Insight

Outsourcing: A strategy for all models

Having a plan for every type of outsourcing delivery model is key to reaching positive outcomes.

Brian C. Lewis

Brian C. Lewis

Director Advisory, Procurement & Outsourcing, KPMG US

+1 303-459-7903

Pricing strategy for each segment and across all segments

Micro-Sourcing is a modern hybrid outsourcing strategy which contracts for multiple delivery models. Outsourcing deals always come down to two key components: performance and price. We covered performance Outsourcing: Performance management equals ROI (kpmg.us) now it is time for everyone’s favorite—price. Pricing should not be considered from a singular point of view. The right strategies are found on a spectrum from fully fixed for the entire scope to a combination of fixed and variable to fully variable activity based. KPMG recommends a pricing structure that is low maintenance and minimizes financial risk but allows flexibility to adjust to demand and volume fluctuations and delivery model changes without renegotiating. Managed services are historically delivered as a combination of fixed and variable; although over the past three years, it has, in many cases, transitioned to fully fixed for the entire scope; which, interestingly enough is aligned to the market trend of industry-based solutions. At the same time, as-a-service has become the norm and is fully variable. Both models have value and both models are necessary to support a hybrid outsourcing strategy. Thankfully, all models are already tested in the market, are low maintenance, and have the necessary contract structures to minimize financial risk. The key to success is including all of them in the commercial agreement and knowing when to switch between models. This topic was covered in the decision and governance framework from Blog 4 Multiple delivery models. Which leads us to our next blog: Continually adapt to the demands of the business with Micro-Sourcing.