Pricing Models for Agile Development Projects | Market Insights™
September 22, 2020
Pricing Models for Agile Development
Pricing Models for Agile Development
Enterprise perspectives on the 2019 global services market: five things to know – automation, business models, talent challenges, budget centers, and sourcing models / provider mix
Is there a right time to benchmark? While benchmarking clauses may be built into a contract, it is best to align benchmarking with concrete objectives throughout the sourcing journey.
In the next five years, over half of all talent acquisition tasks can be automated using a variety of technologies including RPA, cognitive & AI, and analytics, among others, either on their own or in combination with one another
If you are a sourcing professional, you have our deepest respect, because now, more than ever, your job is a tough one. The sourcing industry is changing fast, disrupted by emerging technologies, shifting talent requirements and evolving service provider capabilities. Moreover, fluctuating geopolitical and legislative issues are causing enterprises to rethink substantial, long-held sourcing strategies and provider relationships. Sourcing professionals face formidable challenges in the global economy as the new year approaches and they look for better strategies in an industry experiencing unparalleled turbulence.
It used to be that a sourcing professional’s No. 1 responsibility was finding a way to get the work done as cheaply as possible. Not any more. Technology has changed the game. In nearly every industry, digital technologies are driving the development of innovative products and services and improved customer experiences. To keep pace in this digital world, enterprises are now pursuing a digital-first rather than arbitrage-first strategy. In fact, the global services market has seen a threefold increase in digital-focused deals.
Automation, once merely a service delivery tool, is now “front end,” with enterprises demanding strategy, vision and strong Proof-of-Concepts (POCs) for advanced automation in 33 percent of all application services contracts in 2016. Similarly, artificial intelligence, cognitive computing and robotics will soon begin to pervade the enterprise portfolio and will eventually become mainstream in sourcing landscape.
The increasing adoption of digital strategies is changing the workforce skills that enterprises seek, and, in turn, forcing sourcing professionals to revamp their location portfolios in the midst of a dynamic landscape. Location options for traditional global sourcing continue to expand, and new locations are emerging for unique talent demands, such as digital capabilities.
Sourcing professionals also must anticipate and react to numerous geopolitical disruptions that keep the sourcing landscape shifting like windblown sand. In the past year, for example, we have seen a significant decrease in demand from the United Kingdom given the uncertainty with Brexit; uncertainty about healthcare legislation in the US has dampened the healthcare sourcing market; and the uncertainty due to visa reforms has led to increased local hiring and onshoring in the U.S.
Sourcing professionals also are challenged to stay abreast of changes in the provider landscape. Mergers and acquisitions are on the rise, and leading providers are making fundamental changes to their talent and service delivery models. Between April of 2016 and March of this year, Everest Group witnessed 40 acquisitions to expand digital capabilities, 140 alliances between providers and technology providers or startups, and the setup of 35 new centers and digital pods to help clients rethink their digital strategies.
In the midst of this complexity, buyers of global services are tasked with making critical decisions. Recompeting an outsourcing contract, selecting a location for a global in-house center, or contracting for new tech services—these are the types of decisions that can significantly impact an organization’s performance and an executive’s career.
That’s why Everest Group has announced that it is doubling down on its commitment to provide fact-based comparative assessments. We’re consolidating our comparative analysis offerings – previously offered under a variety of product names – under our flagship PEAK Matrix brand, which will now evaluate services, solutions, products and locations. Additionally, we’ll be expanding the market segments addressed to include new functions, processes and industry verticals. Read more about it here.
In the midst of all the complexity and change that sourcing professionals face, one thing remains the same: Everest Group is your source for the fact-based analyses you need to make informed decisions that deliver high-impact results.
Capital markets BPO (Business Process Outsourcing) is one of the fastest growing industry-specific verticals within the BFSI segment, with a market size of over $2 billion in 2016. Investment banking is the largest line of business within the capital markets BPO. Asset management, custody and fund administration, and brokerage are the other key lines of business in this space.
Enterprises typically look to partner with third-party pureplay service providers such as Cognizant, EXL, Genpact, Infosys, and TCS to remain competitive in the marketplace, and simultaneously manage their regulatory, risk, and cost concerns. But the BPO majors are facing stiff competition from specialist capital markets BPO providers such as Avaloq, eClerx, and Xchanging, which are more focused and have deeper domain expertise.
Against this backdrop, what pricing considerations should enterprises take into account when selecting a specialist or a pureplay Business Process Outsourcing provider?
Net-net, specialist providers, which at least as of today handle more high-value services, come at a higher price than their pureplay BPO peers. And, at least as of today, buyers appear ready and willing to pay this premium.
