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How benchmarking can improve IT outsourcing deals

Stephanie Overby | April 15, 2013
As IT outsourcing has evolved so, too, have IT outsourcing customers' benchmarking needs. As a result, a new approach to benchmarking is necessary, a new method for establishing new and better ways of operating. Kathy Rudy, partner with outsourcing consultancy Information Services Group (ISG), discusses pros and cons of benchmarking for transformation and how to do it right.

The potential downside is that unless the business has bought into it and users are sufficiently communicated to and expectations set, it could create a perception that service quality has decreased.

>What would need to change is the scope of what's being benchmarked and the outcomes in terms of how the findings are used. Clients and providers will need third parties with relevant data around standard services environments, as well as meaningful consumption-based metrics.

Rudy: The standard benchmarking clauses themselves, for the most part, are fine. Many benchmark clauses focus on measuring against the top quartile and use that as a hammer instead of a means for transformation, but the clause itself doesn't have to stop you from combining other objectives.

What would need to change is the scope of what's being benchmarked and the outcomes in terms of how the findings are used. Clients and providers will need third parties with relevant data around standard services environments, as well as meaningful consumption-based metrics.

Does this approach require a different approach to negotiations -- and renegotiations -- of outsourcing deals?

Rudy: In many cases the sourcing negotiation has to fundamentally change. The traditional approach is to use a highly prescriptive, rigid and detailed Request for Proposal that providers respond to by ticking off boxes on a list. But when clients are seeking to transform their operations, there's typically more than one right answer to the question of how to proceed.

We're seeing clients take a more open-ended approach. Rather than defining what the solutions should look like, clients are asking, "What do you see as the best solution?"

Is this approach right for every deal?

Rudy: Traditional benchmarks aimed at optimizing existing operations still have an important role to play. But in situations where organizations seek to transform their operating model, this broader approach to benchmarking is gaining increasing attention. More and more clients are looking for the next evolution in service provision, and business as usual is not an option.

 

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