Tag: best practices

How Sales and Marketing Teams Can Avoid Being Bitten by the Paradigm Shift in IT Spend Decisions | Gaining Altitude in the Cloud

Organizations are facing a paradigm shift in the way they envision, initiate and fund technology that drives business value. As discussed in my prior blog post, The Curveball Impact on IT Spend Decisions, a shift in influence has created two distinct buying markets within an organization. These two markets behave very differently and thus have different implications for IT vendors and service providers trying to sell into the organization.

The CIO market’s mandate is most often execution, cost reduction, quality, and compliance. The mandate for the business stakeholders market is business impact, time to market, and time to impact.

Further, CIOs typically think in terms of grand strategy — requirements definitions, detailed specifications, and structured PMOs. The new market of business stakeholders think in terms of trying before buying; they want to use a technology first to see how it works, then adjust it. This is a completely different methodology from a requirements methodology. It’s a different kind of buying.they

  • It’s not CAPEX; it’s OPEX.
  • It’s incremental steps, not the big-bang approach of a CIO.
  • It’s making decisions based on what’s best for a business unit instead of the CIO’s approach, which must solve tech needs for the entire organization while also driving out costs.

The two markets’ approaches and mindsets are completely opposite each other. Unfortunately, they’re both happening at the same time in organizations today, and it creates a lot of confusion

Besides the two divergent markets, sales teams must recognize that, although the mandate for today’s CIOs is increasingly tactical, no CIO worth his sale will give up the fight to influence the business constituency and drive innovation and value.

How can sales teams accommodate these two markets and sell tech to the decision makers in both camps?

Selling to the CIO market

When selling to CIOs, remember that they will want to understand the technology, require proof that it’s going to work, and want develop a rigorous implementation plan. They will also want to make sure the solution is compliant and in line with the emerging standards in the industry.

Because their mandate is to reduce costs, CIOs likely will issue an RFP and get competitive bids, so you need to expect that competitive tension.

Selling to the business stakeholders market

Selling to business stakeholders is more of a vision-leading exercise. It’s crucial to understand the stakeholder’s vision so you can share how your technology or services could either implement that visions or shape it into being a more impactful outcome.

You then need to move from vision to experimentation. Business stakeholders won’t wait for your company to build the tech solution they envision. You need to sell a technology that is already developed to the point that users can start experimenting with it, and you’ll be competing against new SaaS and cloud offers that pop up quickly and allow try-it-before-you-buy it models.

The budgeting impact 

CIOs are quite happy to go through a budgeting process, and your sales approach and timing needs to fit into the budgeting rhythm.

In contrast, the business stakeholder market often won’t focus on a large budget. They want to take initial baby steps to understand the technology. You won’t need to offer them a complete entrée; you just need to focus on the next couple of steps.

When the two markets converge

Once the business stakeholders believe in the value of the technology, they will need to bring the CIO into the discussions in order to help them roll it out broadly or expand the scope. At this point, you’ll be required to recognize and meet the CIO’s agenda. You won’t meet with the CIO face to face, but as part of the sales framework, you have to be prepared to answer her questions related to cost, scale, compliance, etc.

Bottom line

Selling into the two markets with opposite mindsets and behaviors, and eventually having to deal with both of them at the same time, is a much more complicated sale than in the past. It requires more patience and highly customized communications. But the prize for your successful strategy and efforts can be very large.

There’s a US$90 Billion Dollar Party Going on – Are You Invited? Advice on Winning Upcoming Outsourcing Contract Renewal Opportunities | Sherpas in Blue Shirts

While there are increasingly fewer first generation outsourcing opportunities, a large number of IT outsourcing (ITO) and business process outsourcing (BPO) deals are coming up for renewal over the next 18 months. With US$90 billion in total contract value at stake, the renewal market provides cause for excitement or concern, depending on where your organization stands.