Enterprises in this space typically tend to value and favor specialists when it comes to finding a partner for their capital markets BPO operations. And they tend to be particularly selective, as most service providers – both pureplay and specialist— do not play in all the segments, but instead focus on building deep capabilities around one or two of the four key business lines.
Are you working with a pureplay or specialist provider in the capital markets BPO space? To what extent did pricing play into your provider selection? Do you think specialists have an edge over pureplay BPO providers in terms of capabilities?
The engineering services industry is one of the most interesting segments in the global services landscape today.
Compared to IT and business process services, the global engineering services market is much smaller, at approximately US$ 90 billion. It is also growing much faster, at approximately 15 percent per year.
The bulk of the growth is going to be driven by a need to reimagine global sourcing of engineering services, in line with the progression of enterprise digitalization strategies.
Everest Group believes there are four distinct objectives behind digital engineering strategies:
Everest Group recommends enterprises follow a “3E” approach to shaping their engineering services global sourcing strategy:
Visit our engineering services page for more insights on engineering services global sourcing strategies.
“The Times They Are a-Changin” is an appropriate idiom to borrow from the great (and now Nobel Laureate) musician Bob Dylan to describe a conversation I had just a few days ago with a senior executive who leads sourcing for one of the largest pharmaceutical firms in the U.S.
Context: As you see in my most recent blog, I have been very cynical of the innovation strategies adopted by both service providers and enterprises. I have accused service providers of digital and cognitive “washing” that just pays lip service to innovation, and enterprises of resting in comfort zones where commodity and arbitrage still rule the roost.
I had no reason to tweak my view, until the discussion with this senior executive.
He was picking my brain on how to infuse innovation into his company’s existing application services engagements. He has been struggling to do so with some of the best-known names in the service provider world. When he asked, “Is there something I can do to make the service providers change?,” I responded:
The challenge is, there are more of the former than the latter, and the incentives for falling for arbitrage-driven models are still high for both procurement and service providers, irrespective of which of the above categories they belong to.
Hence, unless sourcing executives do the following, innovation will be difficult to come by.
At this point, the senior pharma executive had an epiphany, and stated, “Aha. I don’t want to put it this way, but if I have to make my vendors change, I must institute an “Innovation Tax.”
There, my friends, is the sign of things to come. Enterprise sourcing executives are increasingly feeling compelled to show business value. If service providers refuse to bring value to the table, they will have to be ready for an “Innovation Tax.”
By the way, these recommendations are not a bunch of my opinions. The above was validated through a survey of 100 senior enterprise executives Everest Group conducted in late 2016.
See our reports, “How to innovate – A Comprehensive Guide to Innovation in Application Services,” and “Cracking the IT Innovation Code” for more details on how to infuse innovation into your existing and future sourcing contracts.
The global pharma industry, hit hard by the rise of generics and the patent cliff on branded drugs, has been in cost-cutting mode, especially since the beginning of this decade.
With the rising costs of R&D and new drug development, pharma corporations began looking at streamlining manufacturing operations through Contract Manufacturing Organizations (CMO) and de-risking their R&D efforts via Contract Research Organizations (CRO).
CROs, which were initially sought out by pharma companies to cope with ad hoc/transient requirements such as additional capacity, have now emerged to cater to a whole host of services in the pharma outsourcing construct. These include clinical trial management, clinical data management, medical/clinical writing, bio- statistical programming, pharmacovigilance, and regulatory report writing.
Offshoring has also gained considerable traction in the last few years. Indeed, many global pharma giants have increasingly looked to low-cost locations such as India, as evidenced by the establishment of various home-grown CROs and Indian arms of global CROs, and some Tier 1 Indian BPO providers’ scaling up their capabilities in this space.
Given their nature and complexity, pharma industry processes typically command a substantial FTE cost premium over judgment-based sub processes in functional areas. For example, the following chart compares Clinical Trial Management FTE costs within those in Financial Planning and Analysis and Procurement Outsourcing.
What’s behind these premium prices?
First, pharma companies are gaining increased confidence from strengthening clinical and medical infrastructure and the stabilizing regulatory and business environment in India. This is resulting in outsourcing more core activities such as the entire spectrum of services pertaining to drug discovery and development. And second, Indian CROs and BPO providers are augmenting their capabilities to move beyond pharmacovigilance, bioequivalence, and bioavailability services, and challenging global CROs in areas such as end-to-end drug discovery and product development.
What’s your take on the premium pricing in the pharma BPO industry? Is it justified?
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