Comprehending aCloud Service Agreement (CSA) can be difficult. With the increasing clout of hyperscalers, buyers need to fully understand a CSA to effectively negotiate with cloud service providers.Learn how to better evaluate these contracts in this blog.
With the increased adoption of cloud services, Amazon Web Services (AWS), Google Cloud Platform (GCP), and Microsoft Azure have come to dominate the public cloud space in recent years. The negotiating power of these hyperscalers has significantly increased, changing the dynamics of the CSA.
As the influence of cloud providers grows, customers need to carefully evaluate the proper terms and conditions in the CSA. First, let’s better understand the key terms:
Cloud service agreement (CSA) – a service level agreement (SLA) for cloud computing services between the cloud service consumer and cloud service provider
Cloud service consumer – an individual or a corporate enterprise end user accessing cloud computing resources and services from the cloud service provider
Cloud service provider (CSP) – third-party suppliers of cloud-based platforms, infrastructure, application, or storage services
Customer agreement – the relationship between the provider and the customer, including roles, responsibilities, and processes used by the CSP
The contract may be written according to the service delivery model selected, such as Infrastructure as a Service (IaaS), Platform as a Service (PaaS), or Software as a Service (SaaS). CSPs can modify their contract terms at any given time.
Based on our observations, many customers have difficulty understanding these contracts. With the growing portfolio of cloud services in every organization, understanding the nuances to better negotiate contracts with service providers is crucial.
Below is a practical reference to safeguard customers’ interests.
Ten Steps to Evaluate a Cloud Service Agreement
Understand the roles and responsibilities properly
Evaluate business-level policies thoroughly
Understand service and deployment model differences
Identify critical performance objectives
Evaluate security and privacy requirements of the environment
Identify service management requirements
Ensure proper backup for service failure management
Driven by the increasing numbers of mobile workers during the pandemic, VDI implementation has rapidly grown as a secure solution that provides flexibility and cost savings. While it’s a good fit with today’s steadily growing remote workforce, VDI must be implemented properly to avoid pitfalls. Read on to learn the challenges and benefits of implementing a virtual desktop infrastructure.
Workplace infrastructure is quickly evolving. While Virtual Desktop Infrastructure (VDI) transformation has been in the industry for some time, COVID-19 has spurred its increased use to manage IT consumerization and control costs.
The benefits of implementing a virtual desktop infrastructure for enterprises can be remarkable and include easier accessibility for users, device flexibility, increased security, and lower costs. However, if not implemented correctly, VDI can bring organizational challenges. Many projects fail due to improper design leading to performance issues.
Based on our experiences helping organizations understand and optimize VDI implementation to achieve the right model for their budgets and timelines, we identified the following seven best practices:
Understand end-user requirements – Boot storms can be avoided by being cognizant of such details as the number of VDI users, end-user applications, and the times of day users will log in and access their virtual desktops
Consider end-user location – VDI architecture and resources may vary for users at different locations. Bandwidth and latency also have a big impact on the end-user experience
Choose the ratio of persistent or non-persistent desktops – The virtual desktop type can sometimes be determined by the user type, such as task workers, power users, kiosk workers, etc. Persistent desktops retain a user’s personal settings when they log off, while non-persistent virtual desktops do not
Consider client device options – A desktop virtualization benefit is that nearly any device can have a virtual desktop client. Deciding the best mix of thin client devices, converting old personal computers into thin clients, and having bring your own device (BYOD) clients are key factors in VDI deployment. Maintenance requirements and ownership will differ for each case
Design for high availability – While a problem with one physical desktop affects just a single user, an overall VDI failure has the potential to impact all employees. Design the underlying architecture to be highly available to avoid this
Craft a BYOD policy – VDI lets organizations deliver a desktop experience to many types of endpoints and devices – even those owned by end users. Carefully design and distribute a BYOD policy indicating what users can and cannot do on their personal devices
Factor in security – Do not overlook infrastructure security. All security best practices that apply to physical desktops/laptops also pertain to virtual desktops. Administrators should make sure to extend patch management operations to cover virtual desktops
With the meteoric rise in cyber attacks and cybersecurity talent shortage, Managed Detection and Response (MDR) can help enterprisesimprove incident detection, investigation, and response without more staffing. MDR provides a winning combination of technology, analytics, and human intelligence to improve cyber resiliency. Read on for recommendations for an effective cybersecurity approach.
