Allowing companies to benchmark their outsourcing contracts will help keep the price and configuration of services competitive, resulting in an overall improved outsourcing process, said an executive with outsourcing consultancy Nautilus Advisors LLC.
The McLean, Virginia-based consultancy partnered with Toronto-based research firm IDC Canada Ltd. to provide a range of benchmarking services to North American customers to compare market rates for similar services at a certain point in time.
Besides improving service delivery and making the process more competitive, it can also serve to validate a competitive contract to company executives or board members, said Chris Pattacini, vice-president and partner with Nautilus Advisors.
Third-party benchmarking is essential to customers because outsourcing contracts are typically designed to be economically viable, said Pattacini, and “by definition they need to be multi-year deals, but no one really knows the future.”
The alternative, he said, is a costly renegotiation or a termination of the contract and subsequently starting anew with a request for proposal.
The services offered are based on four types of benchmarking: internal, explorative, best practices and comparative.
The criteria used to benchmark contracts includes the scope of services (desktop, helpdesk); scale of services (number of users and resultant pricing); service levels (onsite versus remote support). Also considered, are additional elements that drive risk such as the term of the agreement, because shorter-term contracts have more risk and are therefore higher priced.
Besides providing “a sense of where the market is going”, the service options are designed for businesses that may need a specialized form of benchmarking given that contracts can be complex and involve different types of configuration and services, said Sebastien Ruest, vice-president of services research with Toronto-based IDC Canada.
However, Ruest noted that while useful, benchmarking does not replace proper governance of the outsourcing process. It really serves to provide a company the assurance of knowing what it’s paying for, he said, adding “it’s a nice way to audit the contract itself.”
The bulk of IDC and Nautilus Advisors’ target market is the large business because “contracts have to be fairly large to be meaningful,” said Ruest, adding that smaller contracts tend to be difficult to benchmark.
The benchmarking of outsourcing contracts is useful for businesses who view the practice as an indicator of questions that should be asked in the management of contracts, said John Simke, chairman of the board of directors at the Toronto-based Centre for Outsourcing Research & Education (CORE).
But while it serves a good indicator, it is “not a direct formulaic approach,” said Simke, because given the nuances between businesses, it can be tricky to get comparable statistics to evaluate services.
Simke said the practice of benchmarking contracts works well for certain types of outsourcing like IT infrastructure services that are “hard operational data centre-type services.” But less mechanistic types, like business process outsourcing, he added, isn’t as conducive due to the varying influence of suppliers and relationships with those suppliers.
Recognizing that data garnered from customer benchmarks might benefit the industry as a whole, Pattacini said the data will be eventually applied to market research reports of high-level trends.