Category: Pricing

How to Demystify Azure Discounting and Navigate Cloud Contract Negotiation | Blog

Cloud contract negotiation with Microsoft for Azure can be complex. By better understanding the cost reductions available at the contract and resource/functional levels, enterprises can maximize their return on investment. Read on to decipher the discounts and get the best cloud value from Azure.

You can also reach out to schedule a briefing with an Everest Group analyst for guidance on how you can uncover Microsoft Azure discounts and drive significant cost savings. Reach out

Microsoft’s public cloud offering, Azure, grew more than 20% year-over-year in 2022, driven by its long-standing partnerships and deep technical integration across different product portfolios with major enterprises. Over the years, Microsoft has successfully onboarded many existing O365, M365, etc., customers to Azure while attracting a new set of customers. To get the most value from this popular platform, procurement organizations must be aware of the nuances of cloud contract negotiation with Microsoft for Azure.

Cost is an important factor in an enterprise’s decision to move to Azure or any other public cloud. Locking in the right discounts is crucial to lower cloud operational costs and maximize the value generated from cloud. Enterprises should be well-versed in the types of discounts offered to prevent value leakage in their contracts.

Like the other major hyperscalers, Azure uses a dual-layer discounting approach as follows:

  1. Contract level discounts – Azure Commitment Discounts (ACDs)
  2. Resource/functional level discounts

Let’s explore each of these categories further:

    • Azure Commitment Discount – This discount is built into Azure’s contract and is typically contingent on the following criteria:
      • Customer’s total spend commitment
      • Length of the engagement
      • Prior relationship with Microsoft
      • Strategic value (logos and markets) to Microsoft
      • Contracting route – Direct (Enterprise Agreement) or Indirect (via Cloud Service Provider)
    • Resource or functional level discounts – Also known as programmatic discounts, enterprises can take advantage of these reductions by committing to spend a certain amount of time or money on cloud resources.

Microsoft estimates the following discounts are possible using these approaches:

      • Reserved instances – By committing to one- or three-year consumption terms for Windows and Linux virtual machines (VMs), customers can expect cost reductions of up to 72% versus pay-as-you-go rates

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      • Azure savings plan – With a committed spend of a fixed hourly amount on compute services for one or three years, customers can save between 11-65% on pay-as-you-go rates

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      • Spot instances – Customers purchasing temporary VMs for low-priority workloads from a pool of unused spare capacity can get significantly deep discounts of up to 90% compared to pay-as-you-go rates

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      • Azure hybrid benefits – This option can help customers save up to 85% in license costs by reusing on-premises licenses

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In addition to discounts, credits, incentives, and regular promotional programs run by Microsoft also can help enterprises lower their cloud expenditure. Enterprises also should investigate these options to optimize their Azure investment.

By optimizing IT architecture to realize resource and functional level discounts and effectively negotiating contract-level discounts, procurement teams can ensure they get the maximum value from an enterprise’s Azure investment.

To better understand these discount categories on Azure and discuss other cloud contract negotiation tactics, please reach out to [email protected].

Schedule your briefing with an Everest Group analyst for guidance on how you can uncover Microsoft Azure discounts and drive significant cost savings.

Protecting Against Remote Cyber Threats with a SASE Framework | Blog

Remote and hybrid work models combined with the shift to cloud services have exposed enterprises to complex digital threats and cyberattacks that traditional security measures can’t effectively thwart. But a next-generation framework called Secure Access Service Edge (SASE) can help transform enterprises’ IT infrastructure by unifying network and security features. Learn more about the SASE solution in this blog. 

Contact us if you would like to discuss this topic further or if you have any questions.

Today’s cyber threats introduced by the rise in remote work have made securing data with traditional network and security measures like firewalls and virtual private networks (VPNs) increasingly challenging. A new solution, Secure Access Service Edge (SASE), can help enterprises address the following key needs:

Zero trust: Enterprises’ post-pandemic move to hybrid and remote work models essentially means employees can “connect from anywhere.” Traditional security models based on perimeter-based defenses have proven ineffective against sophisticated attacks such as phishing, ransomware, and credential theft. Most enterprises realize the immediate need for zero-trust security services, given the possibility and evolution of different threat vectors.

Cloud visibility: With the increased adoption of cloud-based resources, applications, and services, traditional network security approaches are becoming less effective. All enterprises need to monitor and understand the usage, performance, and security of their cloud resources. Challenges like shadow IT, unauthorized data access, compliance violations, etc., must be addressed to maintain a secure cloud environment.

Real-time threat detection: Cyberattacks are becoming increasingly sophisticated in today’s threat landscape, and enterprises must have the capability to detect and respond to threats quickly to minimize the impact of attacks.

Single pane of glass monitoring: Traditional security solutions offer products and point solutions from multiple vendors, which can create a complex and disjointed security stack solution. This can result in overlapping and redundant security controls, increased costs, management overhead, and potential security gaps.

