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.
To overcome issues with lack of transparency, the following elements should be included in agreements after the initial proposal sales spin:
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.
Discover more about outsourcing deals and contracting in our webinar, Pricing Actions to Capture Outsourcing Savings and Drive Success in 2023.
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:
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
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
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.
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:
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:
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:
Benefits for service providers:
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.
Now let’s take a look at some of the prerequisites for a business metric outcome-oriented engagement. Enterprises should have the following:
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:
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.
Learn more about outsourcing trends in 2023 in our webinar, Key Issues for 2023: Rise Above Economic Uncertainty and Succeed.
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:
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.
Engineering Services Price Benchmarking