The cybersecurity outlook has shifted from business and IT-driven to the C-suite. Enterprise investments are now geared towards establishing cyber resiliency programs with holistic threat advisory, comprehensive monitoring, and faster response as the key building blocks.
Let’s take a look at the elements enterprises want in cybersecurity.
Strategic enterprise priorities for running an effective cybersecurity program
The MDR solution
With the right building blocks, MDR is becoming a near-term remedy for major enterprise cybersecurity challenges and helping companies meet their strategic priorities for effective cyber security programs.
Sophisticated threats are becoming difficult to detect because they can evade traditional controls and detection techniques. MDR aims to improve the struggling enterprise incident detection, investigation, and response capabilities.
MDR leverages next-generation technologies to hunt and respond better. Further, MDR brings the perfect amalgamation of technology, analytics, and human intelligence to bolster the enterprise cybersecurity position.
Types of managed detection and response providers
Our recent assessment of MDR services for leading technology enterprises analyzed the evolution of MDR technology vendors. We looked at their evolution from providing Endpoint Detection and Response (EDR) solutions to adding greater value through different services.
MDR service providers take different approaches to solutions and pricing services and can be classified in the following categories:
Type A vendors: They primarily position their EDR offerings as part of MDR services and typically provide an as-a-service model that includes the necessary software along with services
Type B vendors: These multi-threat vector-focused vendors cover not only endpoints but also include cloud-based workloads and networks in their solutions. They propose as-a-service and pure services models depending on the customer’s requirements and investment into detection and monitoring software in the current environment
Type C vendors: They are primarily managed security services providers delivering end-to-end security services along with MDR. In certain instances, they create bespoke offerings depending on customers’ requirements. They are typically vendor-agnostic and offer both as-a-service and a pure services model
Points to ponder before embracing MDR
Bringing together existing capabilities with an experienced provider is the key to jumpstarting the enterprise MDR journey.
Below are some recommendations to achieve success when implementing MDR services:
Add MDR capabilities to areas where your enterprise lacks capabilities or has an imminent need to scale existing capabilities
Consider starting with incident response and threat remediation, given the lack of skilled resources and the required tools and technologies
Integrate with existing technologies
Undertake a comprehensive assessment to determine how the MDR provider’s threat containment and response approach can be best integrated with enterprise policies and business processes
Integrate with existing security technologies quickly and based on standards (e.g., Application Programming Interface (API), protocols)
Choose the right MDR stack and vendor
Understand no single best MDR provider exists in the market. Select MDR providers that have experience in use cases relevant to the enterprise’s size, maturity, and industry vertical
Choose a technology-agnostic vendor with a proprietary delivery platform with log and data management, analytics, orchestration, and incident response capabilities
Once enterprises have kickstarted their MDR journey, they often can choose to combine overall cybersecurity and MDR services under one portfolio. In a few instances, we have observed the supply side proposing the convergence of the Security Operation Center (SOC) into the MDR solution to help enterprises save costs. Enterprises should leverage MDR in a way that complements their existing operations to essentially fill the gaps in their threat management strategy.
Managed detection and response pricing
MDR pricing models and structures are still evolving. For example, Type A or Type C vendors usually prefer going with per unit-based pricing models where EDR and other software might or might not be included depending on requirements. Bespoke offerings can further modulate the price based on service inclusions and exclusions. Thus, different pricing metrics are offered, such as per asset, per user, etc., which slightly complicates matters and makes apples-to-apples comparisons difficult.