How the SASE Framework addresses these challenges

SASE is a cloud-based framework that integrates multiple security services and network functions into a single platform. SASE can help enterprises address the complex and evolving cybersecurity landscape by providing a flexible, scalable, and unified network security approach.

By combining multiple technologies into a single platform, it provides a holistic and efficient way to protect an enterprise’s digital assets while ensuring employees can work securely from any location.

This integrated approach enables organizations to simplify their security stack, improve their security posture, and reduce the time and cost of managing multiple security solutions.

Implementing a SASE solution

Here are some recommendations to consider when moving to SASE:

  • Choose the right vendor

Selecting a SASE vendor that aligns with the enterprise’s requirements will increase the probability of success. Factors such as technology innovation, industry experience, and customer satisfaction should be considered

  • Integrate with existing technologies

Devising a comprehensive plan for integrating the enterprise’s existing network infrastructure with the new SASE solution can help ensure seamless compatibility with network components such as routers, firewalls, etc.

  • Phase the implementation

Implementing the SASE solution in phases, starting with the most critical applications and services, can help identify and address any issues or challenges before rolling out the solution across the entire organization

  • Define the requirements

Defining the enterprise’s requirements and objectives, including security needs and network performance, can help the enterprise select the right solution

Key elements in the complexity of a SASE solution

Implementing and managing SASE solutions is complex because of the many different factors involved, including the end users, technology stack, cloud service providers, and data centers, as illustrated below:

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SASE managed services commercial models   

As a relatively new technology, SASE pricing depends on several factors like specific features and capabilities offered and the number of end users. Below are some pricing models offered by service providers that we see in the market:

  • Per-user pricing

Providers offer a per-user pricing model, where the organization pays a fixed monthly fee per user. This model is observed in variable user environments.

  •  Tiered pricing

A few SASE providers offer pricing based on tiers, where varying sub-services are available at different price points. For example, a basic plan may include essential features like a firewall, and an advanced plan may include features like a Cloud Access Security Broker (CASB), Zero Trust Network Access (ZTNA), etc.

  • Fixed fee pricing

The SASE provider charges the client a fixed fee for a particular set of pre-defined services and may charge more for additional features or services. This is typical in organizations that have more predictability in users.

With the rise of remote and hybrid work models, we expect many enterprises to adopt the SASE framework as a solution to their networking and security needs as part of their short- and long-term strategies.

For insights on the SASE framework, pricing, and benchmarks, please reach out to [email protected] and [email protected].

Evergreen Services: The New Age Answer to Capex Crunch | Blog

In today’s fiscally and environmentally conscious times, a differentiated technology asset ownership model can help enterprises both reduce capital expenditures and improve sustainability. Read on to learn about the rise of evergreen services.

Now more than ever, enterprises are under increased pressure to rationalize expenses in the current unpredictable global business climate with the ongoing Ukrainian war, recession clouds, etc.

At the same time, enterprises around the world are quickly pivoting and incorporating sustainability as a key component of their innovation charters. Topics like reuse, recycle, and electronic waste (E-waste) management are looked at with increasingly serious and concerned lenses.

Over the last few years, device as a service (DaaS) and especially evergreen services (as a variation of DaaS) have emerged as an attractive option for enterprises to simultaneously tackle both Capex reduction and environmental sustainability commitments. Overall, DaaS is projected to grow at a compound annual growth rate of 10-15% this decade, and evergreen service is expected to contribute heavily to this growth.

What are evergreen services?

DaaS is the bundling and offering of management services and IT equipment – like personal computers, smartphones, and mobile devices – in a paid subscription model, as an alternative to purchasing these devices individually.

By extension, evergreen service is an end-user asset ownership model that helps customers convert their device acquisition-related Capex to an operating expense (Opex) while simultaneously rationalizing management overheads and providing users with increased flexibility and improved experience.

In contrast to DaaS, evergreen service puts a greater emphasis on sustainability and device performance management, and reusability. The primary focus is on meeting pre-set device performance standards, regardless of the age of the device. It also allows customers access to the latest technologies and customized services, such as device configuration, installation, data migration, on-site support, technology refresh, etc., without incurring large upfront costs.

Evergreen services: The key benefits

Evergreen services can help enterprises achieve their sustainability goals. The core philosophy of this construct is reducing e-waste by upgrading existing devices to meet performance parameters versus replacing devices outright. Existing devices are kept current and performant via updates/upgrades, spare replacement, etc. This is a stark departure from the traditional DaaS model, where devices are mandatorily replaced at the end of a pre-defined number of years.

Evergreen service also improves the user experience, creates a more stable environment, and reduces overall incidents. Due to an increased focus on proactive monitoring and managing end-user devices, a large portion of device issues are proactively identified, and preventive actions are taken to avoid service interruptions to end users. To enable this, a dedicated/shared monitoring team is deployed to perform eye-on-the-glass monitoring of the device estate using a digital experience management (DEM) tool.

