? market dynamics and price trends • When you lost, were over market?  Provide validation of deal prices prior to • When you won, were you under market? submission to clients  Can you quantify the amount that you  Provide price information to the sales were above or below market? teams before putting bids together  How many negotiations did you go into  Qualify out bids where price gaps are when the client pressed you for further too large price concessions?  Produce client reports to demonstrate  How does your company confirm a bid price competitiveness price is market competitive prior to release to a client?  Proactively monitor in progress transactions for price variances and  Have you ever been caught short by a address before they get too far out of benchmark of your contract price? market Understanding market price dynamics can help you improve win rates on with new clients at the same time, ensure you retain existing clients© 2011 Alsbridge, Inc. Confidential and Proprietary 12
    13. 13. 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© 2011 Alsbridge, Inc. Confidential and Proprietary 13
    14. 14. Americas Europe Ben Trowbridge Rick Simmonds CEO Managing Director Ben.Trowbridge@Alsbridge.com Rick.Simmonds@Alsbridge.com +1 214-696-6410 +44 (0)207-242-0666 Alsbridge Americas Alsbridge Europe 3535 Travis St., Suite 105 22-24 Ely Place Dallas, TX 75204 London, EC1N 6TE United States of America United Kingdom Tel: +1 214-696-6410 Tel: +44 (0)207-242-0666 Fax: +1 214-239-0698 Fax: +44 (0)207-242-0667 Email: EnquiryUSA@Alsbridge.com www.Alsbridge.com Email: EnquiryUK@Alsbridge.com© 2011 Alsbridge, Inc. Confidential and Proprietary 14
    15. 15. 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.© 2011 Alsbridge, Inc. Confidential and Proprietary 15
    16. 16. 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 •Accounts Payableis $103,000 below market The O2C tower Analysis • The P2P tower is $218,000 above market© 2011 Alsbridge, Inc. Confidential and Proprietary 16
    17. 17. Price Benchmark: Sample Output Invoice Payment Customer Processing Processing Service $1,600 $7.00 $1.20 $1,400 $6.00 $6.15 $1.00 $1,200 $5.00 Dollars Per Month Dollars Per Month Dollars Per Month $1,447 $1.04 $0.80 $1,000 $4.00 $0.82 $800 $0.60 $0.78 $986 $3.00 $3.92 $600 $0.40 $810 $2.93 $2.00 $400 $0.20 $200 $1.00 $0.00 $0 $0.00 Market Low Market High Current Spend Market Low Market High Current Spend Market Low Market High Current Spend Unit Price Unit Price Unit Price Price Reporting can be accumulated by tower or sub tower (above) or broken down by FTE types within a tower or sub tower (below)$25.00 $25.00 Travel Accounting EPS $30.00$20.00 Non-Production Procurement $20.00 $25.00$15.00 $15.00 $20.00 $15.00$10.00 $10.00 $10.00 $5.00 $5.00 $5.00 $- $- $- Audit Support Relocation Support Foreign Operating Customer Service Reconciliation Financial Operations Accountant Financial Operations Accountant Financial Operations Accountant Procurement Agent Procurement Agent Procurement Procurement Sweeper Specialist - Level 1 Specialist - Level 2 Support Specialist - Level 1 Specialist Level 1 Level 2 Level 3 Level 1 Level 2 Coordinator Level 1 Coordinator Level 2 Level 2 Low Quartile Market Client Low Quartile Market Client Low Quartile Market Client© 2011 Alsbridge, Inc. Confidential and Proprietary 17

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