2013 State of Price Benchmarking - report courtesy of Alsbridge

With the global economy still in recovery, today’s business leaders remain challenged to “do more with less” by seeking ways to streamline operations, cut costs and become more efficient. More than 80% of companies engage in outsourcing to reduce expenses, gain access to variable resources, increase time-to-market, and focus on core competencies. As the global economic recovery continues, IT and business process budgets continue to grow, but slowly.

The total 2013 global outsourcing market is nearly one trillion dollars with approximately two-thirds in Information Technology Outsourcing (ITO) and one-third in Business Process Outsourcing (BPO). The magnitude of outsourcing spend is enormous and vitally important to companies as part of their overall management strategy. With this much at stake, Alsbridge polled its subscriber base comprised of sourcing buyers, providers, and consultants from global companies to determine the current state of price benchmarking in the IT and business process market.

The full 2013 State of Price Benchmarking report provides insight into the current state of information technology and business process price benchmarking on a global basis. The report, based on 662 survey respondents, takes and in-depth look at:

• The history of price benchmarking 
• The need for benchmarking 
• Different types of benchmarks
• Best practices for benchmarking
• Key takeaways
• The benefits of benchmarking 
• Major study findings

Ten major findings emerged from the 2013 study. These findings most often speak to the distinctions between the various benchmarking types and the results that can be achieved from each. Alsbridge’s evaluation highlights key findings for each topic.

Major findings include:

• Finding 1: “Do It Yourself (DYI) Benchmarks are Still Common 
• Finding 2: Smaller Contracts are Benchmarked More Frequently
• Finding 3: IT-Related Scope Benchmarked More Frequently than Others 
• Finding 4: General Price Checking Drives Benchmarking 
• Finding 5: Benchmarking Delivers Results in Less Than 90 Days 
• Finding 6: Slightly Less Effort Needed for In-House Benchmarks 
• Finding 7: Greater Savings are Identified by using Independent Benchmarks 
• Finding 8: Independent Benchmarks Deliver More on the Savings Promise 
• Finding 9: In-House Benchmarks Produce Less Value 
• Finding 10: Buyers Most Often Renegotiate or Re-Compete Their Contract 

Summary:

• Benchmarking can work and help deliver lower contract prices.
• Decide the approach you will employ and the level of granularity you need based on your benchmark’s purpose and objectives.
• Benchmarks can be conducted in a fairly short timeframe thus leading to a potential savings opportunity for those who may be renegotiating an end-of-term contract.
• Given the general success and ROI achieved by benchmarking, ensure you stay in-line with market prices by benchmarking on a regular basis.
• Benchmarks are most often conducted to position the buyer for renegotiating, re-competing, repatriating and adding more services to a contact.
• There is significant value (greater achieved savings, greater ROI, defendability with providers) in having an independent benchmark.

For your next benchmark, you may want to reflect on whether your company has the capability (know-how, discipline, skill-set, experience, current market database, analytics) and capacity (cycles, time beyond managing their day job) to properly develop your benchmarking strategy and execute a benchmark project.

Don't Build Fences, Build Bridges by guest blogger Atul Vashistha, Chairman, Neo Group

As we struggle in America to figure out how to stimulate the economy, we are seeing a rising sentiment against outsourcing.  So, I wanted to take this opportunity to share my thoughts, though others have made many of these points in the last ten years. I did write a similar article five years ago too.

Globalization of services is making significant positive contributions to global economies and to the buying power of the USA, India, China, Mexico, Brazil and other countries.  Still, outsourcing is seen as an alarming issue for many government officials, media, corporations and individuals.  As a participant in the industry, I feel it is important to provide a balanced view to the debate over the globalization of services.

It is always unfortunate when an individual loses their job.  It is even more of a concern when the job loss occurs in a down or slowly recovering economy.  The reality is that this trend is real, irreversible and another step in the globalization of the American and global economy.  In the short term, it will continue to present challenges to industry, government and individual employees.  Yet, it is also important to note that clients are not sending all jobs offshore.  They are carefully evaluating what jobs are best suited for each global location.  As companies go through this difficult decision, they are also creating programs to minimize the short-term pain for their employees.  They are offering their employees reeducation programs, severance packages and outplacement services.  As an advisor to these companies, I see companies looking at innovative solutions to help manage this difficult personal and corporate change.

 While this will continue to be a controversial and emotional debate, it is important to keep in mind that the re-distribution of resources to efficient global locations results in freeing up of capital, lowered costs for consumers and new opportunities for investments.  Protectionism hampers innovation and cripples growth, which in turn can lead to higher unemployment.  The failure to innovate is to cede technological leadership and, ultimately, economic strength.

Globalization is a structural evolution of the American and global economy.   America is part of a global economy and American companies will flourish by staying competitive.  This requires them to leverage resources and opportunities globally.  This is helping American companies stay competitive and thus enhance shareholder value and stay healthy.  This enables them to not only save jobs but also create new jobs by expansion and new service/product introduction.  Many companies that do not leverage this globalization strategy have filed bankruptcy and as a result lost even more jobs.  These are companies that may never have the opportunity to create new jobs or provide a return to their shareholders.