The table below summarizes the key differences between evergreen and traditional DaaS models:

Parameter Evergreen Services DaaS
Proactive/preventive monitoring Higher Lower
Ticket volume Lower Higher
Onsite support requirement Lower Higher
User experience Higher Lower
End of Life refresh As needed Fixed Timeframe
E-waste generation Lower Higher

Evergreen services are slightly more expensive on paper compared to traditional DaaS services. But the long-term benefits of improved user experience, reduced incidents, and sustainability value make evergreen services an attractive proposition for today’s environmentally conscious businesses.

If your enterprise is interested in evergreen services, its pricing model, and price benchmarks across geographies, please email [email protected].

Learn more about current pricing and tech services our recent blog, Demystifying Common Low Code Pricing Models and How to Choose the Right Platform.

Demystifying Common Low Code Pricing Models and How to Choose the Right Platform | Blog

Selecting the right low code/no code pricing model is essential for enterprises to realize the many cost savings benefits these popular citizen-led development platforms offer to enterprises. Read on to learn about the various factors to consider to make the best choice for your organization. 

The case for no code/low code

The last few years have been rough for most enterprises, to put it mildly. The COVID-19 pandemic disrupted supply chains and forced many businesses to close their doors. The subsequent war in Ukraine and its ramifications, such as energy crises, supply chain disruptions, etc., left many business leaders struggling to make difficult decisions and pushed enterprises to quickly adapt to new ways of working.

With market uncertainty and macroeconomic impacts looming, enterprises are seeking innovative, cost-effective tech solutions to adapt to changing demands. Low code/no code platforms aim to bridge this gap of unrelenting business needs and the restricted bandwidth of IT teams through the rise of the citizen developer.

Plethora of low code pricing models – boon or bane?

The increasing popularity of low code/no code platforms can be partially attributed to the diverse pricing options that cater to various customer needs. The extensive options offer customers greater flexibility to select the most suitable pricing to meet their requirements, enabling them to leverage low code/no code platforms and remain within budget constraints.

While offering a wide range of choices provides flexibility to procurement teams, it also can make it confusing and difficult to choose the option that works best in each context. Let’s simplify the different scenarios.

How to choose the right low code pricing model for your organization

First, pricing options can be divided into these two categories:

Perpetual licensing – Customers pay a one-time fee to use an application indefinitely.

Subscription-based licensing – Customers pay a per user/application fee. This pay-as-you-go model has gained greater acceptance among enterprises, with over 80% of clients preferring it

Now, let’s compare the two most frequently used subscription-based licensing models below:

  • Application-based pricing, as the name suggests, is based on how many end applications the enterprise builds using the low code/no code platform. Typically, platform providers offer either per-application-based pricing or a bundled price for a predefined number of applications. Bundled plans are billed for the entire contracted bundle regardless of the actual number of applications the client deploys. For example, if a client opts for a 100-application bundle, the provider will charge for the entire bundle whether the client deploys one application or 99 applications.

When does application-based pricing make sense? Application-based pricing models usually are starting points for organizations to explore low code/no code platforms. It allows them to dabble with the trend without breaking the bank because it is easier to control the number of applications. For example, an organization might use application-based pricing when replacing an HR Management System with a group of three applications (for core HR, learning and development, and payroll) built on low code/no code platforms

  • User-based pricing is more focused on how frequently the application is used versus the number of applications built. Platform providers usually classify users into the following two categories:
    • Internal users – Individuals within the organization who use the platform to access or build and deploy applications. Usually, platform providers provide a lower band on minimum commitment for the number of internal users (For example, enterprises can’t contract for five internal users)
    • External users – These are named individuals or entities outside of the organization who interact with the applications developed using the low code platform

When does user-based pricing make sense? More mature enterprises that have had successful proof of concepts and are looking to scale this organizational capability will probably find user-based pricing more convenient. At this point, their objective typically will be to democratize low-code capabilities across the organization rather than to target specific use cases.

Keeping the number of internal and external users of low-code applications as one of the primary metrics for measuring success makes sense in scale-up mode. This model also allows enterprises to pay for actual usage rather than committing to a bundle of applications they may not deploy to production

Choose a pricing model that works for your organization

Low code/no code platforms are the superheroes that enterprises need in the current uncertain and rapidly changing business environment. However, to achieve the elusive return on investment (ROI) that all enterprises look for, selecting the correct platform from the plethora of available offerings is equally essential to choosing the right pricing model.

Selecting an appropriate pricing model hinges on multiple factors, including an organization’s goals, development level, and intended use cases. Failing to properly align these requirements to the available models and pricing options can lead to either overpaying (by double or triple) for the requirement or result in dissatisfaction due to feature or usage restrictions at the chosen price point.

If your organization needs help in determining the right low code pricing model and the market price benchmarks for your low code/no code platform, email [email protected] or contact [email protected] or [email protected].

