Tag: Pricing Content

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.

Avoid Over-paying for Services as the Talent Crisis Stabilises | Event

EVENT

Avoid Over-paying for Services as the Talent Crisis Stabilises

February 28, 2023

The past few years have witnessed a huge talent crunch, leading to high wage inflation, attrition, and upward pressure on pricing. As we enter 2023, attrition has started to cool off, and there are indicators pointing to a likely economic slowdown.

Join Everest Group at the eWorld Procurement & Supply Summit on February 28 as Julian Herbert, VP, Information Products, and Ricky Sundrani, Partner, Pricing Assurance, discuss how to avoid overpaying for outsourcing services in 2023.

Participants will learn:

  • How the economic environment is expected to impact outsourced deal pricing through 2023
  • What enterprises can do to ensure their contracts remain competitive in the current environment
  • How to pre-emptively plan for risks, and what to watch for

Register for the event

Where

eWorld Procurement & Supply
Grand Connaught Rooms, London
 

Speakers

Herbert Julian
Julian Herbert
Vice President, Information Products
Sundrani Ricky
Ricky Sundrani
Partner, Pricing Assurance

Key Issues for 2023: Rise Above Economic Uncertainty and Succeed | Webinar

LIVE WEBINAR

Key Issues for 2023: Rise Above Economic Uncertainty and Succeed

As we look toward 2023, economic uncertainty is prime and center. Rising inflation, interest rate hikes, and GDP contraction – matched with low unemployment rates and high talent demand – have left business leaders unsure of what to expect and how to prepare for 2023.

Join Everest Group’s Key Issues 2023 webinar as our experts provide insights into the outlook of the global IT-BP industry and discuss major concerns, expectations, and key trends expected to amplify in 2023.

All the data is based on input from global leaders across enterprises, Global Business Services (GBS), and service providers.

Our speakers will discuss expectations for 2023, including:

  • The outlook for global services
  • Top business challenges and priorities
  • Changes in sourcing spend and service delivery costs
  • In-demand digital services and next-generation capabilities
  • The evolving strategy for talent, locations, and the workplace

Who should attend?

  • CIOs, CDOs, CTOs, CFOs, CPOs
  • Service providers
  • GBS / Shared services center heads
  • Global services leaders
  • Locations heads

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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