If you are a service provider with hefty contracts coming up for renewal through end of 2014, and have yet to agree to terms with the clients, you should be worried. Very worried. Chances are that your competitors have already formed teams of “hunters” and are circling your prized relationships, waiting to pounce. The reality is the incumbency win rate is falling from the 90s to the mid 80s, and is likely to plummet further, as buyers see renewal time as an opportunity to implement positive change:

  1. In a challenging business environment, enterprises are looking to alter contract structures to bring in stronger accountability for outcomes from service providers
  2. Buyers are increasingly open to unbundling large, sole-sourced contracts, thereby undermining relationship profitability as incumbents lose the opportunity to cross-subsidize deal components
  3. Enterprises are also using renewal time to shape and execute portfolio level strategies, as they seek to use more aggressive offshoring, leverage specialized and smaller niche players, or consolidate portfolios across a few key service providers

Following are several key components Everest Group recommends you include in your defend (your own) and attack (your competitors) contract renewal game plans:

Defense

  • Pinpoint vulnerable accounts and establish executive level connects long before the contracts come up for rebid
  • Identify competitors that may be eyeing your relationships
  • Address key concerns from clients. This can be tricky because your clients may not necessarily open up to your account managers. Having an outside-in perspective helps
  • Anticipate hearing, “There’s nothing wrong with you guys, we just decided to change our direction.” Here, you need to consider how well aligned you are with your customers. Can you walk your talk, and their walk? In certain cases, you might need to evaluate whether you want to end up cannibalizing your own revenues as the client wants to move to new operating models.

Offense

  • Identify competitors’ accounts under threat, and the clients’ key concerns
  • Pin down clients’ pain points and their associated fit with your capabilities. But note that these first two activities are challenging without having a neutral party the buyers can open up to
  • Generate focus within the sales organization. Have dedicated sales teams going after specific accounts, armed with messages that are likely to resonate, and are aligned with the prospects’ thinking
  • Beware of inheriting the poisoned chalice! There are certain accounts you want to avoid (and that your competitors will be happy to let loose)

It is unlikely that you will need just a pure offense or defense game plan. You might have to fight tooth and nail to retain certain relationships, but if you go about it the right way, there are large opportunities for incremental shifts in market share.

Let the US$90 billion dollar party games begin!

For drill-down data and insights into outsourcing transaction trends by function, geography, industry, and service provider type, and implications for key stakeholders (both buyers and suppliers), please see Everest Group’s newly released report, “Impending Contract Renewals: A Futuristic View of the Renewals Market Place.”

Key Considerations before Shifting to Output-based Pricing in Application Outsourcing Contracts | Sherpas in Blue Shirts

Input-based pricing has traditionally been the preferred engagement model for buyers of application outsourcing (AO) services. Their penchant for input-based pricing is indicative of their ability to own more risk. However, when lightning struck in the form of the economic downturn, buyers began revisiting their engagement models to derive the best value from their IT contracts, and in 2009, we saw a surge in output-based pricing contracts for AO services. But the choppy shift was short-lived, and by 2011, buyers opted to play it safe and stick with tested input-based pricing contracts:

AO deal share by pricing model

AO deal share by pricing model

 

 

 

 

 

 

 

 

Although their motivation for moving to output-based pricing was driven by cost and quality aspirations, buyers quickly found the shift was far from easy, and fraught with challenges.

The difficulties with output-based pricing – then and now – include:

Complexity: The setup involved with an output-based pricing model is considerably more complex, as these contracts require transactions to be defined unambiguously and measured over multiple time periods.

Volume uncertainty: Buyers need to be able to predict future volumes to a reasonable level of accuracy, and overall transaction volumes must be sufficiently high for service providers to derive equitable scale benefits.

Process scope: Service providers must have a good understanding of the process in order to price transactions effectively. Additionally, output-based pricing is not suited for processes that are heavily reliant on people skills, e.g., development of cutting-edge technology apps.

Organizational change: The concept of internal charging in a buyer organization may require expectation settings and change management. Further, as benchmarking data may not always be readily available, a significant data collection effort is required during the contract negotiation phase.

Before transitioning to an output-based pricing model, buyers must ask themselves the following questions:

  • What is really important to me?

What is driving my aspiration to shift to output-based pricing? Is it innovation, or leverage, or cost savings? IT contracts should always be drafted in-line with a buyer’s primary motivation.

  • How do I define consumption units?

What resource unit should I use for billing? The choice of resource unit reflects organizational context and trade-offs. For example, when pricing a helpdesk offering, a US$/ticket and US$/user supported have distinct and varying impacts on productivity improvements.

  • How do I manage demand variation?

How can I help control over-staffing or under utilization of resources? Baseline pricing and banded pricing are often used mechanisms for services that are subject to demand variation. For a successful transition, buyers must – as cited above – be able to forecast future volumes with a sound degree of accuracy.