Watch the Software and Cloud Pricing and Contract Negotiations: Keep Spend in Check webinar to hear Everest Group’s software pricing experts discuss recent pricing trends, key tactics enterprises use to keep their software spend in check, and the outlook for software and cloud pricing in 2023.

Four Steps to Improve Cybersecurity Pricing and Feel More Secure with your Spend | Blog

Investing in cybersecurity can be costly for organizations but is essential in today’s risky environment. With a myriad of confusing pricing models, determining your cybersecurity spend shouldn’t be another threat. Learn some simple steps to feel more secure in negotiating cybersecurity pricing. 

Contact us to further discuss this topic or for questions.

With demand for cybersecurity services skyrocketing in recent years, budgeting decisions have moved beyond IT discussions to C-level conversations by the boards of the largest enterprises.

This focus at the highest levels, along with the rapid evolution of cybersecurity technologies and services, has brought an unintended pain point – unwieldy cybersecurity pricing structures with a great deal of overpricing by providers.

The problem is exacerbated by a few practical issues, including:

  • Vendors using different pricing models for the same service: For instance, pricing for Managed Detections and Response (MDR) solutions varies with CrowdStrike and Red Canary having per endpoint pricing, Sophos offering per user pricing, and Rapid7 following an asset-based pricing model
  • Inconsistency in defining unit-based pricing metrics: Even for seemingly commonplace services such as security information and event management (SIEM), some vendors consider peak values of events per second (EPS) while others consider average values
  • Semi-asset heavy pricing nature: Pricing is frequently a bundled black box with provider-financed licenses for cybersecurity platforms

It is not surprising that most enterprises we spoke with in the last twelve months were unsure whether they had struck the right deal with providers for their cybersecurity spend. Let’s explore this further.

Steps to achieve clearer cybersecurity pricing

Despite the nebulous structures, transparency in cybersecurity pricing can and should be achieved by following these four simple steps:

  1. Break the black box fee into logical components such as transformation costs, license costs, run fees, and project management office (PMO) charges
  2. Break the run fee to the lowest unit level, such as per endpoint for antivirus or per IP address for vulnerability management
  3. Benchmark the run fee pricing at this unit level
  4. Benchmark pricing of transformation costs, license costs, and PMO charges to achieve maximum benefits

The potential savings that can be realized by going through this process can be substantial, as illustrated in this example of a large natural resources company that had a standalone cybersecurity services relationship with a Tier-1 IT service provider.

The relationship had comprehensive coverage across the security value chain (including endpoint security, host intrusion prevention, endpoint detection and response, identity and access management, cloud security, firewalls, email gateways, network intrusion prevention, security information, and event management).

The provider financed licenses for CrowdStrike and Netskope, while the client financed licenses for other platforms such as Symantec and Palo Alto Networks. The contract had a black box fee model for a defined range of volumes (number of endpoints, firewalls, gateways, EPS, etc.).

Working closely with the client through the four-step process described above, we benchmarked the current cybersecurity spend. As a result, the client locked in a 16% spend reduction at renewal, even though the general pricing trend in the industry was clearly inflationary.

For more cybersecurity pricing tactics to increase contract efficiency and competitiveness, please reach out to [email protected] and [email protected].

Hear from our pricing experts as they discuss recent pricing trends, key tactics enterprises use to keep their software spend in check, and the outlook for software and cloud pricing in 2023 in this webinar, Software and Cloud Pricing and Contract Negotiations: Keep Spend in Check.

Four Steps to Transformation: Overcoming Buyers’ Achilles Heel in IT and BPO Deals | Blog

By starting with four basic elements in agreements, buyers can realize the transformation objectives they desire but often struggle to achieve from their outsourcing relationships. Read on to learn recommendations from our findings evaluating sourcing proposals over the past two years.

It is no secret that when buyers evaluate proposals for IT and BPO work in a managed services model, they consider various criteria such as provider capabilities, cultural alignment, pricing, etc. But one of the most important selection criteria, without a doubt, is the transformation the organization can achieve through the provider’s solution.

Based on our experiences in reviewing existing engagements, transformation is the biggest gap between buyer expectations and provider performance. The outcomes often are not transparent or measured, and when they are, the results are subpar.

This observation is astounding. Transformational outsourcing can reduce the outsourcing spend or total contract value (TCV) and improve the user experience, quality, and timeliness. While buyers know they need to focus on this critical aspect, they visibly struggle to realize the desired transformation objectives through their outsourcing relationships.

Here are a few examples that highlight the extent IT and BPO providers can fall short of expectations:

Example 1: A Tier 1 IT service provider was near the end of an application management service contract with a mid-sized US-based manufacturer. During the entire term, it charged the client for specialized automation resources as well as proprietary automation platforms. While the provider believed it had done a great job by piloting various use cases, no meaningful reduction in the number of full-time equivalents (FTEs) could be attributed to its efforts, leaving the customer dissatisfied.

