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

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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.

 

 

 

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By Dan Sharp

Dan is a management consultant for Knadel, and has worked on many projects in the IM industry, particularly focusing on Outsourcing and Operating Models for institutional asset managers.

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