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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.

F&A Outsourcing Prices are Dropping. Are You Overpaying?

Most companies that outsourced a portion of their finance and accounting (F&A) functions in the early to mid-2000s generated great savings at the time, but are now probably overpaying for the service levels they receive.

Now more than ever, sourcing buyers need to be prepared to aggressively renegotiate with their providers to increase service levels and decrease prices. Currently, market competition is driving F&A rates down even though the majority of local labor wages are increasing. The reasons for this are:

• Providers are decreasing profit margins to get deals and increase revenues
• Increased use of technology to automate processes results in greater efficiencies
• Increased use of benchmarking in BPO deals results in re-pricing of some
• higher-priced, out-of-market deals, thus driving down the market average

Benchmarking your F&A rates against current market prices is the best way to get market terms and to understand how your F&A deal compares to the market.

While benchmarking has been around for years, there has not been a long history of successful F&A benchmarking. F&A benchmarking makes more sense today than in the past as comparable data based on actual F&A outsourcing deals is now available. The key to successful F&A benchmarking is selecting the right benchmarker that can deliver real value during the buying, in-flight and contract renewal process.

Traditional cost benchmarking firms do not advise on deals, so they lack real market data and are not useful in assessing outsourcing deals where market price is the most important measure. Companies should select an independent, third-party outsourcing advisor that specializes in F&A deals and thus understands the pricing effects of different client environments, different policies and procedures, as well as different terms and conditions.

In this research paper, Alsbridge describes the F&A outsourcing market and the role of benchmarking in ensuring that service provider contracts remain competitive in an increasingly cost-focused market. You will learn:

• Three reasons that market competition is driving F&A rates down (even though the majority of local labor wages are increasing)
• Three primary times you should conduct an F&A benchmark
•  Four fundamental components to consider when determining the value of renegotiating your F&A contract
• Seven elements an F&A benchmarking clause should include

Avoid Costly Mistakes: IT Price Trends to Watch in Q1

By understanding how current economic developments have impacted IT price trends, company executives are better able to determine which IT sourcing strategy will best fit their specific needs.

Join the experts at ProBenchmark as they highlight several IT price trends and directions to watch in Q1 2012. By understanding how current economic developments have impacted IT price trends, company executives are better able to determine which IT sourcing strategy will best fit their specific needs.

Join the experts at ProBenchmark as they highlight several IT price trends and directions to watch in Q1 2012.

Attendees of this eSeminar will see up-to-the-minute analysis of outsourcing deal price trends, gain insight into how services are configured and packaged in the marketplace, and understand the impact of recent market trends on the direction of market prices.

Who Should Attend: This seminar will provide important information for CIOs, CFOs, CPOs, Sourcing Executives, VM Executives, and Global Business Services Executives.

This is part of an ongoing series of eSeminars that reviews recent market price trends and insights.