Buyers must also carefully consider when to transition to output-based pricing for AO services. In an application maintenance outsourcing contract, output-based pricing is viable if the environment is mature and stable, and good baseline data is available on staffing, costs, and service metrics such as notice tickets, bug fixes, enhancements, etc. In an application development outsourcing contract, output-based pricing is suitable when the requirements and specifications are clearly defined and agreed.

If your organization has made the pricing model jump, what experiences – good, bad, or ugly – with the transition to output-based pricing can you share with your peers?

Bringing a Knife to a Gun Fight | Sherpas in Blue Shirts

CEOs can say the darndest things. I’ve met with many of them over the years, and on more than one occasion their response to one of my fact-based statements has been, “Why didn’t you tell me about this earlier?” Of course! Why didn’t I think of that? The truth is, it’s far easier said than done.

A few years ago I had this same type of exchange with the CEO of a Fortune 100 company. After presenting my analysis of a specific situation with which his organization and the entire industry was grappling, I stated that I had been delivering the same message at various levels of his organization for months, to anyone who would listen – and in doing so tied it directly to the strategy and vision he presented at an analyst conference at the beginning of the year – all to no avail.

Then he said something that still amuses me: “Why didn’t you come directly to me with this? I’ve been in a knife fight and you’re selling guns.”

I respectfully explained to him that I had been trying to arrange a one-on-one meeting with him since shortly after his analyst conference presentation, and:

  • His screener/executive assistant/handler responded, stating that my request had been forwarded to “the person in the organization who deals with this issue.”
  • Since I had previously spoken with “the person in the organization who deals with this issue,” the next meeting I had with him was, let’s say, less fun than a funeral. In fact, it was a funeral for my relationship with this particular executive as I had “gone over his head.”

The CEO then acknowledged that this could be a problem, but he wasn’t sure how to fix it. I suggested that one solution would be to hire/appoint an ombudsman to vet ideas and to tell him directly of those that warranted top-level attention. I also recommended that the person be someone external to his organization to guard against political ambitions or personal agendas.

I spoke again several weeks ago with this CEO and asked whether he had tried the ombudsman suggestion. He said yes, that he had hired the individual personally, and that his executive assistant was the only person in the organization that knew of this person’s existence. He explained that the in-place guidelines are, if a salesperson/consultant had the wherewithal to attempt to go directly to the CEO, his assistant forwards the information to the ombudsman. That person evaluates the idea and, if it is of value, recommends that the CEO accept an in-person meeting. And then he swore me to secrecy.

Could this approach help your organization? Well, I guess that depends if you’re trying to fight a gun battle with a knife.

Are You Ready to Renew Your Vows With Your Provider? | Sherpas in Blue Shirts

The unfortunately all too frequent seven-year itch – “the spice is gone…should we stay together?” – doesn’t happen just in personal relationships, it also happens in outsourcing relationships. Past the mid-point of a 10-year outsourcing relationship (or whatever the length of the agreement) buyers and service providers often struggle to identify how to maintain the health and happiness of their contractual relationship. Buyers are interested in increasing the level of commitment from the provider, in the form of increased productivity or continuous improvement initiatives. However, the provider is often challenged with supplying service improvements and decreasing the cost of service delivery at narrowing profit margins. With the remaining years in the outsourcing relationship, what relationship modifications are required to ensure mutual benefits for both parties?

Organizations should review their changing landscape, organization, and business requirements to identify their long-term strategic objectives so they can decide on the model that is most appropriate for delivering their services and the supporting sourcing option(s) to help achieve their goals. For example, the fact that an organization is currently in an outsourced relationship does not require that it stay in one. If the organization has the internal capabilities, access to the necessary resources, and time to implement the strategic initiatives, engaging in a sourcing relationship may not be strategically (nor potentially financially) beneficial. However, an organization that is potentially looking for greater flexibility and scalability, access to new skills and resources that are not locally available, or to capitalize on new technological trends may consider partnering with one or more suppliers who have the ability to support the organization’s objectives due to lack of in-house capabilities.

An organization that chooses to engage in a relationship with a third-party service provider should ensure alignment for the long-term: strategic objectives (i.e., business and organizational objectives), cultural fit (i.e., mission and values), and solution requirements (i.e., feasibility and adaptability of the service delivery model to meet the organization’s needs.) An understanding of all three factors is imperative in determining the future strategy of the functional organization and shaping the future direction of the current outsourcing relationship.

What is the right change for your relationship?

