MSP: A Partnership Approach Through Gainsharing
Executive Summary
Fundamental changes are taking place in the global Managed Service Provider (MSP) market. As managed spends increase - in 2014, they went up almost 16% to around US$90 billion - both buyers and service providers are looking at innovative ways to bolster their MSP programs. Among the several findings in our Managed Service Provider—Annual Report 2015: Moving Beyond the Horizon, is the growing adoption of best practices from allied sectors in the broader business process outsourcing area, including recruitment process outsourcing (RPO), human resource outsourcing, and indirect procurement outsourcing (PO).
Indeed, as buyers grapple with the need to achieve greater cost rationalization, some are turning to gainsharing agreements, increasingly seen in procurement outsourcing contracts. Our research shows that 7% of MSP deals include a gainsharing agreement, but many of these deals are not as well-defined as those found in procurement outsourcing.
We believe that if negotiated and implemented correctly, gainsharing is a powerful way to incentivize over-delivery and incremental value addition. However, deployed incorrectly and it can destroy contract value and potentially wreck the relationship between a buyer and service provider.
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