Benchmarking in Outsourcing


    If the concept of benchmarking in outsourcing initiatives is confusing to you, I attended a highly enlightening Webinar on the topic that you can now tune into as well. Hosted by advisory firm Compass and featuring Geraldine Fox (a columnist) and Rob Finkel, an attorney with Milbank, Tweed, Hadley & McCloy LLP, the Webinar covers the role of benchmarking, the problem areas, the legal issues and the right way to conduct a benchmarking exercise.

    I’ll share a couple of points here — but there are many more contained in the presentation.

    First, Finkel made the point that benchmarking — doing an objective evaluation of the level and pricing of the services you’re receiving to those received by other organizations — is harder to do when it involves business process outsourcing (BPO). Why? Because there are more one-off transactions and they’re still relatively new. That means there are “fewer deals to compare your deal to."

    Second, Fox drilled down on service provider behavior. She said that some try to circumvent the process by designing benchmarking clauses for your outsourcing contract that “have no teeth," that include too many restrictions, offer weak or ineffectual alternatives or prevent the use of their data in future analyses. Her antidote: walk slowly in negotiating your benchmarking clause, since you have so much riding on it. Also, insist on flexibility.

    She pointed out that sometimes vendors will offer a discount in place of benchmarking. It makes sense to accept the offer if there’s a valid reason to avoid the management attention and time that benchmarking requires. But Compass takes the perspective that benchmarking should be about making the outsourcing relationship work and less about getting discounts.

    There’s plenty of useful advice in this hour-long program, which I encourage you to listen to if the topic is relevant to your work.

    You’ll find it here.