Cutting cost is the most cited reason why companies outsource services to a third party offshore provider. Offshore service providers, on the other hand, aim to achieve the highest possible pricing for their offered services. Two opposing outsourcing goals on side of buyer and the supplier make it highly necessary for both parties to become masters of negotiation. This implies to invest time, effort and often even money in capacious market research in order to be familiar with pricing and cost standards of the global outsourcing market. One way of obtaining this precious knowledge for ‘smart outsourcing’ is to engage in benchmarking. In case you decide to base your next outsourcing engagement on grounds of facts, not just assumptions, this article provides you with the basics of benchmarking in the outsourcing industry.

Benchmarking is a valuable strategy that serves primarily to detect the exact advantages of outsourcing services over producing them in-house. With help of market analysis and comparisons, buyers can gain a deep understanding about the services that he plans to outsource to a third party provider. In-depth knowledge automatically leads to better negotiation power. Not only buyers can significantly profit from benchmarking. Service providers can use benchmarking techniques to review their own performance and services against actual market standards. Improving according to state-of-the-art market standards leads to improved customer satisfaction and higher contract retention. Newest technology trends further boost productivity and efficiency.

Benchmarking encompasses several different techniques such as research, surveys or price indices and other statistics. Market testing is one common form of benchmarking and has the main aim to detect the competitive advantages and weaknesses of a supplier company against its competitors. The comparison usually takes into account indicators like fix rates, price per unit, infrastructure, applications etc. another technique of benchmarking is value assurance and focuses in detail on the quality and performance of the service that is to be outsourced. Research-based benchmarking usually involves in-depth research on the market of the offshore provider in question and involves long-term trends.

Benchmarking is a useful strategy that should be applied before a buyer decides to sign a contract with an offshore service provider. Benchmarking is a good starting-point of an outsourcing engagement for purposes of value for money assurance. Service provider can orientate on market standards with help of benchmarking and establish fair prices. Many outsourcing contracts even have a benchmark agreement that allows buyers to scrutinize their provider’s services over specific periods of time.

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