Example 2: A leading BPO service provider was in the middle of its managed BPO services contract with a large UK-based client. Even though multiple transformation projects had been initiated and completed, neither the provider nor the client had measured the results because it was a fixed-price contract, making the business benefits unclear.

Four elements to ensure transformation

To overcome issues with lack of transparency, the following elements should be included in agreements after the initial proposal sales spin:

  1. Have the provider commit to a practical level of benefits from transformation
  2. Agree to a mechanism to measure the benefits and hold the service provider accountable for delivering on them (for example, link non-performance to reduced fees for the provider)
  3. Ensure regular transformation governance to identify new initiatives, track execution of existing ones, and measure the intended benefits compared to the plan
  4. Incentivize providers to deliver beyond the committed benefits through mechanisms like gainsharing

Once these basic aspects are part of the agreement, further steps can be taken to ensure the benefits realized are best in class and transformation is achieved.

To discuss how to realize or elevate transformation benefits in IT and BPO deals, please reach out to [email protected] or [email protected].

Discover more about outsourcing deals and contracting in our webinar, Pricing Actions to Capture Outsourcing Savings and Drive Success in 2023.

Everest Group’s 3-R Framework: Optimizing the SaaS Spend | Blog

With a looming recession and high inflation combined with the tech talent crisis, SaaS spend optimization has become a key priority as companies seek to spend less but maintain functions and user experience. By following the 3Rs (remove waste, reduce duplication, and right-size requirements), enterprises can capture greater value. Read on to discover how using this framework can optimize SaaS spend.

SaaS (Software as a service) is perhaps one of the most widely used and discussed topics in large tech forums as well as large and small enterprises. This is logical, given the ease of use, versatility, and cost-effectiveness of SaaS offerings.

The days when software licenses were installed from a CD are long gone. Today, anyone with a personal computer and internet connection can buy SaaS licenses/subscriptions at the click of a button with a credit card and use it almost instantly.

The SaaS industry has rapidly expanded to include a plethora of plug-and-play applications for small, medium, and large enterprises. SaaS spend for enterprises continues to increase by 15-20% each year. On average, enterprises with more than $1 billion in revenue use more than 100 different SaaS applications.

However, this significant and rapid proliferation of SaaS has also eaten up huge chunks of IT budgets. While IT teams strive to enhance user experience and shorten time to market by leveraging the endless possibilities of SaaS-based applications, procurement and finance teams are focusing on maximizing their ROI.

Chief Information Officers (CIOs) in many enterprises are leading SaaS spend optimization initiatives. With the current macroeconomic factors of a looming recession, and high inflation coupled with high-tech talent attrition, enterprises’ need to scrutinize SaaS spend more closely has intensified.

Enterprises must understand the philosophy behind SaaS spend optimization before starting any cost savings initiatives. The goal is to find ways to efficiently reduce spend on SaaS products/applications without impacting functionality, usability, and user/customer experience. Let’s explore how to accomplish this further.

Negotiating with SaaS providers to get lower rates seems like the most obvious way to achieve savings. While this is one approach, enterprises can pull other levers internally to reduce their overall SaaS spend.

Our 3-R framework can help enterprises get started on SaaS cost optimization initiatives by identifying potential areas of value leakage that can be tackled immediately to realize savings. Using this framework, a large manufacturing client recently identified potential savings of 13-18% in its SaaS spend with multiple software providers.

Below are the 3Rs to examine:

  • Remove waste: Research indicates that, on average, more than 30% of SaaS products that an enterprise purchases are unutilized. But most enterprises do not have a robust SaaS-usage monitoring and tracking practice to discover this. As a result, these unutilized products remain in the tech stack, and enterprises continue to pay for them.

Enterprises can start with a quarterly status check report on usage of all purchased SaaS licenses. If some of these licenses have not been used for more than 90 days, they likely are no longer required. After confirming this with the user department, these unused licenses/subscriptions can be terminated immediately

  • Reduce duplication: SaaS licenses/subscriptions come at a fraction of the perpetual license cost and can be purchased on the go. Most of the time, departments across enterprises purchase SaaS licenses for their incidental requirements with little or no involvement of the procurement function. Since such purchases happen in silos, the enterprise’s tech stack has many applications with significant overlapping features. For instance, two different departments in the same enterprise might buy and use different SaaS applications for project management or team collaboration.

Enterprises can identify applications that have similar functionality using the tracking mechanism that we discussed in the point above to help them find potential applications that could be discontinued.

Using the same application at an enterprise level creates homogeneity and ease of maintenance. It also will result in a single SaaS provider garnering a large part of the spending versus smaller and fragmented spend with multiple SaaS providers for the same requirement. Enterprises can leverage a larger volume of business with a single provider to get better discounts

  • Right-size requirements: Most SaaS providers have multiple editions of their products. For instance, ServiceNow has requester, approver, and fulfiller roles; Microsoft has basic, standard, and premium versions of M365. The nomenclature may vary from one SaaS provider to another, but the idea behind having multiple editions is to meet the requirements of different user groups. The basic edition typically has limited features and is the least expensive, while the highest edition has the largest number of features and is the most expensive.