As the US population ages, there will be a shortage of resources.  In fact it is projected that are current productivity levels, we will face a shortage of almost 15 million workers in the year 2015.  Also, over the next decade, more jobs will be lost to productivity and technology rather than globalization.  The following was written by Heritage Foundation, “Chinese manufacturing employment peaked in 1996 at 126 million workers. The privatization of inefficient state-owned enterprises and the adoption of productivity-increasing technology eliminated tens of millions of Chinese manufacturing jobs between 1996 and 2002. Chinese manufacturing employment partially recovered to 113 million by 2006, but was still well below its 1996 level.The same factors that have eliminated American manufacturing jobs have also eliminated millions of manufacturing jobs in China. Congress cannot bring back manufacturing positions eliminated by technology by restricting foreign trade.”

What can we do to create new jobs or keep jobs?

•     Expand the R&D Tax Credit.  Since first introduced more than twenty years ago, the R&D tax credit has helped stimulate innovation and kept high-skill, high-wage jobs in the United States.  Lets expand the R&D tax credit to reward further the risk-taking and innovation that keep our economy growing.

•     Increase Federal Spending on Research.  Federal research funding in the physical sciences and engineering as a percentage of GDP has declined since 1985 by nearly one-third.  Let’s reverse this trend and dramatically increase federal spending on basic research.  The money we spend will come back to us many times over in the creation of new jobs in new industries making products yet to be invented. Let’s have a Manhattan kind of project along with a stable revenue model for clean energy.

•     Deal with Rising Health Expenses. Offer small employer tax credits, funding for employer-based group purchasing pools, increased funding for high-risk pools, build on Medicaid and the State Children’s Health Insurance Program, and permit a Medicare buy-in for the near-elderly.

•     Enforce Trade Agreements.  Keeping markets open and opening new markets for U.S. goods and services will also help increase employment in America.  Push for better enforcement of our existing trade agreements, and for negotiating trade agreements with countries that offer lucrative markets where U.S. companies could increase their sales.

•     Support Lifelong Education.  Education provides the skills necessary to unleash Americans’ creativity and helps prepare them for the jobs of the future.  Improve, consolidate, and expand education tax incentives; to increase scholarships for engineering students; to fund the No Child Left Behind Act fully; and to support community colleges.

•     Trade Adjustment Assistance.  TAA has helped thousands of manufacturing workers get retraining, keep their health insurance, and make a new start.  Improve TAA and expand it to cover service workers who lose their jobs to offshoring.  People should get retraining whether they work in services or manufacturing.  Workers, employers, and the American economy all benefit when we equip our workers with the skills they need to fill jobs in growing industries.

•     Visa Program. Expand the H1B and other such visa program for technical and advanced degrees. Limiting visas for technical workers will only make the skills gap and dearth of talent more acute for American employers.

Many of the ideas above have been championed by Senator Baucus but we also need the outsourcing industry and professionals to rally to support the above. Let's go IAOP!

Atul Vashistha is the Chairman of Neo Group, a leading Supply Analytics and Monitoring, Governance Support and Sourcing Advisory services serving global clients since 1999.

A Case Study: Procter & Gamble’s Five Rules for Transformative Outsourcing by guest blogger Joe Stolarski

Transformation is on every CEO’s mind these days. And, to effect change, many companies are beginning to outsource an increasingly larger set of non-core activities. Few have managed the outsourced relationship as effectively—and unconventionally—as Procter & Gamble (P&G). The global manufacturer uses a “five rules” approach that illustrates the principles of “Vested®”, a hybrid business model for hyper-collaborative relationships, as identified in research conducted by the University of Tennessee’s Center for Executive Education.

As P&G’s real estate services provider since 2003, JLL has been privileged to experience this powerful approach first-hand. Here is how it works:

• Rule 1: Focus on outcomes, not transactions. Our compensation is linked to our success in achieving specific outcomes established in collaboration with P&G – not on property commissions. This structure ensures that both parties share a vested interest in bringing new ideas to the work and for achieving our shared goals. 
• Rule 2: Focus on the what, not the how. Rather than defining service minutia in the contract, P&G delegated these details to us. For example, at the outset, approximately 550 P&G employees were transferred to our company. Most had never worked for any company other than P&G, but we were trusted to affect the change in mindset and motivate the new employees.
• Rule 3: Establish clear and measurable desired outcomes. We worked with P&G to define big-picture metrics rather than measuring the program against individual task performance. For example, in 2005 we focused on the successful integration of P&G’s Gillette and Wella acquisitions. An annual review and yearly goal-setting keeps our program aligned with business strategy.
• Rule 4: Create a pricing model with incentives. Multi-tiered incentives align P&G and service provider goals. The contract features cost pass-throughs in which P&G retains responsibility for bills; a management fee-at-risk structure in which a portion of our fees are withheld until results are achieved; pre-structured compensation for above-scope work; and shared savings incentives.
• Rule 5: Provide insight balanced with oversight. We incorporated a proactive governance structure into our contract to ensure an ongoing “win-win” relationship, establishing both companies as co-owners of the corporate real estate function, with shared goals and aligned processes.

Most critically, P&G expected us to take charge of its facilities, not just take care of them, to achieve cost efficiency while exceeding customer satisfaction targets. It’s a profound difference in mindset that continues to inspire our work.

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Joe Stolarski, International Director at Jones Lang LaSalle