Gainshare programs require a deep mutual commitment to the process, starting with the definitions of savings and ending with assumptions for compensation. Velocity’s expert sourcing team has performed dozens of performance-based sourcing programs, so we understand what it takes.
You can take your pick. At the end the day, we all mean the concept of achieving cost savings via a 3rd party provider at low to the organization. Simply put, the provider states that they will save you money by performing sourcing work and they will get paid only on how they perform (aka cost savings achieved).
Gain-share or outcome-based models are by no means new to the sourcing industry. But now, with a greater understanding of these programs and their potential benefits, they have grown again in popularity. We see a resurgence in clients demanding greater innovation and more cost-effective services, particularly in process-driven services such as finance and accounting.
A true outcome-based model requires a considerable amount of strategic planning and collaboration between the client and the services provider. The are a few critical factors that should be considered if the program is to be a success.
Some procurement organizations have achieved a high level of maturity or have excelled in certain areas of their business, yet they still require some degree of support in expanding their capabilities
The traditional gain-share model emphasizes an approach where the client invests a very low or zero budget at the start of the program. However, these programs tend to be most effective when the client makes a nominal investment.
As the majority of the provider fees are paid on a performance basis, the provider carries a greater degree of risk when compared to traditional management consulting engagements. This levels the playing field, which results in a much higher level of focus and urgency for both parties.
The gain-share model puts significantly more onus on the provider to deliver on the performance targets that are mutually established. This motivates the provider to deploy a more sophisticated team of experts who are more likely to produce superior results as efficiently and quickly as possible.
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