EquaTerra, FAO, Gainsharing
FAO Buyers Beware: Keep Your Gainsharing With Providers From Turning into Painsharing
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FAO Buyers Beware: Keep Your Gainsharing With Providers From Turning into Painsharing
By Bob Cecil, EVP of F&A and shared services leader, EquaTerra
First published in FAO Today
Cost improvements are part of the gains you get from outsourcing so don’t lose out on the savings you should be getting as part of the basic service. Instead, incentivize only when necessary.
Say an outsourcing service provider offers to leverage offshore labor and presents you an option for a quick contract and quick savings with a gainsharing component built into the agreement. Instead of spending time to closely evaluate the contract with what appears to be limited or no down side, you could just let the service provider take responsibility for the finance and accounting (F&A) processes you choose to outsource. You’d get immediate improvements to productivity, and you could gainshare later on future savings—50-50.
What’s wrong with this picture? As enticing as it may sound, the service provider wins on this deal, and you lose. The service provider gets a high-margin contract with upside on productivity savings they are quite certain to achieve beyond labor arbitrage with the application of their tools and processes. You, on the other hand, get a deal that’s based on your company’s current state instead of the desired future state, and you give up half your savings—on top of what you’re already paying for the transformation. No wonder a common concern of outsourcing is “Why give away savings to a service provider that I can achieve on my own?”
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