Additionally, we have observed that service providers may command premium prices because of the delivery location and type of value-adds included. For example, in the government sector, we have typically seen onshore delivery because of compliances, regulations, and discomfort with offshoring. At the same time, we have seen a few other cases where vendors leverage offshore locations for functions such as 24×7 monitoring to improve price positioning.
High-end threat hunting and cyber deception services are niche skills in the market. The current talent war creates a void in enterprise threat management strategy. Managed Detection and Response, with its suite of services, has the potential to emerge as a market winner.
Learn how to we can help you benchmark prices and contracts for a wide array of services, from contact center service IT to business processes. Our price benchmarking catalogs cover competitive market pricing for the most prominent locations across the globe.
What factors make this economic downturn different, and is IT services spending recession-proof? Despite recessionary fears, digital transformation and post-pandemic demand will help maintain IT services growth with more cautious tech spend moving forward. Learn the three strategies service providers should take now to plan for the slide in this blog.
By all accounts, it seems we are entering a cyclical phase of economic downturn. Gross Domestic Product (GDP) declined for the US, Italy, and Japan in the first quarter, while the UK, France, and Canada flatlined or deaccelerated meaningfully.
This has been visible a long way off, and the equity markets have adjusted their guidance for IT services stocks accordingly. However, we at Everest Group believe this is very different than past cyclical downturns.
To truly understand the nature of the impact on the IT services industry, we need to ask the following three questions:
Is IT services spending truly discretionary?
Chart one tells us a few things:
During a downturn, IT services spending tends to follow a meaningful lag effect. Our channel checks reveal careful prioritization of fresh capital expenditure (CAPEX) items, but not cancellation of committed tech spend
Modern enterprises view technology and tech spend to transform their business and become more innovative and efficient. A downturn will sharpen the focus on pragmatic digitalization to create new revenue streams
A meaningful part of the inflationary pressures can be attributed to global fiscal expansion post-pandemic. This is not necessarily true for private businesses and tech spend. If anything, remnants of pent-up demand continue in the wake of pandemic-induced austerity
A combination of the second and third factors is leading to the divergence between the IT services and aggregated economic activity, as measured by the GDP.
How much has already been baked in?
Now, look at this second chart. Suffice to say that IT services stocks have taken a beating in 2022.
While some stock price erosion can be attributed to inflationary pressures leading to margin compression, a significant part is due to negative macro expectations.
Curiously, during the same period, consensus revenue estimates have continued to expand (Accenture, Cognizant, Infosys, Wipro, TCS), and book-to-bill ratios remain healthy (expanded Year-over-Year for Capgemini and IBM, with mild deceleration for TCS and Accenture).
Quite simply, this downturn was visible a mile off. All of us could see it, as could customers, economists, governments, central banks, and equity markets. And a little bit like seeing a slow train coming, we skipped the tracks and readjusted our expectations. Consequently, it’s unlikely we will see a trainwreck, but tech Return on Investment (RoI) will be increasingly scrutinized.
Are the usual lemons drying up?
Finally, we need to remember that the world is still coming out of COVID-19. Every enterprise made massive cost adjustments during the pandemic by automating routine tasks, moving to the cloud, and divesting non-core assets. In other words, many of the usual cost adjustment levers are already pre-adjusted, and one has to pause and ask – how much padding do we still have before we risk cutting too close to the bone?
What’s likely to happen – our prognosis
Yes, there will be a downturn in the IT services industry. But it is very unlikely to be severe. We forecast 6.7 % growth (organic, constant currency basis) as the base case for the year ending March 2023. This includes a set of very large supply side players with company-specific issues (e.g., Atos), while more resilient companies will comfortably beat the average. Irrespective, industry growth will be significantly above the pre-pandemic trendline. The reality is that we are in the midst of a decadal mega cycle of digital transformation, which will significantly counteract a slow-burning cyclical downturn
Enterprises will have to grow out of the recession through waste avoidance, innovation, and digitalization, and not through canceled tech spend
There will be limited manifestation of the usual downturn-linked opportunities (e.g., shared services divestments, vendor consolidation, etc.)
