Tag: pricing

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, VP, 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
Partner
Sundrani Ricky Refresh gray square
Ricky Sundrani
Partner

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.

Request a briefing with our experts to discuss the 2022 key issues presented in our 12 days of insights.

Request a briefing with our experts to discuss our 2022 key issues

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