Formulating a Winning BPO Pricing and Negotiations Strategy

Executive Summary

A provider of back-office services for the financial services industry was nearing a contractual milestone wherein it was time to renegotiate pricing with several of its largest clients. To ensure win-win for itself and its clients, the service provider’s leadership team engaged Everest Group to assist in defining a new pricing strategy per market benchmarks for key, large volume services, and supporting negotiations with each of the clients. Impact highlights included:

• The parties agreed on a new services structure and new pricing levels which totaled more than US$1.5 billion during the remaining contract periods
• The key services benchmarks established a solid fact basis for indicative, directional price changes
• The negotiations concluded more than two months earlier than estimated

The Client’s Challenge

While it was contractually time for a financial services industry outsourcing service provider and several of its largest clients to renegotiate prices for the remainder of their contract terms, none felt a broad-based benchmarking effort would yield useful information applicable to their unique services scope and situation. Moreover, disparate governance approaches across the client base presented a complicated set of negotiating challenges for achieving closure. Additionally, as the clients represented a large percentage of its revenue and the core of its delivery operations, the service provider needed cross-functional decision-making involvement from executive leadership, operations, customer relations, technology, and legal.

Insight to Action

While the service provider initially approached Everest Group to discuss the viability of conducting a comprehensive industry benchmarking exercise on the entire scope of services, Everest Group instead recommended more focused analytics that would build a foundation for objective discussions on appropriate price levels, price structures, and other price-related issues.

This framework led to two primary streams of activity. First, Everest Group’s Benchmarking Practice worked to identify specific bellwether services that were comparable across internal and external service providers, and could be normalized across multiple international regulatory environments that drove important process differences. This activity was clearly positioned as an independent effort to establish current pricing facts for discussion between the service provider and each of the clients.

Second, Everest Group’s Service Provider Practice worked with the service provider to define the negotiating strategy, which included a comprehensive pricing proposal that reflected the benchmarking results. This strategy included a view of how the industry was evolving over the long term, and the impacts on the service provider’s account and enterprise-level financial performance and competitive position. The Everest Group team worked with stakeholders across the service provider organization to ensure consensus on the direction and impact as negotiations unfolded, facilitating crisp and timely decisions. 

Impact

The pricing solution that emerged from the negotiations met the objectives of both the service provider and its clients. Feedback from the clients suggested that the approach and price levels should enable them to meet their objectives over the remainder of their contract terms, with key levers available should the environment significantly change. The service provider viewed the pricing approach and levels as enabling it to sustain acceptable financial performance while ensuring a sound competitive price position going forward. The insights that emerged from Everest Group’s targeted, analytics-focused benchmarking and perspectives on the industry’s direction created a constructive environment for resolving specific, detailed issues. They also enabled negotiations closure two months earlier than anticipated by any involved party. Importantly, the clients and the provider now share a consistent view of how the industry is evolving, which is shaping priorities for improvement initiatives and potential investments that should deliver substantial value beyond the end of the contracts’ current terms.