Three service provider strategies
Service providers will still need to readjust. Here are some recommended immediate steps to take:
Examine your portfolio: Not every industry and customer within the same industry will be impacted equally. Now is the time to critically examine your portfolio and evaluate every account. Ask yourself:
Which parts of my portfolio are critical to the customer’s business success? If they are not core, how can I gain share in business-critical categories?
Have parts of my portfolio already been adjusted for maximum efficiency during the pandemic? If not, what can I proactively do about this?
Focus on systems of growth: Systems of growth are digital platforms that help enterprises create new revenue streams and transform the customer experience. In a downturn where brute-force cost-cutting options are likely to be limited, having a robust strategy to help customers grow will be a true differentiator
Continue hiring: The talent market may move from “white hot” to “warm,” but the war for tech talent is not over by a long stretch. A temporary lull may represent a brilliant opportunity to attract and train differentiated talent. When the markets rebound, it will make a difference
What is your outlook for IT services spending? And how are you planning for the downturn? Please feel free to share your perspectives, email me at [email protected] or Contact Us.
With increased competition and cost pressure in the property and casualty industry, insurers are rapidly modernizing technology and moving to the cloud. Top SaaS vendors like Guidewire and Duck Creek are playing increasingly important roles in insurers’ modernization journeys. Getting the correct licensing for your enterprise needs is critical to the success of these strategic partnerships. Read on to learn the key aspects that go into Guidewire pricing to negotiate smarter and make more informed purchasing decisions.
How does Guidewire charge for its platforms?
The most common Guidewire products we see clients use are InsuranceSuite and InsuranceNow. For both platforms, Guidewire’s annual fees are charged as a percentage of the annual Direct Written Premium (DWP) of the procuring enterprise.
An incremental license fee applies to all DWP increases once the enterprise exceeds the DWP baseline contracted during the term period. The incremental fee is typically staggered in nature and decreases as a percentage with increased DWP.
Negotiating the right fees for the platform remains a key stepping-stone to realizing commercial success and increased ROI for the platform. Some of the key negotiating levers in SaaS vendor management scenarios are:
Five factors to focus on beyond fees
While subscription fees remain the most important aspect of the commercial agreement, the following factors play a key role during negotiations:
The number of non-production environments (NPEs) included in the subscription is an important parameter to consider.
Similarly, Guidewire provides additional credits that can be redeemed to provision NPEs. These NPEs are typically used to provision dev, test, pre-production environments and come in multiple sizes from Guidewire – Standard, Enhanced, Performance, etc. Since these environments are chargeable (post credit redemption), it becomes extremely important to internally calibrate enterprise requirements for NPEs and understand if the provided credits will suffice now and in the future.
Price hikes during contract renewals are one of the most dreaded conversations for an enterprise, especially for a niche vendor like Guidewire. Negotiating favorable terms around price renewals is critical. Typically, we observe enterprises pushing for renewal prices to be capped at a mutually agreeable percentage.
Guidewire typically provides multiple add-ons like Predictive Analytics, DataHub, etc., at additional costs. While these may not be immediate enterprise requirements, they may later become necessities. In certain scenarios, Guidewire offers price holds for some of these products.
We recommend price lock-ins at the time of contracting for add-ons that may become requirements in the future and also advise that customers take these two additional steps:
Be sure the price lock-in term is longer to take into consideration the implementation period
Negotiate a broad price lock-in that includes all add-ons that may become future requirements
In addition to the core product, Guidewire significantly cross-sells its services. It typically offers service credits that come with conditions. Using service credits is restricted up to a certain percentage of the invoice value (thereby allowing Guidewire to bill for the remaining invoice amount) and the credits expire.
Both of these conditions are geared towards allowing Guidewire’s professional services arm to make inroads into the client environment. Based on our benchmarking engagements, some of the key negotiation points for clients remain around service credits adequacy and the validity period, and the increased usability of each invoice.
