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Meet the Real McCoy of IT-BPS Sourcing Advisory

Feel free to talk to Sarthak Brahma, Day 2 Chair at IT Procurement & Sourcing Event Series Events Europe, about our multi-million IT Portfolio Optimization, IT Benchmarking, Global Capability Center, GCC Execution, and HEX Index mandates for Airlines, Healthcare, Energy, Automotive, Logistics, Manufacturing, and Banking clients in Europe, Nordics, USA, Australia, and India.

Also, feel free to stop by HEX Advisory Group’s Booth #7 to get acquainted with swift and smart consulting, not the long-drawn, self-serving, and shallow advisory cycles or theoretical Research that one fears. Cheers!

Disrupting the IT-BPS Insights and Benchmarking Landscape

We are thrilled to announce our strategic alliance with the HEX Advisory Group, a leading purveyor of global IT–BPS advisory intelligence and support on demand. Through HFS’ access to the HEX Index™—the authoritative benchmarking tool for global IT–BPS contracts—clients will get to experience a seamless extension of the advisory and price benchmarking services arm at HFS Research.

As leaders in our respective domains, we have joined forces to provide our clients access to highly experienced benchmarkers and seasoned IT–BPO sourcing practitioners. This strategic alliance brings together the unrivalled expertise in price benchmarking and advisory services of both entities to deliver cutting-edge advisory services to our clients.

Key highlights of the strategic alliance:
  1. Unrivalled benchmarking tool, HEX Index™: A comprehensive platform offering benchmark metrics, contractual insights, and practical solutions curated by seasoned practitioners.
  2. Industry-leading analysts and advisors: Benefit from HFS’ extensive industry intelligence capabilities and HEX advisors who are experienced price benchmarkers and seasoned IT–BPO sourcing practitioners.
  3. Comprehensive benchmarking: Delve into pricing benchmarks, solution insights, and cost metrics for a holistic understanding of your outsourcing contracts.
  4. In-depth contractual insights: Gain a contemporary view of key contractual terms and conditions, ensuring alignment with your business objectives.

Join us in celebrating this momentous occasion as we embark on a journey to revolutionize the benchmarking and advisory landscape.

Finding Precision Among Cluttered Benchmarks

HEXIndex is the ONLY benchmarking tool in the IT BPO sourcing industry wherein the data sources and data curators are NOT questionable.

Enterprise CXOs and Vendors see the very same HEX Advisory Group senior sourcing advisors (incl. Sarthak Brahma) execute the enterprise sourcing mandates and contracts and also curate / represent the HEXIndex benchmarking tool. NOWHERE in the industry is a line of sight between referenceable CXO clients / engagements and benchmarks this clear.

Benchmarking is ONLY as defensible as WHO you partner with and HOW you approach it. Don’t believe us, just ask our HEX’ed clients 🙂

Innovation Credited in Outsourcing Deals

Service Providers use financial engineering tools like discounts and credits to make deals lucrative. In many contracts, the service provider and the client contribute an amount towards innovation fund. These funds are utilized to carry out innovation projects that may include automation, digital solutioning, transformation, among others.

Population Health Management

Navigating the intricate landscape of Population Health Management (PHM) pricing demands more than just numbers—it requires expertise. With over 60% of healthcare organizations already on the PHM journey and the market set for substantial growth, the stakes are high. Let us be your guide in unraveling the complexities of PHM investments.

Hi-Fidelity Sourcing Advisory

Anyone can run an RFP dog and pony show with multiple bidders. This is a lazy, long-drawn, expensive, and self-serving way of running a sourcing program. Instead, HEX Advisory Group has the chops to expeditiously secure contemporary solutions, modern contracts, and competitive commercials with any vendor/s by drawing upon its senior practitioners, recent transactions’ benchmarks, and clearly defined end-states.

To know more click here.

Anti-incumbancy Trend Makes a Strong Comeback (2023)

Enterprise sensitivity towards disruptive technology, cost, performance, contractual and governance efficiencies is heightened. Pro-incumbency sentiments observed in 2021-22 has reversed and any lagging incumbent is on the chopping block.
To know more click here.

Hex Benchmarking Capability

Why Should You Consider Benchmarking with HEX Advisory?
HEX Advisory Group’s Benchmarking Advisory Services & Tools are a unique capability in the IT-BPO industry, integrated into our Sourcing Advisory practice and powered by actual sourcing deal data. It is managed by our senior sourcing advisors, NOT inexperienced research analysts or consulting back-offices.

To know more click here.