Every user does not need the most feature-rich expensive edition. But enterprises often buy the same editions for all users, resulting in a lot of waste since many users might not require all of the purchased edition’s features.

Enterprises should leverage persona profiling to identify three or four user groups that will need different SaaS editions to optimize their bill of material for SaaS licenses/subscriptions and reduce total costs

As more and more SaaS-based applications get pushed into the market and used by departments across enterprises, SaaS spend will only grow. This creates an immediate need for increased transparency by the IT, procurement, and finance departments to closely examine how SaaS licenses are procured and used. By adopting our 3-R framework, enterprises can gain momentum in their SaaS spend optimization journey.

Are you focused on SaaS spend optimization and interested in exploring this framework? Reach out to Udit Maheshwari or Shikharjit Mitra to discuss the current SaaS market dynamics and how to get the maximum value from SaaS contracts/subscriptions.

Watch our webinar, Top Emerging Technology Trends: Six Things Sourcing Needs to Know in 2023, to align your sourcing teams with the latest technologies and technology optimization.

Differentiating BPO Deals Through a Business Outcome Model | Blog

As outsourcing engagements mature, enterprise relationships with providers have evolved from focusing on lowering labor costs to targeting business-metric outcomes. To learn about the benefits of a business outcome model for enterprises and service providers, the requirements to get started, and common pitfalls, read on.

Traditional capacity-based engagement models focused on service quality have evolved to managed services engagement models, giving service providers greater operational control and encouraging transformative outcomes.

While taking out full-time equivalent (FTE) costs to achieve productivity has historically been the most common approach to reducing overall outsourcing costs, this technique is fast becoming table stakes. Mature outsourcing enterprises expect more and often desire “the art of the possible!”

Let’s explore this new approach and some trends we see based on our advisory engagements. Below are two key shifts:

  1. Global service providers deploying a transformative approach (versus engaging in a rate war) propose productivity in a similar range. With that said, the real differentiator among such global players boils down to how well they fare in metrics such as transformation ROI and payback period. For example, in a recent deal, a global service provider waived about 25% of their transformation cost (digital intervention plus process excellence) to ensure the resulting transformation ROI and the payback period were unparalleled. Well, they were mistaken! In the best and final offer (BAFO), a competitor responded by nearly equalizing these transformation metrics through a counterpart waiver and topped it up through an Innovation Fund. Such instances are becoming far more frequent than service providers anticipate. We expect that bid differentiation through the transformational FTE takeout approach will soon diminish
  2. In tenured outsourcing engagements or second or third-generation outsourcing deals, digital transformation opportunities focusing only on in-scope FTE takeout are far lower. Enterprise outsourcing goals also mature with tenure. Hence, in such deals, cost reduction commitments may not yield the amount and type of innovation enterprises expect. From a service provider’s perspective, working collaboratively with the enterprise and committing to business-centric outcomes to meet their expectations is deemed effective in such cases

Call to action: leading through a business outcome model

The real differentiator lies in the service provider’s domain and industry expertise beyond digital play. Business metrics will be the driving theme in conversations in large outsourcing contracts (greater or equal to 300 FTEs).

Let’s look at an example of a business metric in BPO. The success of a marketing operations outsourcing engagement can be measured by the increase in website traffic (business outcome) resulting from search engine optimization and analytics.

Both enterprises and providers can benefit by taking this approach in the following ways:

Benefits for enterprises:

  • Enterprises can neutralize outsourcing services costs by generating greater business impact
  • Enterprises can hold service providers to outcomes beyond service quality and operational cost reduction
  • Sourcing and procurement teams can lead the charter on driving business innovation and transformation from the offset

Benefits for service providers:

  • Providers can become true business partners to the enterprise rather than being viewed solely as outsourcing partners
  • Providers have the opportunity to improve their profits through upside revenue via gain share mechanisms
  • Providers can stay ahead of competitors by demonstrating true differentiation and expertise

These deals require a high degree of trust in the service provider, and not all engagements are fit for business-metric outcome commitments. If the service provider is already overachieving expected service-level agreements (SLAs) and key performance indicators (KPIs), this is a good place to start.

Essentials to get started

Now let’s take a look at some of the prerequisites for a business metric outcome-oriented engagement. Enterprises should have the following:

  • Comfort in ceding control to the service provider
  • Available historical data and projections on the business metric
  • Relevant tools to monitor service provider performance on the committed business metric and resulting business impact
  • Willingness to invest in change management to account for control ceded to the service provider

Common pitfalls to avoid

Enterprises also may face common stumbling blocks when moving toward a business outcome model focused on metrics. Here are some things to be aware of:

  • A lack of accurate historical and future baseline data for the business metric could lead to improper and sometimes unrealistic targets
  • Debate and arguments over whether the realized business benefits should be fully credited to the service provider initiatives could result
  • Other business metrics could potentially be impacted by a tunnel-vision focus on the targeted contractual metric

We firmly believe that productivity benefits via FTE takeout will lose its charm in the coming years. Moving forward, service providers will differentiate themselves by how they ultimately partner with enterprises on their journey, and the business outcome model will continue to grow along with outsourcing relationship maturity.