Support costs are an often-overlooked aspect of the agreement. As is the case with most top SaaS vendors, platform support remains with the product vendor, and the cost is baked into Guidewire’s licensing fees. However, Guidewire charges a certain percentage of the subscription fee for extended support if the enterprise is currently on an earlier product version.
This can be a tricky scenario since enterprises may choose not to upgrade due to various reasons – making this one of the most important aspects to benchmark and negotiate as part of your SaaS vendor management.
To learn more about how Everest Group can help your enterprise optimize and navigate through your Guidewire license procurement and SaaS vendor management, please reach out to [email protected].
Health systems are increasingly seeking competitive proposals post-pandemic to outsource Revenue Cycle Management (RCM) and get the best prices and innovation in contracts. Learn what enterprises want and how providers can win these RFPs.
Why has outsourcing gained traction in the Revenue Cycle Management (RCM) market?
The hospital revenue cycle process was not immune to the many changes COVID-19 brought to the US healthcare provider ecosystem, causing health systems to significantly shift operations to survive.
Challenges such as financial pressure, regulatory changes, the quality care and patient experience focus, and digital penetration pushed health systems – who traditionally prefer to keep operations in-house – to look outside for support. This drove more than 10% year-over-year growth in sourcing in the RCM market in 2021, and the strong contracting activity continues to gain traction this year.
Several health systems, including MarinHealth, Baptist Health, SSM Health, and Bassett Healthcare, have entered into outsourcing agreements with third-party vendors. However, unlike most past arrangements when sole-source was the dominant sourcing model, RFP-led sourcing is now the preferred model for healthcare providers in the post-pandemic world.
Exhibit 1: Split of new Revenue Cycle Management (RCM) services deals in 2021 – sole-sourced versus RFP-led
Source: Everest Group’s coverage of 32 major RCM services outsourcing providers
Why do healthcare providers prefer RFPs?
Key factors driving health systems towards a competitive route over sole-sourced are:
Unlike the pre-COVID era, when outsourcing was, typically, limited to a revenue cycle function or segment, the new deals coming in the Revenue Cycle Management (RCM) market are broad-based and many times encompass the end-to-end revenue cycle needs of healthcare providers. Given the size and scale of such deals, healthcare providers prefer the competitive route to get the best possible deal
While cost used to be the primary decision-making driver, health systems are now emphasizing deal aspects such as innovative pricing (wanting third-party providers to have skin in the game) and offering diversified delivery network, innovation pool commitment, and compatibility with existing infrastructure, including experience of working with platforms such as Epic
With hundreds of outsourcing providers in the RCM market, health systems know they can shop around to get the best deal
Key decision-making parameters for health systems in a competitive bid
Healthcare provider enterprises are looking for service providers who can provide end-to-end services covering the entire gamut of Revenue Cycle Management (RCM), rather than discrete, siloed services.
From a decision-making perspective, below are some of the key parameters that enterprises look for when selecting a potential service provider, along with their relative importance rated on a scale of 1 to 10:
Exhibit 2: Level of importance of key buyer decision-making parameters for outsourcing Revenue Cycle Management (2021)
Source: Everest Group’s coverage of major Revenue Cycle Management (RCM) providing enterprises
Service providers need to pay special attention to how they position themselves effectively in the extremely competitive RCM market. The two main levers determining a winning proposal are:
High-quality, well-structured proposals that demonstrate a deep understanding of the client’s needs
Commercial proposals that are well aligned with the client’s budget and offer flexible payment terms
As competitive RFPs rise in the RCM market, providers who can create a differentiated value proposition and align their strategies with the enterprise’s vision will succeed in securing these lucrative deals.
Selecting the right Microsoft Office 365 licensing plan is a critical decision for organizations that can lead to greater cost savings, negotiating power, and flexibility. Read on to discover how Everest Group’s 5S Framework can make this complicated task easier and see our expert analysis comparing the various license plans to make the best choice.
Since its inception at the start of the century, Microsoft Office has become one of the leading business productivity suites, with more than 1 million companies worldwide now subscribing to Microsoft 365 (M365) and over 731,000 companies in the United States alone using the family of office software.
