BPO Providers Should Take Active Role in Benchmarking

For many BPO providers, “benchmarking” is sort of a dirty word  - something the client devises to serve as a negative reinforcement of the need to meet contractual obligations and possibly even Contract-reviewsave some money.  Some industry observers think the practice of benchmarking is overvalued.

For example, at the recent Nearshore Nexus conference in New York, Esteban Herrera, COO and advisor, HfS Research, said benchmarking is “overnegotiated and underutilized,” as it can always be debunked from someone determined to do so. According to Herrera, benchmarking almost never accounts for the actual total cost of a BPO contract. “It never tells the whole story,” he said. “Usually a relationship is already beyond repair when a benchmark is invoked.”

But benchmarking is evolving into a collaborative process that helps BPO providers and buyers mutually set project boundaries and goals and ensure everyone involved gets the maximum value from an outsourcing relationship. A recent white paper from outsourcing consulting firm Alsbridge, “The Role of Benchmarking in Outsourcing,” explains how benchmarking can be progressively applied as a tool to support strategic sourcing decisions and bring about benefits to all parties involved in the delivery of business and IT services.

Benchmarking – Then and Now
Historically, Alsbridge says benchmarking has been a means of evaluating internal cost efficiency for a BPO services buyer. However, it is now becoming a means of evaluating external cost efficiency, or ensuring that benefits from sourcing outsourced activities are delivered to efficient providers.

To produce a modern, collaborative benchmarking process, Alsbridge recommends that providers and buyers first create a benchmarking sourcing lifecycle with three steps: monitoring, snapshots, and contractual assessment. Following is a brief review of each step.

Monitoring: This includes real-time activities designed to evaluate performance, investigate alternative scenarios, review bids and make minor “tuning” decisions.

Snapshots: These are rapid-delivery exercises designed to collect and assess validated BPO data as input for an outsourcing business case or to gain an external view of price performance.

Contractual Assessment: This involves detailed assessment of the provider’s contractual performance from perspectives including changing structure, operational effectiveness, cultural alignment and price performance.

How to Collaboratively Benchmark
After a sourcing decision is made and transition has occurred, benchmarking then moves into the governance phase, where the mutual goal should be to maintain alignment of charges and services delivered. In the first couple of years of the relationship, Alsbridge says the focus will mainly be on monitoring, with a move into snapshots during the second year. At this point, if the client believes the snapshots indicate a significant price/performance gap, benchmarks may be invoked.

This is also the point where BPO relationships often fall apart. The provider may need to undergo a rigorous, costly and time-consuming performance comparison with a select group of peer companies. However, if the provider and supplier have collaboratively developed a benchmarking process that defines specific goals with an aim of bringing positive change in pricing and performance, rather than one with vague goals with an aim of punishing “bad behavior,” benchmarking does not have to be an overwhelmingly negative event. In addition, proper snapshotting can help BPO participants determine when formal benchmarking is necessary and when a less formal discussion might suffice.

In addition, Alsbridge recommends BPO partners include the option of contractual assessment, which can occur at any time and is not dependent upon a benchmark clause, to help ensure BPO services are delivered properly and smoothly. The contractual assessment focuses on operational alignment from both buyer and provider viewpoints and places extra transparency and communication into the BPO relationship.

So the next time a BPO client brings up the topic of benchmarking, turn it into a collaborative discussion. The more clearly project objectives and standards are set ahead of time, the fewer problems will occur down the road, and that serves to everyone’s benefit.