Anyone close to the world of outsourcing deal-brokering and performance measurement has been exposed to the infamous “B” issue.
I recall a debate with several experienced buyers, who had anything from 250 to 1500 benchmarked line-items in their respective service level agreements. When I asked them how many of these they actually cared about, no-one could think of more than a dozen… Over to our roving expert in sourcing best practice, Esteban Herrera to discuss the matter further…
Benchmarker Beware! How to use Benchmarking Successfully in Outsourcing
Benchmarking is a misused and misunderstood tool in outsourcing. Almost everybody’s contract has a provision for benchmarking, and in almost all cases it drives the wrong behavior for both parties. A good benchmark (and there aren’t many good ones out there) can be a valuable tool to start a conversation, yet our industry tends to use them as the end of a conversation. Benchmarking data is only useful in the context of a Market Intelligence Program. HfS Research defines a Market Intelligence Program as a coordinated set of insights, professional networks data sources, industry research, and processes that give outsourcing buyers a complete, accurate view of their deal relative to the industry.
Unfortunately, I’ve seen clients artfully leverage expensive benchmarks to unwittingly reduce the value proposition they are receiving from their providers. I’ve seen well-intentioned providers ruin large relationships over benchmarking result disputes. Most often, I see the clause that cost hundreds of hours and thousands of dollars to negotiate be ignored in full or in part. So clients and providers spend lots of time and money (and “relationship capital”) arguing over the minutiae of a provision that isn’t likely to ever be used, and is even less likely to be implemented if it ever is used, and if accepted could have the exact opposite result it was intended to have!
The obscure methods of the benchmarking industry and the motivation of some individuals or groups to debunk results do little to help. Credibility of benchmark results seems to be at an all time low, and nobody seems to be capable of accurate BPO benchmarking. For these and many other reasons, users must tread carefully to get value from their efforts.
HfS Research has spoken to hundreds of client and provider teams to determine the proper way to leverage benchmarking, and to help clients determine whether benchmarking is even appropriate for their situation. You can get some pragmatic benchmarking advice in our HfS Rapid Insight piece Benchmarker Beware: How to use Benchmarking Successfully in Outsourcing, or by contacting your local HfS Research analyst at 1-800-BENCHMARKS-NOW-PLEASE