Is your organization ready for contracts that target business outcomes instead of just cost takeout? Do your providers show the maturity to transition toward such a model? We would love to hear from you and support your organization in driving innovation through business-centric outcomes.

Also, to discuss your benchmarking needs related to transformation, overall deal solution and pricing, and commercial terms and conditions, please reach out to [email protected].

Learn more about outsourcing trends in 2023 in our webinar, Key Issues for 2023: Rise Above Economic Uncertainty and Succeed.

Nine Tactics that Can Improve Salesforce Contract Negotiation | Blog

Getting the best deal on Salesforce CRM software can be tricky. Most enterprises find contract benchmarking challenging because market data and custom discounting on modules are unclear. Learn nine key approaches and valuable market insights from our Salesforce contract negotiation playbook that can be used in purchasing or renewal discussions. 

When negotiating, understand that software and services are quite different businesses. Over our 25-plus years of services experience, we have observed large pricing variations for services due to client-specific factors such as lead time to renewal, industry, enterprise business size, etc. The software business also has the additional complexity of product stickiness compared to services.

Enterprises should be mindful that, like any software provider, Salesforce also wants to increase its overall revenue per customer each year and is always actively looking for opportunities to increase user volume, expand product adoption rates, and upsell higher versions by offering value adds and new modules at discounted rates.

To get optimal pricing, especially with a looming recession, enterprises should be aware of the various Salesforce contract negotiation tactics that they can leverage for new contracts as well as renewals.

Based on our experience assessing Salesforce contracts for customers of varying revenues and domains, we have found the following nine steps that can give enterprises an edge:

  1. Assess current and future demand: Enterprises should thoroughly assess their current Salesforce usage and environment. Having a granular understanding of the utilization of individual modules and add-on needs can prevent the enterprise from buying more expensive and premium editions. While customers have seen better Salesforce discounts for more expensive editions, enterprises should always purchase the most suitable versions for their end users (super or light users) to alleviate concerns about software usage
  2. Examine new products or potential alternatives: When performing demand management, enterprises also should look at cost-effective, viable alternatives from competing vendors. Even if similar options do not exist for each module, demonstrating awareness of alternatives can initiate effective discussions during Salesforce contract negotiations
  3. Perform an enterprise-level portfolio assessment: Different business units often get varied pricing (even if marginal) for individual modules since they have either different sales reps or the products were added to the Salesforce portfolio through acquisitions. We recommend enterprises build an extensive roadmap of future requirements that consolidates and forecasts volumes across business Larger deals with greater volume are more likely to get higher discounts versus multiple smaller deals with low volume. Also, signing longer contract terms can be an effective measure to get better discounts in Salesforce contract negotiations
  4. Evaluate the contract’s market competitiveness: We have observed that Salesforce product pricing varies significantly across enterprises based on deal size, industry, strategic relationship, client logo, contract tenure, etc. We highly recommend enterprises perform external contract benchmarking of their existing agreement before entering the negotiation process. This provides more transparency on the deal’s competitiveness and also makes Salesforce more open to discussions about the overall commercial structure, including unified price protection, upfront and volume-based discounting, etc. We see enterprises receive competitive pricing and higher discounts for additional modules or for products where Salesforce is expanding into new areas. For example, organizations that previously used Sales and Service Cloud may get better discounting for the marketing modules as Salesforce views this as an investment to get entrenched into the enterprise’s overall value chain
  5. Align negotiations with Salesforce’s fiscal end of quarter/year: Many enterprises already know that Salesforce’s fiscal year concludes later or earlier than the typical calendar/fiscal year of its clients. To ensure predictable revenues, Salesforce account executives may want to quickly close negotiations by offering a few additional single-digit percentage point discounts during this period
  6. Understand the account executive’s role in discounting: Salesforce has a multi-tiered discounting structure. This implies that each management level has the authority to approve specific incremental discounts. While the deal desk decides the discounts, enterprises must clearly communicate expectations (including asking for cash preservation for future years) with the account executive, who can further send the correct messages to the next approval level
  7. Take advantage of service credits: Much like other software providers, Salesforce or its resellers may offer customers certain resources as an investment to support them during the platform implementation. Service credit provides an effective way to have hand-holding during the actual implementation
  8. Secure upfront price protection: At the start of the relationship, an enterprise has the most leverage. With new contracts, enterprises should sign upfront price protection clauses to prevent price increases for at least two to three years. When renewing, longer-term contracts instead of yearly renewals can help protect prices
  9. Sign global contracts: Enterprises also should ask Salesforce for global contracts that not only consolidate the business units or geographies but also acquire products such as Tableau, Mulesoft, Slack, etc. Discounts are often lower for these products because each unit has its own sales representatives and enterprises spend less on these platforms. Enterprises should request one single point of contact for negotiating the entire portfolio

While each relationship with Salesforce is unique, we firmly believe these recommendations can put your enterprise in a better negotiating position. To discuss Salesforce contract negotiation and for a detailed analysis, please reach out to [email protected]. Explore more about Everest Group’s contract benchmarking offerings.

