Tag: pricing

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

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.

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