Introduced in 2017, Microsoft 365 brought together the best of Office, Windows, and Enterprise Mobility and Security (EMS) and eventually replaced Office 365 three years later. As part of this move, previous O365 subscriptions for small- and medium-sized businesses as well as the enterprise-level Office 365 ProPlus subscriptions were renamed with M365 branding.
Many enterprises grapple with the decision over whether to use Microsoft 365 or Office 365. Having gone through several feature and licensing model iterations over the past years, Microsoft has a plethora of licenses to choose from. Thus, selecting the right license can often be tricky and confusing. But by getting this strategy right, organizations can obtain higher cost savings and greater flexibility.
To help clients select the optimal license plan and the right fit for their organizations, Everest Group has curated a set of guiding principles called the 5S Framework that considers budget, requirements, inventory, plans, and usage. See below for a snapshot of the framework applied for M365 licensing. To read more about the 5S Framework, see our prior blog.
Selecting the appropriate plan
Choosing whether users require an M365/O365 suite or if acquiring individual components would better meet their needs is one of the most important decisions enterprises face. Suites usually make sense when you need at least three online services such as Exchange, SharePoint, or Teams. It is more cost-effective to buy a suite if your organization requires more online services.
The below table summarizing the main features of Microsoft Enterprise Plans (suites) with data being sourced directly from Microsoft can help you choose the appropriate license plan based on your requirements:
Microsoft 365 Apps for enterprise (FKA O365 ProPlus)
Office 365 E1
Office 365 E3
Microsoft 365 E3
Microsoft 365 E5
Office apps (PowerPoint, Word, Excel, OneNote, Access (PC only))
X (partially, web apps)
Email and calendar (Outlook, Exchange, Bookings)
Meetings and voice (Teams)
Social and intranet (SharePoint, Yammer)
Files and content (OneDrive, Stream, Sway)
Task management (Power Apps, Power Automate, Planner, To Do)
Advanced analytics (MyAnalytics, Power BI Pro)
Device and app management
Identity and access management
The next step after choosing the offering that will deliver maximum value to your enterprise is getting the Microsoft licensing right. Merely deciding which plan to select is not enough, how to license it is equally important since discounts are directly linked to this. An enterprise’s ability to negotiate with Microsoft also depends on the nature of its contract. See more details on the contracting models in our next blog in this series.
While every organization has its own set of requirements to consider, using this framework will help you negotiate effectively and attain the best licensing fit for your Microsoft/Office 365 portfolio. For a more detailed analysis, please reach out to [email protected].
With the myriad of cloud software choices on the market, determining the right licensing strategy is more complicated than ever. Don’t let confusion and indecision prevent your enterprise from getting vendor discounts and fully optimizing your resources. Learn how Everest Group’s 5S Framework can help your organization choose the right license model.
Organizations are increasingly dependent on various software for productivity, automation, security, and other critical enterprise needs. Google pioneered the move to cloud-based applications with G-Suite. Today nearly every major enterprise platform or productivity suite has a cloud-based version.
The rapid transition of enterprise applications, tools, and platforms from on-premise to the cloud has simplified commercial models and invoicing. But it has also made subscribing to the right license all the more complicated and important.
Having a plethora of licensing options available for each software often leads to indecision by organizations in selecting the right fit. While this task can be arduous, having the right licensing strategy will lead to higher savings and optimized resources.
Enterprises are frequently at a disadvantage in negotiating better prices and discounts because they don’t understand the licensing nuances, which often leads to vendors overselling features that are then underused.
After analyzing the key licensing models prevalent in the market, Everest Group developed its comprehensive 5S Framework. This simple yet effective approach to choosing the right license model works as a guiding principle to reduce associated risks and helps enterprises build the optimal licensing strategy.
