“Our key stakeholders appreciated getting the information without disrupting their operations.”
Jason Barkham, Vice President, Sourcing Management, Business Process Operations and Legal Affairs, Warner Bros. Entertainment Inc.
Definition: The service provider helped the client benchmark its current sourcing services and helped it retool and renegotiate to the client’s benefit. Also, the service provider used its benchmarking tools in an unusual way to optimize the client’s sourcing agreement.
Warner Bros. Entertainment Inc. had just extended its BPO arrangement with Capgemini America for a multi-year financial transformation with a long transition. This included all its finance and accounting functions from accounts payable and procurement to invoice-to-cash. (Those folks on The Mentalist, a Warner Bros. Television show, want to get paid!)
“Once that project was in flight, we thought it would be a good time to consider where the costs were relative to the market, so we could decide if we needed to invoke our formal benchmarking clause,” says Jason Barkham, Vice President, Sourcing Management, Business Process Operations and Legal Affairs at Warner Bros. Entertainment.
An unusual time to benchmark
After contract extension is an unusual time to perform a fast-track benchmark analysis. “The timing provides an interesting showcase for other times when performing a mark-to-market may be useful,” says Barkham.
Warner Bros., a Time Warner company, employed this novel use of benchmarking to:
- Compare its rates against the market, particularly by geography
- Guide the company in its BPO delivery strategy
- Determine if it needed a full, contractual benchmark. A full benchmark would have been more time-consuming and expensive “and would have drawn attention away from key initiatives (transition and stabilization) at a critical time,” he explains.
This unique benchmarking strategy worked. There were three main advantages:
- Provisioning insights. The service provider provided an “interesting span of control analysis.” This knowledge helped the entertainment company create a benchmark it now uses “to guide how we view our internal and external organizational structure for the provisioning of our accounting work,” according to the Warner Bros. executive.
- Future planning. The data was useful in determining how the company thought about its future initiatives.
- Cost savings. Warner Bros. was able to leverage the benchmarked cost data in subsequent negotiations with Capgemini.
Warner Bros. Entertainment learned exactly which service delivery locations were competitive and which weren’t. And it found the fast-track benchmarking produced all the analysis it needed to make sage business decisions. “Our key stakeholders appreciated getting the information without disrupting their operations,” says Barkham.
A valuable best practice
The company also learned a valuable best practice: You have to correctly allocate the provider’s management overhead to accurately benchmark FTE-based services. Incorrect allocations can significantly skew the benchmarking results.
Specifically, Warner Bros. did not want to burden the management cost into the resource-specific charges. Keeping the costs separate allowed the finance leadership to make “deliberate decisions” about adding management overhead with its service provider. “We didn’t want to assume we would be getting incremental management effort as the engagement grew,” Barkham explains.
In order to measure the charges against the market, Warner Bros. had to re-allocate the management costs back into the per-resource costs. “There are different ways to allocate that cost; each had implications for how we evaluated our charges against the market,” says Barkham.
He points out this did not impact the company’s total costs compared to the market. “But it impacted the view by delivery center and seniority level,” he notes.
Barkham reports there is “a tension” between using an industry-standard approach to pricing compared to taking a more granular look. He says the granularity provides “much more flexibility in terms of modifying the delivery organization without price negotiations.”
But there is a price to that: more work. He says the cost data requires more normalization in order to evaluate it against the market data. “We chose the more granular approach,” says the finance executive. “But that did make it more difficult to do an effective fast-track benchmark.” He feels the results were worth the effort.
By the way, Warner Bros. Entertainment did not initially share its benchmarking results with Capgemini but did so as part of later discussions.
Questions: When would you consider a fast-track benchmark? Would you share the results with your provider?