Browse By:
Balancing the Risk and Reward of Outsourcing
The best outsourcing agreement for your organization is not necessarily the one with the lowest price. Your primary goal when negotiating and structuring an outsourcing contract is to develop an agreement that achieves your business objectives not just on day one but throughout the entire term.
This white paper will help you understand the overall construct of a good outsourcing contract so that you can make certain you balance the overall risks and rewards in order to receive the services you need, at the levels you require, and within your price constraints.
How to Implement the Results of a Benchmark
A benchmark can seem like an easy answer to improving the price performance of your outsourced operations. By finding out the market price of your services, you should be able to simply change your pricing to reflect the market, right? Wrong!
A sourcing benchmark needs to investigate the causes of any price differences to market, rather than just show the price difference itself. Without an analysis of causes, it is nearly impossible to make any changes to the price of your services because there could be multiple issues at stake. Will the provider agree to the change? What will that change do to the pricing mechanism? How will the price change impact the service? What effects will it have on the client/provider relationship?
To be effective in these circumstances, a sourcing benchmark needs to uncover the drivers of any price difference, such as volume changes, asset refresh rates, residual transformation charges, etc. These sourcing price drivers will determine the ability of either party to derive price benefits from the agreement.
This article describes how considering sourcing price drivers is essential to finding the best way to implement your sourcing benchmark results.
Are You Ready for Outsourcing?
Is your organization ready for outsourcing? It's an important question, and one that too many executives fail to consider.
Oftentimes, an organization makes a decision to outsource and leaps straight into the RFP process without looking back. A variety of independent research studies have put the percentage of outsourcing deals that fail somewhere between 50 to 75%. A well thought through process should focus on a comprehensive evaluation of the full range of sourcing options available, rather than simply churning out standard RFPs focused solely on reducing vendor pricing against cost points that may or may not have relevance to the success of the business or the vendor service delivery.
Conducting a thorough and deliberative feasibility and strategy phase before developing the RFP will help you avoid becoming one of the aforementioned statistics by (A) determining whether you should be outsourcing the function; (B) if so, how much of it; and (C) where the work should be done. This tenet holds true in all situations, but is especially important for complex, global organizations attempting to restructure multiple functions and processes.
Make no mistake about it: outsourcing is a risky proposition. Hopefully, the sourcing advisor you select will do their best to anticipate, define, monitor, and mitigate the risks involved - but you should accept that there are risks. Therefore, before knowingly taking the risk, it is important to understand whether it has a chance of paying off.
Most organizations perceive that much of the work required to create a sourcing strategy has been conducted under other initiatives, and that gathering the results of these "one-off" efforts can serve as a significant process accelerator. It is our experience that most such work has been done without a common understanding of the structure, content, or tools necessary for developing a total sourcing strategy.
This article discusses why a thorough assessment of an organization's current state (functions, processes, baseline costs, etc.), is essential to revealing the sourcing options available and the strategies to be considered for your organization.
Optimizing Value with Vendor Management
Vendor management is the nerve center for optimizing the value exchange between you and your provider(s). While nearly all organizations involved in a sourcing relationship have initiatives underway to better leverage the capabilities of their providers through vendor management, most have vendor management structures are still in their infancy.
Alsbridge research reveals that the highest amount of value lost during the course of a sourcing relationship takes place as a result of poor vendor management. Conversely, the key to optimizing the value of a sourcing contract is through effective vendor management and the use of a well-planned and well-executed Vendor Management Office (VMO).
Through our years of experience and research Alsbridge has been able to identify some best practices among high-performing sourcing relationships. The combined research conducted by Alsbridge and MIT’s Sloan School of Management, demonstrate that companies with world-class VMOs have 20% higher margins than their competitors.
Looking beyond the financials, you will see these companies are doing things differently from their competitors. To cash in on your outsourcing relationships and follow the example set by these world-class vendor management offices, your organization will need to change individual roles, modify organizational structures, and change some of the companies’ cultural norms.
This means governing not just the provider, but bringing discipline inside the organization. This is a fundamental business change, and thus, a challenge that requires leadership from within the organization. This leadership comes from the top, but it is executed, implemented and brought to life by a high-performing VMO.
This research paper further discusses, defines and provides examples of best practices among successful VMOs to help transform your own vendor management office into a living breathing thing of beauty.
1 
USEU