A Deep Dive into Benchmarking

May 18, 2016

The Nordic Chapter of the IAOP (International Association of Outsourcing Professionals) held its quarterly meeting at Gorrissen Federspiel on May 10. We took a look at benchmarking with insight from Zangenberg Analytics, ISG, and Gorrissen Federspiel. The focus was on preparations for and conduct of “in contract” benchmarking and included insights into the “secret world” of leading benchmarking providers. We got a chance to hear about different benchmarking models and methodologies while drawing the line from negotiating benchmarking provisions to practical experiences derived from actual conducting benchmarking and managing the outcome of an benchmarking.

 

Tue Goldschmieding, Partner with Gorrissen Federspiel, kicked off the program with an introduction into key negotiation topics and market practices for agreeing to benchmarking provisions. The main pricing dynamic for contracts is an assumption of decreasing costs for the service provider which leads to the baseline trending downwards over the lifetime of the contract. As it is hard to precisely predict the actual decrease, the result is a fundamental tension between service providers and clients regarding benchmarking. Benchmarking is an activity with a high degree of discretion and traditionally, very low transparency.

 

Transparency was front-and-center in Fredrik Bastkær Christensen, Associate Partner, Zangenberg Analytics’ presentation which argued for using statistical models rather than peer-based data for increasing precision and transparency in benchmarking practices. Fredrik’s approach is one of employing benchmarking as a strategic problem-solving tool. Central to his message was that indexation, to some extent, will replace traditional benchmarking and that we should expect to see a reduction in friction between service providers and clients driven by the resulting increase in transparency and predictability.

 

Poul Tokkesdal, Director Nordics, ISG, contributed a session on Forward-Looking Benchmarking. By this, Poul means that contract benchmarking has developed from price setting to uncovering and removing constraints on delivery as the basis for realising value, exploiting emerging technologies and moving to transformational contracting models. Poul offered the following quote from Albert Einstein as an illustration, “Any fool can know. The point is to understand.” The focus is now on where value can be added.

 

Our program ended with all three presenters participating in a panel discussion which allowed the audience a chance to inquire and elaborate on the topic of benchmarking.

 

For more information on the IAOP’s Nordic Chapter, and on the IAOP in general, please see www.iaop.org.

 


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