For too long, outsourcing buyers have been led to believe they can have it all. That is, you can have cost savings, high quality and innovation all rolled into one. It is a strange hybrid and would result in some odd shapes if applied to the car industry. We would pay the low cost of a Skoda, get the quality of a BMW and the innovation of a Formula One car, all in one package.

That does not sound realistic does it? It is hard enough to achieve all three - cost quality and innovation - in house, so why should it be easier for outsourcers?

At Compass, we think the time has come to change the debate between clients and providers in outsourcing. Rather than one party having it all, it is time for a new type of dialogue around this crucial area of corporate spending, a new approach to getting deals structured and a new way of managing delivery over the lifespan of the contract.

This new approach delivers benefits to both sides and can generate up to four times the savings achieved through one-sided change by service providers. What I am proposing is a new consensual approach based on the active involvement of a strong retained function in four sets of activity:

1. Alignment of the supply of services with business demand through a process of demand challenge
2. The use of baseline analysis to ensure the contract accurately reflects the scope of services required.
3. The implementation of a standard service catalogue to manage demand and costs.
4. Benchmarking to provide ongoing governance and performance management.

The results from outsourcing have been disappointing. Over the fifteen years I have been in the sector, as both as an executive in a service provider (Atos Origin) and as a consultant to buyers and service providers, the deals where I have seen happy clients and outsourcing providers after five years can be counted on the fingers of one hand.

The sudden reverse in the global economy has put pressure on outsourcing contracts to deliver value and change in a compressed timetable. Outsourcing arrangements now have to drive the radical levels of change required to produce double digit percentage reductions in total costs.

Benchmarking analysis alone can deliver significant deliver savings depending on the nature of the contact. However, by collaborating with an informed retained function, we are seeing service providers and customers share productivity gains and cost savings of up to four times those available through benchmarking of the supply side alone.

In the open and informed dialogue that can result from a baseline analysis and benchmarking, Compass is seeing more and more service providers quite fairly challenge user organisations on demand levels in an effort to reduce costs.

By looking at best practice in desktop computing, for example, it may be possible to introduce new policies on usage and the range of applications supported in order to significantly reduce demand on the service provider and so cut costs.

A reduction in demand is perhaps the most certain route to economies and so should be central to any cost saving discussions. With benchmarking analysis in place, these discussions are informed by incontrovertible facts.

Volumes and the level of demand can be challenged in other areas. Is it really necessary to have all helpdesk calls answered in five rings and resolved within two hours? Although these levels of service quality may be desirable, they may not be necessary for all departments and all staff within those departments.

For a bank's proprietary trading desk, two hours may be too long and 20 minutes a more realistic resolution target for problems. For administration staff in the same organisation, the two hour figure may be acceptable.

Being more precise on what type of user needs what type of support and reducing the service levels accordingly can have a significant impact on helpdesk costs with very little deterioration on the service quality as perceived by users, as long as expectations are set accurately through a clear communications tool such as a standard service catalogue.

Compass is seeing the best performing organisations asking themselves the question: "Can we transform our existing operations into standard templates and change the profile of our service consumption by increasing the ratio of spend which falls in the standard box?"

The prize from this type of collaborative innovation and transformation, based on the combination of baseline analysis, benchmarking and demand challenge is significant. Our own observations at Compass suggest savings of 40 per cent or more can be achieved if the profile of services consumed can be changed to include a higher proportion of standard services.

About the author:

Paul Teather is regional president for Compass Management Consulting
www.compassmc.co.uk