Benchmarking – you won’t see the bumps in the road ahead if you’re looking into the rear-view mirror

Many, if not most, outsourcing contracts now include benchmarking clauses, giving the client an opportunity to compare how their supplier is performing against the market from both a cost and service perspective after a specified length of time.

Frequently, benchmarking exercises are backward looking, taking historical data on supplier performance and comparing against a vast array of market data. Whilst this may raise some interesting points on cost and service levels received, we believe a benchmarking exercise should be holistic, collaborative with the supplier, and forward looking. In addition to benchmarking cost by service line, SLA/KPI levels and actual service received, consider questions such as:

  • How does the scope of service received compare to the market?
  • What are perceived service levels? All KPIs may be green, but are stakeholders, e.g. Front Office, getting what they want?
  • How does the rate card structure support the business going forward? Is it aligned to cost / revenue drivers and does it appropriately reward growth?
  • Is there an appropriate balance between risk and reward? How do costs match with e.g. liability clauses?
  • How does the service credit regime compare to market? Is it linked to the right KPIs, with appropriate flexibility built in?
  • How has the business changed since the original contract was negotiated? Are terms that made sense at the time still valid?
  • Questions such as the above cannot be answered through the use of data alone. They require a qualitative approach, involvement in recent outsourcing deals in the market, relationships with suppliers, and an understanding of the business and its strategy.

Focus on the future, take a holistic view, and benchmarking can help you keep your eyes on the road ahead.

Note: This opinion piece was first published by Knadel Limited prior to the Catalyst-Sionic merger

About the author

Dan Sharp

Director

I specialise in operating model and outsourcing projects, including developing sourcing strategy, supplier selection, deal negotiation, implementation and supplier management.