Everest Group's capability overview of the Price Benchmarking of Outsourced Service

1. Price Benchmarking of Outsourced Services
Capability Overview
October 2011

2. Benchmarking helps quantify misalignment but does not
identify the root causes; Everest Group provides additional
context to help drive a focused negotiation
Indexed onsite rates for Project Manager role1 FTE PRICING EXAMPLE
Median rate, base index=100
High-end 116
60%
outliers
85 Benchmark price range
73
62
57
45 Low-end
outliers
Service Service Service Service Service Service
Provider
P id 1 Provider
P id 2 Provider
P id 3 Provider
P id 4 Provider
P id 5 Provider
P id 6
 Resource up-skilling  Resource ‘force-fit’
Benchmark
 Irrelevant ‘value-add’  Low cost T-2 provider
root causes
oot
 Multiple
M lti l competency JD
t  Cross subsidization
C b idi ti
1 Rates are representative of pricing from deals of similar size and scope
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3. Most benchmarkers can’t offer both metrics and context
Everest Group’s consulting experience and focused research positions it
uniquely to offer actionable benchmarks
Benchmarking Services Continuum
Everest Group
Comprehensive benchmarking solution including
normalized data, analyst advice on focus areas, and
Pure benchmarking Strategy firms
industry insights
service providers  Visit outsourcing as a
 Focus on metrics business strategy
 May include  Usually lack practical
Benchmarking practice
purchased and implementation
Dedicated practice with ~50 benchmarking clients; only
secondary data experience
benchmarker to combine deep outsourcing advisory
 ‘One size fits all’  IP development
experience with focused primary research
metrics dependent on the
 Formulaic willingness of the
benchmarks lacking client to make
Advisory practice Research practice
judgment investments
Leading global Dedicated practices for
 Limited ability to  Limited
outsourcing advisory firm ITO and BPO for tracking
contextualize understanding of
with 16 years of end-to- deals, buy-side and
benchmarks market trends and
end deal solutioning supply-side trends and
trends,
 Little or no investment impact
experience sourcing landscape
in IP development
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4. Everest Group’s benchmarking solution not only offers
accurate comparables based on a robust benchmarking
process,
process but can also be layered with significant ‘value-add’
‘value add’
Typical Benchmarking Scope (Everest Group’s Differentiated Benchmarking Process)
Differentiated approach that
pp Benchmarks sourced from
yields benchmarks: ‘close-to-heart’ contracts
 Normalized to client identifying:
nomenclature Cost and Price Contract
 Service levels and T&Cs
 Provides buy and supply
benchmarking assessment
marrying standards and
side context to metrics client relevance
 Includes analysis of  Pricing implications
benchmark drivers
Comprehensive
benchmarking
Optional Value-add portfolio
Emerging trends and Operations metrics and
contract evolution themes insights directly impacting
including: commercial and service
 Process maturity
Delivery level negotiations:
 Deal scope & tenure
Contract metrics  Staffing mix
 Technology leverage
evolution themes assessment  Offshore leverage
 service provider
i id  Utilization etc
etc.
landscape etc.
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5. Most importantly, Everest Group does not perform ‘one size
fits all’ benchmarking; it maps the client to accurate proxies
Overview of Everest Group’s price benchmarking methodology
Group s
1 Understand 2 Map client 3 Identify accurate 4 Normalize 5 Exclude
client’s nomenclatures proxies in Data outliers
sourcing to standards databases
environment
Filtered
Inputs from Finalized dataset for Normalized
Final
benchmark client’s dataset for
client sourcing benchmarks
nomenclatures benchmarking client’s
and user groups for client
requirements
q requirements
Understand key Buyer/service provider Isolate deal data points Historic data is normalized  Perform analysis to
characteristics such as nomenclatures tend to with characteristics that to factor ForEx and inflation cluster similar skills for
 Role or resource unit differ in terms of match client’s movements in service price analysis
descriptions descriptions,
descriptions SLAs etcetc. requirements including:
req irements incl ding delivery
deli er location in order to
 Volumes of roles / Everest Group maps reflect current pricing trend:  Remove the low and
resource units for each these nomenclatures to its  Buyer industry: e.g.,  Base rate card (typically in high end price outliers to
contract category standardized format for Energy US$, GBP, EU) is converted preserve data accuracy
 Delivery locations apples-to-apples  Deal size / scope: e.g., to local currency (LCU) at
 Service levels comparison. More than US$5 million delivery location using ForEx  Retain the 20th
 Pricing model (e.g., It includes: ACV assumptions in the deal percentile to 80th
FTE-based, transaction-  Standardized function  Role / resource units:  This LCU rate is trend percentile values, and
