Award winning benchmarking, sourcing and transformation advisory firm, Alsbridge, Inc., today released a report on “Beating the Benchmark Clause.” The report elucidates the considerations for benchmark best practices that have stood the test of time and are critical to vendors and clients alike.
Benchmark clauses have long been included in outsourcing contracts as a way to ensure the agreement remains competitive over time. “When structured properly, a third-party clause provides clients with a unilateral right to test the outsourcing contract against the market to ensure that it is competitive,” says Ben Trowbridge, Chairman and CEO, Alsbridge Inc. “This allows for clients and vendors to sign longer term contracts, thereby creating greater relationship stability for both the client and the vendor.” So what should be contained in a benchmark clause?
Based on extensive experience, Alsbridge recommends the following elements be considered when developing a third-party benchmark clause. These elements have stood the test of time – vendors and clients alike have found these elements to be critical:
- Timing: The only constant in business today is change. Businesses’ needs evolve, as do vendor capabilities.
- Scope: If possible, the clause should provide a right for the client to benchmark all or some towers.
- Flexibility: Be sure to provide flexibility for a benchmark approach that matches current market approaches.
- Behavior-Changing Strength: Make sure the clause has teeth. Require that some specific action must be taken when the benchmark result proves that the market price is lower than the vendor’s price.
- Contract Total Value: Consider benchmarking beyond price. Evaluate other elements of the outsourcing contract.
- No TBD: Including a vague and generic benchmarking clause in the sourcing agreement at the last minute sounds like a good idea, but it can be self-defeating.
- Benchmark Lite: Consider a provision for a “pre-benchmark” as a step prior to executing a full third-party benchmark.
In addition, there are other elements of the transaction that should be evaluated on an ongoing basis.
Instilling a benchmarking approach that goes beyond price as an ongoing management practice provides a 360-degree view of outsourcing contract alignment for both the customer and the provider. In this regard, benchmarking can pinpoint areas where strategic opportunities may exist to increase the value of the agreement for the customer without having to change the vendor’s price.
To know more about the above Benchmarking Best Practices, you can download the complete report Beating the Benchmark Clause.
About Alsbridge Inc.
Alsbridge provides world class sourcing advisory and benchmarking services for the CIO, CFO and CPO. We’ve helped hundreds of companies reduce costs and get more value from their vendors. Our experienced consultants leverage proprietary tools and information databases to identify and engage the optimal vendors for your situation, negotiate best practice terms at fair market prices, and improve the way you work with your vendors. Alsbridge clients utilize the most cost effective and value added sources globally for IT infrastructure services, hardware and maintenance, network services, software and maintenance, application support and development, business processes and cloud services. Alsbridge was ranked the #1 outsourcing advisor in the world by the International Association of Outsourcing Professionals (IAOP) based on the value delivered to clients. This commitment to delivering value to our clients has made Alsbridge a distinguished member of the 2010 Inc. 500 fastest growing privately held companies in America.