Benchmarking Archives - Page 3 Of 6

Everest Group’s 5S Framework: Choosing the Right Software Licensing Strategy | Blog

February 9, 2022

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.

To learn more about how this approach can help your organization select the right Microsoft Office 365 licensing plan, stay tuned for our next blog in this series, Comparing Microsoft Office 365 Enterprise Plans: Getting Your Licensing Strategy Right.

For more details, please reach out to [email protected].

Why the Focus Is Returning to Cost of Living Adjustments and Benchmarking Clauses in Outsourcing Contracts | Blog

August 11, 2021

Once standard provisions in outsourcing contracts – Cost of Living Adjustments (COLA) and benchmarking comparisons – are needed now more than ever to ensure long-term success for both parties in today’s changed outsourcing environment. With the turns over the past half-year making it a seller’s and employee’s market, these clauses can ensure enterprises capture high-quality talent without being overcharged for service delivery. To learn more about why it’s time to refocus on these provisions, read on.

Over the past six to eight months, the global services industry has experienced a curious turn from starting the year as a “buyer’s market” due to uncertain demand and portfolio consolidation at large and medium enterprises. Similarly, the talent market was an “employer’s market.”

Fast forward to today, and the contrast could not be starker. Demand for global services has been booming. Enterprises are looking to diversify their provider portfolios. All it takes is one look at the quarterly reports of providers to see it is a “seller’s market,” while on the talent side, it is an “employee’s market.”

What is even more striking is that the talent shortage that is most visible for high-end digital skills also very much exists for other skills. It is not surprising that service providers are struggling to hold on to their existing talent even though they are rolling out salary hikes, special skills allowances, employee retention funds, etc. Further, the booming demand is forcing companies to hire at even higher compensations to fill the positions of departing employees and new openings.

Against this backdrop, it is important to also consider these few additional macroeconomic factors:

Onshore (U.S.)

Consumer Price Index (CPI) inflation has surpassed the 5% mark for the first time in 30 years
U.S. Bureau of Labor Statistics show that job openings are at an all-time high at an overall economic level

Offshore (India)

For the past two decades, India has consistently been a high inflation country, with CPI inflation generally ranging between 6% and 8%. Despite the high inflation, it retained a strong cost reduction proposition because of a broad trend of currency depreciation. However, over the past year, the Indian Rupee has appreciated against the U.S. Dollar. As a result, the strong tailwinds currency appreciation provided has been replaced by moderate headwinds

As a result, pricing both onshore and offshore is now trending upwards. We have witnessed service providers approaching enterprises with proposals of out-of-cycle price hikes that, in some cases, exceed 20%.

The client’s conundrum

Enterprises are facing a dilemma of whether to break the budget and pay the desired prices to service providers or risk facing shortages in quality talent and potential business disruptions.

While there are no easy answers, a few factors to keep in mind are:

It is widely accepted that the talent shortage is here to stay for three to five years. However, the intensity of the shortage could stabilize. For instance, in the U.S., some states are prematurely ending unemployment benefits, and COVID vaccination prevalence is increasing by the day. As a result, additional workforce might enter the job market, potentially reducing some of the demand-supply mismatch for low complexity roles
In India, if the Rupee returns to its depreciating trajectory, the need for higher prices could abate

Therefore, a more pragmatic, immediate approach for clients is to align on short-term pricing increases instead of agreeing to structural changes in prices that would apply for the remaining deal term. Instances where clients are already paying above fair market rates might not require any further price increases.

Contract solutions

While short-term pricing increases can be a tactical way to accommodate the pressure of price hikes, to remain aligned with the fair market prices in the medium- to long-term, it is critical for enterprises to push for the inclusion and enforcement of two key clauses: Benchmarking and COLA.

Having a balanced benchmarking clause that contractually allows for an ongoing/annual reset of prices to market standards is in the interest of both sides. It can guarantee providers do not overcharge for their services. At the same time, it can ensure that the contracted prices are not too aggressive and out-of-line with market realities, to the extent that they impact the quality of talent or services delivered by the provider.

For situations where benchmarking is not done regularly, the fallback is having a robust COLA clause that allows service providers to adjust charges on an annual basis to reflect a fair increase in delivery costs. Historically, COLA used to be present in all deals. However, in some outsourcing deals that we reviewed or benchmarked over the last couple of years, COLA had been taken out of the contract under pressure from enterprises.

While that could have been justified in a low inflation environment and a buyer’s market, in the current situation having a robust COLA clause will ensure the long-term sustainability of the contract for the enterprise as well as the service provider.

To explore how our pricing analytics services could benefit your enterprise and share your pricing experiences, contact Rahul Gehani, Partner, at [email protected].