2023 Sourcing & Pricing Trends Manifesto (an Advisor’s PoV)

Avoid tacos at 7-Eleven and coffee at Taco Bell. Source matters in everything you consume and that applies to Sourcing and Price Benchmarking trends too.

Don’t ask an advisor what the size of ChatGPT in sourcing deals will be in 2025 and don’t ask a researcher how best to calibrate your multi-million-dollar contracts. You are bound to be misled in either case.

There’s so much broad stroking on IT-BPO Sourcing & Pricing trends going around that I decided not to write a blog post but a MANIFESTO! 🙂

Are your metrics measuring the business impact?

What you control is governed by the metrics you measure and report on. But are the right metrics being measured? Traditionally, the functional and back-office metrics have been linked to the respective functional areas and the linkage to enterprise objectives, if at all, may not be evident. The Business Level Agreements (BLAs) framework can help fill this vacuum and ensure that the reported metrics are linked to the business priorities.

Some of the typical BLAs used in F&A processes:

  • Accounts Payable: Error free payments, DPO, PO penetration
  • Accounts Receivable: DSO, Cash Application Time, Average Time to Bill
  • General Accounting: Days to close month-end, Reconciliation Cycle Time

A well thought out set of BLAs is a great mechanism for the support functions (and service providers) to see their impact on the business and the other way round. Enterprises are increasingly embedding these in the contracts to drive risk-sharing and partnership behaviours.

Be Mindful of Muddying the Waters

Contracts with remit ranging from managed services to supporting Digital Transformation need to clearly delineate the solution and the underlying people and commercial construct. The Capacity and Capability charters are very distinct and painting both with the same brush can lead to a less than an Optimum outcome for both parties.

Choose your COLA wisely

In this hyperinflationary environment, COLA, once a standard provision, is gaining increasing prominence. And rightly so, as a typical managed services contracts spans 5 years and a robust COLA mechanism/clause that protects the interests of both parties is critical to an equitable contract. It is also in the interest of both Buyer and Seller to include a Benchmarking clause that allows potential commercial ‘reset’ in an uncertain business environment.

Productivity Gains in Field Service / Onsite Support

Field Service productivity is impacted by SLAs and the underlying support model. The primary driver for productivity is strong emphasis on ticket elimination and “shift-left” of the issues. Productivity can be increased by reducing field service engineers’ intervention. In order to achieve this, service providers can consider strengthening the L1/L1.5 Support with tenured resources to maximize resolution at that level. Furthermore, providers can also consider leveraging following mechanisms to enhance efficiency:

  • Leveraging Inter vPro or similar solutions for remote troubleshooting
  • Tech Café
  • Vending machine for peripherals
  • Virtual kiosk/ Tech bar
  • AR/VR technologies
  • Digilocker

Service Desk Contact Volume by Channels

Typically, first gen outsourcing deals / legacy environments have calls and emails as predominant contact channel and proportion of calls and emails could potentially exceed 80-90% of the contacts. However, as service providers rationalize the workflow and implement chat bot and other tools, proportion of calls and emails gets reduced in favour of other channels e.g., chat and web with lower cost to serve. In an end state, service providers may have 60-75% of contact volume by web and chat and remaining 25%-40% by phone calls and emails.

Benchmarking and Industry Focused Peer Set

Our advice to enterprises and service providers is to leverage/ contextualize the benchmarks depending upon scope of services and not to have pre-emptive bias for or against any industry. Simply speaking, if scope is a horizontal such as a multi-tower infrastructure deal with its own baselines and environment maturity, then that should drive the benchmark reference set agnostic of industry. However, if we are talking about industry specific scope e.g., payer platform or trading platform support, we’ll need to consider industry specific benchmarks.

Productivity Gains and Environmental Maturity

Productivity gains and automation impact over the deal term is driven by environmental maturity.. To assess the potential productivity gains, a detailed analysis of number and nature of issues in the current environment is required. We would typically expect overall productivity gains as well as speed of realizing productivity gains to be higher in a legacy (1st time outsourcing) environment v/s 2nd/ 3rd Generation outsourcing deals.

COLA in the Time of Great Resignation

In managed services contracts, we continue to draft up and get equitable agreement for a 3.0%-3.5% global COLA i.e., applicable to the managed services delivery model incl. the underlying global delivery location portfolio agreed by both parties. The expectation is that the above 3.0-3.5% should be explicitly stated as part of the fee assumptions but needs to be pre-baked into the Y1-Y5 ACV’s i.e., no fee changes during the initial contract term. This incentivizes / encourages the provider to offset COLA against automation-led benefits in the out years, staffing mix and on-offshore mix changes during the contract term etc.