Don’t miss our session, Nordea’s Story: IT Vendor Management Transformation, to hear from Mihaela Tapu, Head of Supplier Performance Management at Nordea, and how Nordea transformed its IT vendor management function to overcome key obstacles related to compliance, service level management, financial planning, and control.

The Role of ESG in IT Services Pricing: Is There a Case for a Green Premium? | Blog

Service providers who lead in green engineering and can produce significantly more carbon-efficient software have an opportunity to price their sustainable IT services at higher premiums and pioneer this emerging space. Read on to explore more on IT services pricing in today’s ESG-focused marketplace.  

In the book How to Avoid a Climate Disaster: The Solutions We Have and the Breakthroughs We Need, Bill Gates popularizes the concept of a Green Premium. Simply put, a Green Premium is the incremental charge/cost that buyers must pay to use a clean technology over a “dirty” one.

Now, this isn’t a new notion by any means. Consumers pay more for products that are marked “organic” and happily shell out extra bucks for greener packaging or responsibly-sourced coffee. Green Premiums exist because organizations typically incur more costs to deliver cleaner products and services. But they also generate pricing power due to differentiation.

This concept has mostly restricted itself to mass usage products in a business-to-consumer setting. Can IT service providers replicate this in the enterprise technology marketplace? By introducing sustainability into the technology services, is there a case for a Green Premium?

We believe two distinct paths can lead to a Green Premium in IT services pricing – an external-facing route and an internal one. Let’s explore the external opportunity first.

Green software

While building software, the most important priorities are typically user-centric – user experience, performance, latency, security, etc. Developing carbon-efficient software has never been a core objective. And in the process, the impact of emerging technologies has largely gone unnoticed. Only recently has a host of research been published pointing out the tremendous negative impact the likes of blockchain and artificial intelligence could have on the planet. For example, according to a study performed at the University of Massachusetts, Amherst in 2019, training a single Artificial Intelligence model can cause as much carbon emission as five cars in their lifetimes. No one saw that coming!

But we do see emerging signs of this changing. There is an industry-wide push towards greener software development practices. This includes steps such as considering the carbon impact of architectural decisions, choosing more energy-efficient languages, using data practices that reduce redundancy, and building more hardware-efficient applications. Given that this is an emerging field, there is no single service provider who does it better. And this creates a unique opportunity for service providers to aim for leadership in this blue ocean and materially differentiate their services

Providers who can lead in green software engineering and produce significantly more carbon-efficient software will differentiate themselves from competitors around parameters that genuinely matter to enterprises today. Alongside typical cost savings quoted in most proposals, future slide decks might have a percentage reduction in carbon emissions as one of the key benefits to the enterprise.

Getting the internal act together

Now, let’s explore the internal route that could lead to Green Premiums. Alongside providing green software engineering practices, service providers need to focus on achieving environmental, social, and governance (ESG) goals. A provider who leads in green software engineering but scores low on ESG metrics might not be able to establish credibility with clients.

Sooner than later, enterprises will inevitably start to consider ESG as a key parameter in their sourcing strategy. Traditionally, ESG parameters were mere check-the-box or good-to-have selection criteria. But according to Everest Group research, they are now becoming deal-breakers – or makers – in many instances. We expect to start seeing enterprises look for energy efficiency, impact sourcing, community impact, board-level governance, and transparency/disclosure standards. Service providers who score high on these metrics will be able to materially differentiate themselves against the competition.

The way forward

The primary challenge in this entire process lies in being able to calculate the exact Green Premium of sustainable IT services. No consensus exists yet. Both internal-facing ESG initiatives and cutting-edge green software engineering practices require investments from service providers and are inherently more expensive. A first mover in this space will face this challenge but also have an opportunity to literally set the benchmark.

In an increasingly commoditized industry, ESG offers promise for technology service providers to set themselves apart by creating truly differentiated services. As any ardent observer of the industry will acknowledge, such occasions are few and far between.

Are you a service provider aiming for leadership in this space? As an enterprise, are your providers exploring this opportunity to the fullest? Let me know by reaching out to [email protected] to discuss the emerging topic of ESG and its impact on IT services pricing.

Also, don’t miss our webinar, Key Issues for 2023: Rise Above Economic Uncertainty and Succeed, as we explore major concerns, expectations, and key trends expected to amplify in 2023.

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