Organizations Are Shifting How They Benchmark Costs | Market Insights™

January 22, 2021

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Why Benchmarking Is Of Limited Use | Blog

August 17, 2020

When companies use benchmarking, their goal is to identify how their performance compares to other companies and hopefully identify how they can improve costs and performance. Nearly every sizeable company pays for benchmarks. And there is a large benchmarking industry (and my company, Everest Group, participates in this industry). But I believe there is a problem with the way companies use benchmarking, so they end up not getting the information they seek.

The Importance of First Call Resolution in Call Center Effectiveness | Market Insights™

July 10, 2020

Learn more about our pricing services

Price Variation by Average Handle Time for Service Desk | Market Insights™

January 3, 2020

Learn more about our Price Benchmark Catalog

Pricing Comparison: Tier-1 and Tier-2 French Cities | Market Insights™

January 3, 2020

Learn more about our Price Benchmark Catalog

Output-based Pricing Gaining Ground in Application Services Outsourcing | Blog

December 16, 2019

Over the past several years, output-based pricing has increased in popularity in infrastructure services and transactional business process outsourcing deals. More recently, enterprises have warmed up to the idea of using this pricing model for application services.

This should come as no surprise, given the benefits. Here’s an example that paints a clear picture of the advantages of output-based pricing in application services.

One of our clients – a large retail firm – was using the managed capacity pricing model. While in isolation the pricing appeared attractive, the firm wasn’t able to differentiate the fee it was paying for critical versus non-critical applications. The fee it was paying was a black box with no foreseeable value. After a thorough analysis of its portfolio, we realized that there were instances of over-utilization, redundant budgeting, and unnecessary allocation of resources for certain applications.

After we armed the company with market best practices data on business criticality, support coverage, ticket volumes, ticket type, usage, change frequency, and underlying technology, it renegotiated its contract with its provider. The new contract is saving the retailer 15 percent compared to earlier spend. And the adoption of the output-based pricing model spurred conversations around portfolio transformation, particularly in the cloud.

Overall, output-based pricing brings a lot of transparency into the pricing equation, and makes underlying delivery nuances clear. Enterprises’ procurement teams also find this pricing model attractive, as they can expect greater delivery certainty, better transparency, and more flexibility from the suppliers, leading to higher value relationships.

Output-based pricing is good for providers too

Service providers also benefit from this pricing model, as it allows them to charge a higher price per service unit delivered. Because the focus in this pricing construct is on services offered, not on the underlying number of resources, providers can cross-utilize resources across projects or charge a premium fee resulting in improved project margins.

Key success factors

Output-based pricing works best in scenarios where transaction volumes are known, repetitive, and predictable. Enterprises with clearly defined parameters such as industrialized estimation models to measure resource productivity can derive optimum results from this model.

However, the model may pose limitations in situations wherein the organization’s processes are not standardized. Engagements involving activities with a higher degree of subjectivity should not go for this pricing construct. And because procurement and delivery teams need a certain level of maturity in order to leverage the model effectively, it shouldn’t be used when the enterprise is new to outsourcing.

In order to succeed with output-based pricing, the client and the provider must collaborate, and both parties must remove as many constraints as possible to allow the provider to go about the best ways to achieve optimal results.

The onus is on the enterprise to provide access to historical data, information around regulatory requirements, business fluctuations, and identify clear risk areas. The service provider is responsible for being transparent on its assumptions, inclusions, exclusions, and risk premium.

Careful contract management right from the pre-contract phase is a prerequisite to make this pricing model work. Unambiguous definitions of performance measurements will help deliver the most favorable outcomes. Finally, there must be an open and trusting relationship between the two parties. Relationships that are based on up-ending each other will likely result in failure.

To learn more, please replay our recent webinar called Output-Based Pricing in Application Services: Adoption in the As-a-Service Economy, or contact our pricing experts directly at [email protected] or [email protected].

Middle East and Africa: An Emerging Frontier for Global Services | Blog

November 15, 2019

Numerous locations in the Middle East and Africa (MEA) are emerging as upcoming destinations for global services delivery. Several multinational companies have set up their centers in the MEA region to deliver services to Europe and North America, and tech giants including Apple, Facebook, Google, Microsoft, and Uber are leveraging it for global services delivery.

What’s the appeal?

Availability and quality of talent pool

There’s been a consistent increase in the pool of entry-level talent and experienced professionals with domain-specific skills. Egypt is the leader in the region; due to various government measures to improve education quality and a significant rise in contact center operations in multiple languages, including English, French, and Arabic, the country posted an enormous 35 percent increase in the headcount for global services exports in 2018.

There’s also been a considerable rise in R&D centers and Centers of Excellence (COEs), where talented professionals with relevant and often advanced technological skill sets work to develop state-of-the-art solutions.

Less competition for talent

Because there’s a relatively large population base, limited jobs, and high unemployment rates throughout much of the region – for example, South Africa is at 27 percent and Nigeria is at 23 percent – organizations can procure talent easily and train the workers as per their specific business needs.