The 5S Framework covers the most important aspects an organization should delve into when licensing a software, platform, or product. Here is an overview of the process:
First and foremost, understand your environment and inventory and then determine the tools or platform needed based on stakeholder input
After mapping the requirement, identify the right license which meets stakeholder expectations and budget requirements. Striking this balance is usually the key element to a successful licensing strategy
Once all the pieces are in place, validate and ensure no further optimization possibilities exist before finally proceeding to the procurement stage
Lastly, neither the extent of usage nor the available licensing options remain static. Therefore, it is important to monitor usage statistics across the organization and revisit the available licensing options periodically
We have used the 5S approach to not only help clients determine the right fit for their organizations but also within our internal IT environment.
When looking at the market outlook for services spend in 2022, I see several areas that will change dramatically. It is clear there are two primary drivers for the changes: the post-COVID-19 situation and the need to be more strategic in a digital world. Both drivers will change the way companies need to operate next year, and both will increase the cost to operate. Here is my overview of the coming changes.
With outsourcing activity again picking up after slowing when the pandemic hit, now is a good time to gain a better understanding of how providers price IT services. To help ensure your enterprise gets the right value out of your next outsourcing deal, read on for expert pricing tips based on Everest Group’s experiences.
Below are seven common trends we see that can impact the pricing of outsourcing services:
Of course, it’s the economy: Without a doubt, the economy plays a major role in the movement of deal pricing, especially when Black Swan events such as COVID-19 can throw away all previous estimates on the futures of pricing rate cards. The pandemic forced many enterprises to ask for short- to mid-term invoice discounts while others used it as an opportunity to renegotiate their existing contracts. As markets rebound, talent scarcity and travel bans are resulting in upwards movement in pricing at high-cost locations while pricing for digital talent at low-cost locations has reached an inflection point and is expected to turn around
RFP versus sole-sourced deals: First, there is nothing wrong with a sole-sourced deal. It can be more efficient, shorter in duration, and deliver greater value compared to an RFP-led scenario, given you have a trusted relationship with a vendor of choice. By introducing competitive tension into the overall bidding process, an RFP can often be more effective in getting the best pricing. However, due to excessive price undercutting, the quality during delivery may not be what was promised during the talks or negotiations
Cross subsidization of accounts: Often, vendors subsidize their loss-making accounts through their profit-making ones. This is why it’s so important for enterprises to benchmark regularly to see how prices compare against market peers and the overall industry
Enterprise and sector financial performance: The performance of the industry or the sector as a whole can widely influence deal pricing. Sectors such as insurance or oil and gas that typically do not have very high margins usually have visibly low time and materials (T&M) costs or managed services pricing compared to enterprises in well-performing verticals such as life sciences, retail, investment management, or capital markets. While paying less in low or underperforming sectors is not guaranteed, clear trends point to this practice
Buyer persona: The sourcing team can impact the negotiations in ways enterprises often can’t fathom. For example, a senior purchasing manager who has worked across a range of sectors and seen at least the last two recessions will bring a different experience into negotiations than purchasing resources who are newer in their careers and have worked in the cash-rich internet, high-tech, or e-commerce sectors, which can impact the price and length of the deal-making
Transformation versus technical upgrade: If embarking on a complex transformation engagement that involves multiple elements such as change management, business consulting, architecture design, and a longer advisory/blueprinting cycle, it is highly likely you will engage a Tier 1 systems integrator or consulting heritage vendor (including the Big 4 firms) for the entire scope of work. Expect such engagements to cost as much as two and a half times more than a technical upgrade of a similar effort
Contract terms and conditions: Service levels, service credits, and penalties can have a major impact on pricing without enterprise procurement realizing it. In our experience, most all the holdback or fees at risk the enterprise asks the vendor to commit to are baked into the deal as contingencies. So, if you are planning to have the most stringent service levels and fees at risk for your next deal, think twice about whether you need it
After advising on countless engagements, we’ve seen many other checkpoints that impact deal pricing. By starting with understanding the factors above, you’ll begin thinking about pricing from a more holistic viewpoint and be more educated at the negotiation table.
If you would like to talk more about pricing, please reach out to Achint Arora at [email protected].