John Masley, Senior Manager, KPMG Shared Services and Outsourcing Advisory

Remembering fondly back to the 1980’s, I can recall wondering why everyone wasn’t driving around in the most economically priced vehicle when it was introduced, the beloved (yet now defunct) Yugo. But in outsourcing agreements as in vehicles, there’s always more to it than just price.

Cost is inevitably in play in each and every outsourcing transaction. But if you fail to evaluate and address, at minimum, the four following items, price becomes irrelevant and there’s not a senior management team or board of directors that will want to hear what a great deal you’ve struck:

• Ability of the service provider to successfully transition services
• Comprehensiveness of the scope of services
• Service level methodology and metrics
• Ability to reach an agreement with equitable terms and conditions

As a member of KPMG’s Financial Architect competency, I regularly hear that it’s all about the numbers. And the scariest part is, sometimes that’s true. But while cost and savings are significant drivers, others are also prominent parts of the picture.

Source:  EquaTerra* European Service Provider Performance & Satisfaction Study 2009-2010

Granted we’re three decades beyond the 1980’s and my memory may struggle at times, but I definitely do not recall fleets of Yugos on the streets. (In fact, a Wikipedia search showed that in total, 141,511 were sold in the U.S. from 1985 to 1991, with the most American units sold in a year peaking at 48,500 in 1987, and 1991 sales were only 3,981.)

In the same manner, not all outsourcing deals go to the low bidder. A more thoughtful and thorough approach is imperative to ensure that the deals put in place today have the staying power to successfully deliver comprehensive value to both the client and service provider organizations. What types of value? For clients, value includes consistent, scalable and standardized operational delivery models that perform at market competitive performance and price points relative to their environment (and, of course, cost savings.) For service providers, value includes revenue, profitability and stable accounts that are reference-ready.

In the near future we’ll be publishing additional blogs that focus on related topics, and look forward to highlighting some of the things that keep us, our competitors, our clients, our prospective clients and the service providers awake at night. In the meantime, for more insights, please read Executive Dilemma:  Is Benchmarking the Right Path to Defining Opportunities for Improvement?

*KPMG LLP (US), KPMG Holdings Limited (UK) and KPMG International have acquired the business and subsidiaries of advisory firm EquaTerra Inc.

Filed under: Benchmarking, Outsourcing by EquaTerra