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F&A Price Benchmarking - In practice Paul Morrison June 2012

F&A Price Benchmarking - In practice Paul Morrison June 2012. Alsbridge plc - company overview. Alsbridge is an award-winning management consultancy & benchmarker specialising in advising clients on shared services, outsourcing and offshoring of complex processes.

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F&A Price Benchmarking - In practice Paul Morrison June 2012

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  1. F&A Price Benchmarking - In practicePaul MorrisonJune 2012

  2. Alsbridge plc - company overview • Alsbridge is an award-winning management consultancy & benchmarker specialising in advising clients on shared services, outsourcing and offshoring of complex processes. • ProBenchmarkAlsbridge’s suite of benchmarking tools and data. • Key facts: • Founded 2002; HQs in London & Dallas • Focused on ITO and BPO • Approximately 100 advisers – all experienced experts, no “junior pyramid” • Management team are all senior industry leaders, backed by an eminent Advisory Board • Clients: major blue chip corporations and government departments 2011 – Ranked Global No 1 Outsourcing Advisor

  3. Contents • Benchmarking in context • The engagement • Process maturity • Sample • Metrics • Normalisation • Targets • Outcomes • Post-script - Off contract benchmarking

  4. F&A – A buyer’s market? • Alsbridge has been tracking profound change in the F&A market over the last 2 years: • Supply side • There is a larger number of mature service providers in F&A than ever before • Several Indian providers once seen as Tier 2 or 3 are now seen by buyers as very competent • These organisations are looking to build market share globally • Demand side • The number of new F&A deals is still far less than in 2007/8 • Most F&A activity today is in the renegotiation / renewal space • Smarter clients, focused on tougher procurement • Net result • More suppliers with more credibility, chasing fewer deals • Potential for significant price drops for 5 and 5+ year deals • Significant leverage for existing outsourcing users

  5. Benchmarking is part of a spectrum of options to steer and reshape the terms of an outsourcing deal • Change process • Managed within contract through day to day change process • Benchmarking – ‘on’ or ‘off’ contract • Formal review / change of pricing driven by market pricing data • Renegotiation • A major change to the existing agreement / relationship FREQUENCY • Recompetition / termination • Inviting other providers to propose on delivering the services SEVERITY

  6. Benchmarking – can be ’off-contract’ as well as via the contract • Benchmarking can be driven solely by the Client • Increasingly common • Doesn’t require permission of the Supplier; • but as a result there are no agreed remedies • The purpose is to gather information, with which to: • Give reassurance that the deal is competitive • Or - Indicate how the deal is not competitive • A significant price gap could result in • a retendering exercise • With benchmarking result as new target price • New alternative suppliers in tender process

  7. The Engagement • Supplier and/or client roles • Data provision • Validation • Duration • 1-2 months per tower, not 6 months+ • A balance must be struck • Robust enough to be comparable, open enough to be challenging

  8. Process maturity – not all benchmarking is the same Outsourcing maturity 2000 2012 • Implications for benchmarking data and accuracy...

  9. Different processes have a wide variety of metrics • IT Infrastructure – Cost per blade; cost per terabyte; cost per MIPs • IT Applications – Cost per resource per year • Finance – Cost per resource per year (some transactional metrics) • HR – varies by sub-process – e.g. Cost per hire, cost per training session • Payroll – cost per payslip

  10. Metrics matter • BPO example – What is the right cost per unit? 1. ‘Rate cards’ – Cost per grade per location 2. Blended rate – fully loaded cost per FTE (full time equivalent) per location

  11. ‘3D Benchmarking’ • Unit pricing on its own is potentially dangerous: • The total service price might be right – for the wrong reasons • High cost x low volume = Low cost x high volume = Right cost x right volume?

  12. Comparing like with like • Expectations can be high: ‘... assess comparative information on outsourcing contracts of comparable financial and accounting systems, service levels, volumes, term, investments made, global/regional scope, risk allocation, ownership of intellectual property rights and other material terms and conditions between Benchmarked Companies and top-tier outsourcing service providers of comparable reputation...’

  13. Sample selection • Much will be pre-determined by the contract • Client peer group – Same industry? Same geography? • Supplier peer group – ‘Tier 1’; global • Deal comparability • no 2 deals are the same • need to break into components (esp. by tower / by geography) • # of data points • Driven by market maturity • Need to avoid being unrepresentative or exclusive • Unrepresentative samples are too narrow and could be skewed by outliers • Exclusive scenarios are too homogenous and fail to bring in market variety

  14. Normalisation factors • 95%+ of the price is determined by: • Delivery location • Supplier / supplier margin • Competitiveness of process • Other common normalisation factors have varied relevance • FX, inflation • Size of deal • SLAs / quality • Commercial assumptions • Risk allocation, IP.....! • Many normalisation factors have minimal correlation with the price • Independence is required to cut through the complexity

  15. Targets • What is competitive? • Upper decile? • Upper quartile? • Average minus 20%? • Most benchmarking works with +/- thresholds • Smaller ranges for more mature processes

  16. Outcomes – what is being achieved? • Significant changes in recent years • Market slowdown • Maturing suppliers / customers • Increasing offshoring • Some price inflation • Range of resultsby sector • IT - Year on year price decreases in some towers • Finance – Benchmarking of recent 3-5 year old deals have result in 0-25% reductions.

  17. Practical benchmarking • How to avoid the wrong dynamic?

  18. Practical benchmarking • Avoid complexity – if it is not simple and transparent it may not work • Moderated outcomes – Excessively sharp teeth will encourage defensiveness • Use ‘off contract’ benchmarking as well

  19. For more information, please contactpaul.morrison@alsbridge.eu+44 7747 865 955

  20. IT and Business Process Benchmarking • Next generation benchmarking • Business process and IT service performance, from in-house or outsourcing provider • Delivered faster, more reliably and more accurately using: • Patent Pending next generation Parametric Model • Most experienced benchmarking team • Online Market Assessment (OMA) • Web enabled subscription service • Real time access to the ProBenchmark modeling engine • Analyze many outsourcing price scenarios: Desktop, Mf, Network, Server, Storage • Snapshot BenchMARQTM • Project based version of OMA with more analysis • Allows for rapid turnaround and scenario planning • Expedites strategic decision making • Third Party Benchmark • Detailed benchmark project typically performed with both client and provider participation • Very detailed results – act as "fair witness“ • Perfect for accurate, unbiased execution of third party benchmark clause in contracts

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