Besides the managed services component, there is typically the project rate card i.e., T&M component in the pricing exhibits. Typically, COLA is applied starting Y3 of the deal & can have higher exposure than managed services COLA i.e., in the 3-5% range depending on skill sets. COLA is subject to the benchmarking clause i.e., if either party wishes to invoke the benchmarking clause to sense-check any significant rate/market changes if the contracted COLA is unacceptable by either party when the need arises

All providers are concerned about the wage inflation, which while real for experienced/lateral hires, needs to be contextualized in the scope of a typical IT-BPS managed services delivery solution. Fact is that the entry-level salaries have remained consistent for the last many years and the same is true even now. Plus, all providers are pushing their entry-level pool to Tier2/3/4 locations and colleges to keep this entry-level cost base consistent, and this is where most providers expect to build 70-80% of their incremental seat capacity esp. with the remote model – most providers have alluded to this in recent quarterly earnings strategies as a margin retention measure. In addition, in a typical delivery AO/IO/BPO pyramid, 75%-80% of the resources are in these bottom two rungs wherein the compensation is being held steady. So, the talent war and the heated 20%-40% wage hikes for experienced hires only applies to 20%-25% of the wage pyramid i.e., 4%-10% net wage increase on a blended wage pyramid. However, wage / compensation is ~50% of a fully loaded offshore rate card (other components being real-estate, telecom/technology, consumables, SG&A, op-margins), therefore, the net offshore rate card impact of blended wage increase is halved to 2%-5%. Now, offshore is typically 80%-90% of the offshore-onshore managed services delivery. Therefore, the net service delivery impact of COLA in a global managed services contract is 2.5%-4.5% and with this rationale we manage to close the agreement at 3.0-3.5% global COLA on equitable and transparent footing.

PERSPECTIVES

HEX Enabled a Major Healthcare Provider Unlock…

Productivity Gains and Environmental Maturity

Productivity gains and automation impact over the deal term is driven by environmental maturity.. To assess the potential productivity gains, a detailed analysis of number and nature of issues in the current environment is required. We would typically expect overall productivity gains as well as speed of realizing productivity gains to be higher in a legacy (1st time outsourcing) environment v/s 2nd/ 3rd Generation outsourcing deals.

COLA in the Time of Great Resignation

In managed services contracts, we continue to draft up and get equitable agreement for a 3.0%-3.5% global COLA i.e., applicable to the managed services delivery model incl. the underlying global delivery location portfolio agreed by both parties. The expectation is that the above 3.0-3.5% should be explicitly stated as part of the fee assumptions but needs to be pre-baked into the Y1-Y5 ACV’s i.e., no fee changes during the initial contract term. This incentivizes / encourages the provider to offset COLA against automation-led benefits in the out years, staffing mix and on-offshore mix changes during the contract term etc.

Besides the managed services component, there is typically the project rate card i.e., T&M component in the pricing exhibits. Typically, COLA is applied starting Y3 of the deal & can have higher exposure than managed services COLA i.e., in the 3-5% range depending on skill sets. COLA is subject to the benchmarking clause i.e., if either party wishes to invoke the benchmarking clause to sense-check any significant rate/market changes if the contracted COLA is unacceptable by either party when the need arises

All providers are concerned about the wage inflation, which while real for experienced/lateral hires, needs to be contextualized in the scope of a typical IT-BPS managed services delivery solution. Fact is that the entry-level salaries have remained consistent for the last many years and the same is true even now. Plus, all providers are pushing their entry-level pool to Tier2/3/4 locations and colleges to keep this entry-level cost base consistent, and this is where most providers expect to build 70-80% of their incremental seat capacity esp. with the remote model – most providers have alluded to this in recent quarterly earnings strategies as a margin retention measure. In addition, in a typical delivery AO/IO/BPO pyramid, 75%-80% of the resources are in these bottom two rungs wherein the compensation is being held steady. So, the talent war and the heated 20%-40% wage hikes for experienced hires only applies to 20%-25% of the wage pyramid i.e., 4%-10% net wage increase on a blended wage pyramid. However, wage / compensation is ~50% of a fully loaded offshore rate card (other components being real-estate, telecom/technology, consumables, SG&A, op-margins), therefore, the net offshore rate card impact of blended wage increase is halved to 2%-5%. Now, offshore is typically 80%-90% of the offshore-onshore managed services delivery. Therefore, the net service delivery impact of COLA in a global managed services contract is 2.5%-4.5% and with this rationale we manage to close the agreement at 3.0-3.5% global COLA on equitable and transparent footing.

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