based etc.) description e.g., Software Engineer/ adjusted for inflation to arrive calculate the median
 Standardized resource LoCs at commensurate 2011 LCU pricing for each role
units  Volumetrics: e.g., 100- rate
 Standardized SLAs and 150 FTEs / 50000-7500  The 2011 LCU rate is
other relevant drivers transactions per year converted back to base rate
 Delivery locations:
D li l ti card currency (US$ GBP
d (US$,
e.g.US T-1, Bangalore etc.) using ForEx rates in
recent 2011 deals
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6. Everest Group draws benchmarks only from ‘live-deals’ that it
advises/tracks and hence, is well-positioned to provide
insights on benchmark drivers
Based on final-bids from
Live-deals only; No purchased
Expected outcomes: or third-party data
 Close mapping of client skill-set requirements with commensurate pricing
 20-50-80 percentile ‘final bid’ price range for each role; low and high-end outliers are removed to preserve accuracy
 Rates for onshore, landed, and offshore delivery from large contemporary (2009-2011 ) IT/BPO deals
 Pricing range for each service provider category (Global and Indian service provider)
 L
Long tterm d l pricing f each role and l
deal i i for h l d location
ti
Typical onshore pricing per FTE in US
US$ per hour, 2010
Role characteristics Median rate
200
Tenure: 1-3 years
Qualification: Bachelors degree/Engineering 150 XX
Description:
 RReviews, analyzes, and evaluates b i
i l d l t business systemst XX
100 XX
and user needs
 Documents requirements, defines scope and
XX
objectives, and formulates systems to parallel overall 50
business requirement
Mapped client role/skills:
IT System Analyst Indian service MNC service
provider provider
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7. Alternately, Everest Group can also provide ‘ground-up
benchmarking’ that helps simulate service provider costs and
provides ‘behind the curtain’ view on pricing
Expected outcomes: Captures all major
 Insight into service provider operating costs, mark-up and pricing cost components in
 Average price estimate for a given role in a given delivery location over 150 locations
 Cl it on l
Clarity location-specific cost-side d i
ti ifi t id drivers ((wage, real-estate inflation, resource availability etc.)
l t t i fl ti il bilit t )
Contact Centre Team lead– Price build-up per FTE in Spain
pp p Billing rate:
g
(Mapped Client Role: Supervisor) US$XX/hr
US$ per annum
XX
XX
XX
XX XX
XX XX
XX
Salaries Management, Real estate Equipment Other direct Total direct Typical margin Billing rate
and benefits administration and facilities and telecom operating operating & service
Overhead expenses cost per FTE provider corporate
over heads
Note: Hourly rates will be built up from annualized rates based on annual billable hours. This benchmarking approach can be used for low-maturity roles
and locations or as an alternative approach (in addition to direct benchmarking) to understand ‘behind the curtain’ service provider costs
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8. In addition, Everest Group can provide operational
benchmarks directly affecting commercial negotiations
Staffing mix technology premiums offshore leverage deal tenure etc
mix, premiums, leverage, etc.
Staffing pyramids for service providers Price premium analysis for specialized vs. generic technologies
Typical staffing pyramid
( y y
(by key roles)
)
Functional Specialized Generic Price
Typical SPOC area technologies technologies differential
(by delivery model) Key insights:
Project Onshore Landed Offshore Consulting ERP (Oracle CRM (Ariba, XX%
Key insights:  XXX
Manager (%) (%) (%) Apps, SAP, Peoplesoft,
XX XX XX Basis/FICO, Vitria), Delhi,
Team Lead  XXX Siebel), Web- Dot Net, VC++,
 XXX
CICS, C++, Cold Fusion,
XX XX XX Filenet, Data XML, Vignette, XX%
Technical
Senior Level  XXX warehousing, Documentum,
delivery  XXX
XX XX XX
MQ Series, Visio, Rational /
Junior Level Pega, SOA, RUP
 XXX Ajax
Total 100% 100% 100%
On-off delivery mix for service providers Long-term vs. Short term deal pricing
Typical onshore-offshore delivery mix Onshore (by infrastructure tower)
Offshore
XX%
XX Key insights: Key insights:
XX XX XX
XX
 XXX  XXX
XX%
 XXX XX%  XXX
XX XX XX
XX
 XXX  XXX
Desktop Server Database Network
Analysis Design Build Testing
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9. In conclusion, Everest Group brings a wealth of experience
and benefits in a benchmarking engagement
 Reliable benchmarks tied closely to client’s outsourcing portfolio
 Essential context behind the benchmarks and the drivers for change
 Valuable insights on the emerging trends and their pricing implications
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10. Everest Group
Leading clients from insight to action
Everest Group locations
Dallas info@everestgrp.com
Headquarters: +1-214-451-3000
New York: info@everestgrp.com
+1-646-805-4000
Toronto: canada@everestgrp.com
+1-416-865-2033
London: g @ gp
unitedkingdom@everestgrp.com
+44-870-770-0270
Delhi: india@everestgrp.com
+91-124-496-1000
www.everestgrp.com | research.everestgrp.com | www.sherpasinblueshirts.com
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