Cost arbitrage

Some of the countries in the MEA region offer highly attractive cost arbitrage compared to source geographies. For example, Egypt, Nigeria, and Kenya come in at 70-80 percent less (although Nigeria and Kenya are primarily leveraged to serve domestic markets), and South Africa (for non-voice F&A) and Morocco (for voice-based services) offer cost savings of 40-60 percent over source geographies.

Proximity to Europe

Proximity with various European countries is a big selling point of many African locations. For example, because Morocco offers both cultural and geographical proximity to France and Spain, companies are increasingly leveraging it for French and Spanish voice-based business process services. Because the English language was introduced by British colonists, and because there’s shared cultural affinity, South Africa is becoming a popular destination for voice-based services delivery for U.K. companies. Additionally, because most African countries share similar time zones with Europe, delivery and client teams are able to collaborate in real time, thereby, optimizing work in both the geographies.

The leading locations in the MEA region

The map below highlights key locations leveraged by global enterprises and service providers for global services delivery. While the emerging locations house 20,000 to 100,000 FTEs across global services, nascent locations employ less than 20,000 FTEs in this space.

A snapshot view of the top five global services delivery locations in MEA

Egypt: Offers the most attractive cost-talent proposition, with strong multilingual skills, especially in English, French, and Arabic languages. However, relatively higher operating environment risk with concerns around high inflation rates and repressive government policies
Morocco: Primarily leveraged for French and Arabic language voice-based BPS and IT services. Morocco offers moderate-high competitive intensity and strong government support (especially for the IT-BPS sector through financial, tax, and customs advantages)
South Africa: Characterized with large, high-quality talent pools and the highest maturity across functions, South Africa houses multiple organizations delivering voice and non-voice BPS, including complex processes. It has a stable geopolitical environment, well-developed infrastructure, high ease of doing business, strong government incentives for the IT-BPS sector, and limited safety and security concerns
Mauritius: It is leveraged for IT (both ADM and infrastructure), non-voice business process services, and R&D services to serve French and Canadian markets. It offers a favorable business environment, with government incentives for the IT-BPS sector, such as tax-free dividends and foreign tax credits
Israel: Leveraged for delivery of advanced IT (including IoT, ML, and AI) and R&D services, primarily to support the U.S. and Europe. Israel offers a highly favorable business environment with lower tax rates and conducive government incentives, such as low corporate tax and grants up to 20 percent of the amount of the investment.

For a detailed view of each of these locations, please read our latest Location Spotlight reports. Each report analyzes the individual country’s global sourcing profile, key opportunities, drivers, challenges, talent and skills availability, financial attractiveness, and environment risks.

Are the Automation Savings Numbers You Hear Real? | Blog

July 24, 2019

While today’s enterprises turn to automation for a multitude of competitive advantages, cost savings is at the top of their list. Through their marketing initiatives, often backed by client case studies and references, third-party service providers often boast automation-driven FTE reductions that save their clients millions of dollars.

Indeed, we’ve seen claims of savings to the tune of 30-70 percent FTE reductions. But our own data, culled from BPO deals on which we advise, show FTE reductions that are one-third to two-thirds lower.

Why is there such a significant gap? It’s because the service providers are calculating the reduction at the project level, instead of at the process level. While the numbers show well using a project level calculation, they’re very misleading, and often lead to disappointment.

Let’s take a quick look at an invoice processing example to see the glaring differences.

As you see, an automation-driven invoice data extraction project in North America results in a 60 percent FTE reduction. Yet, when you expand the calculation to include invoice coding and exception handling in all operating regions – i.e., the enterprise-wide end-to-end invoicing process – the number drops to 10 percent. A 60 percent FTE reduction is highly enticing, and technically it’s correct. But it doesn’t show you the whole picture.

In order to properly assess the value of automation and develop your business case, you need to look at the percentage savings for the entire process. This is the only way you’ll obtain objective, realizable benefits data.

How can you find the automation savings data you need?

Your first thought might be to try and collect it from similar enterprises that have already implemented automation. But the numbers won’t be particularly reliable, as most enterprises are in the early days of their automation journey.

The most practical and valuable approach is to look at the BPO deal-based data for the entire process to be automated. Doing so gives you a realistic view of the automation-driven FTE savings for a couple of reasons. First, the FTE base for automation benefit calculation in deals is clearly defined in the baselining/RFP phase as the total number of FTEs in the process. And second, the FTE benefit numbers within deals are slightly more aggressive than the current norm, but because providers are continually refining their capabilities, they are comfortable with contractually committing to the higher numbers.

And remember that your BPO and/or RPA implementation provider should present this data to you to set realistic expectations. If they don’t, you’ll be armed with the ammunition you need.

Automation has the potential to greatly reduce your expenses. But before you leap, you need to carefully evaluate how the savings are being calculated. Your satisfaction depends on it.

If you’d like detailed insights on the FTE reduction numbers across different BPO processes within live BPO deals, please connect with us at [email protected] or visit https://www.everestgrp.com/research/domain-expertise/benchmarking/.

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Tag: benchmarking