There are several options you can consider:

1. Don’t rock the boat (i.e., Renew): 

  • After an honest look at your relationship, you realize that the ”same old, same old” is actually working for you
  • This is akin to renewing the sourcing relationship where you and your incumbent provider agree to continue with the existing contract with minimal changes  

2. Face lift (i.e., Renegotiate): 

  • Following discussions on trade-offs and compromises, you and your partner decide that some tweaking to your old routine is required in order for your relationship to continue
  • Similarly, you and your incumbent provider agree to modify one or a number of limited elements of the outsourcing contract, e.g., price and service levels

3. Overhaul (i.e., Restructure):

  • Small changes are not going to cut it. In order to make this relationship work going forward there must be some fundamental changes
  • In a strategic sourcing relationship, you may realize that while you’ve had a provider that has offered value over time and will continue to do so, it must be under a new set of circumstances. In this case, you and your provider can undergo a strategy exercise to restructure the services being you’re receiving to ensure that they align with your long-term objectives

4. Out with the old and in with the new (i.e., Re-compete):

  • You’ve talked it through with your partner and realize the relationship is not going anywhere. You need someone more supportive and responsive to your needs, and decide it’s time to see other people
  • The decision to re-compete your delivered services is driven not only by cost, but also by your organization’s long-term strategy. If you assess that your current provider is not capable of supporting your cost and strategic goals, it’s time to start seeing other service providers

5. It’s not you, it’s me (i.e., Repatriate):

  • You’ve assessed your relationship, and discovered that you are happiest being on your own.
  • Over time, as your organization evolves, you may find yourself in a position where your long-term goals are best met by bringing services back in-house. This can be the result of M&A activities, a fundamental shift in business strategies, etc.

All kidding aside, buyers must go through a complex exercise when approaching the end of their strategic sourcing relationship. The initial step is to understand their organization’s 10-year strategies and objectives, then begin assessing the current relationship for fit. We typically find there is no single correct answer and, instead, the resulting engagement strategy is a hybrid of the above options. As the marketplace embraces new technologies, the multi-vendor answer is becoming increasingly common. Unlike in personal relationships, it may be beneficial for an organization to have more than one sourcing partner to maintain competitive tension and to optimize the fit with the buyer’s strategies. Organizations can choose their flavor of service providers, a Tier 1, niche, or offshore provider, depending on their objectives and requirements. However, they need to balance the complexity of managing a multi-vendor environment against the benefits provided by each vendor. We strongly encourage full disclosure and consistent communication in a multi-partner model to ensure smooth day-to-day operations and successful service delivery from both/all providers. After all, a little competition never hurt anyone.

Building a Robust Global Services Management Organization | Sherpas in Blue Shirts

Today’s large, global companies face an ever-growing need for talented resources to manage their increasingly complex global services delivery organizations. The requirements extend far beyond traditional models that often found firms simply assigning the “folks who have performed the service for the past 20 years” into various leadership roles. While that was never a best practice, in today’s world, it can be catastrophic.

Global services delivery leaders of today must navigate a complicated mix of internal and external delivery engines while forecasting supply versus demand and keeping clients happy across diverse regions and cultures. To meet these demands, leading global services organizations are increasingly adopting highly integrated cross-business leadership teams sponsored at the most senior levels of the corporation.

The graphic below illustrates this concept in a hypothetical global organization.

Global services management organization

Organizations seeking to build a robust team to deliver their services globally into the next generation should consider the following best practices as observed by Everest Group in working with many of the world’s leading organizations:

  • Global governance structures should be aligned with corporate strategy and chaired by a senior leader at the appropriate level in the organization
  • The governance structure should include an Executive Steering Committee and have formal dedicated roles for key global functions
  • The structure should have responsibility for global strategy, planning, design authority, reporting, delivery, talent development, and innovation
  • The structure should have global process leaders who are responsible for the design, implementation, and compliance of standardized processes across the enterprise, with appropriate representation and input from all lines of business
  • Increasingly, business services are maturing from a legacy functional approach (Finance, Procurement, Tax, Human Resources, etc.) to an end-to-end approach (e.g., Purchase-to-Pay, Record-to-Report-to-File, Order-to-Cash, Hire-to-Retire, etc.).  Appropriate transition and transformation teams must be deployed to manage this migration
  • The structure should also ensure the effective management and integration of all delivery centers

Above all, Everest Group’s experience suggests that companies must treat global services management as a vital business unit with appropriate priority given to recruiting and retaining the talent necessary to execute with excellence and deliver the next generation of value from global services.

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