The pricing structure of outsourcing transactions often reflects a balancing of competing objectives. In the case of applications outsourcing services, most customers want the pricing structure to provide predictability and proper financial incentives for the supplier to continually increase productivity and efficiency in service delivery. At the same time, both…
Getting to the right price. If not the primary objective, it’s certainly one of the more important goals of any customer who has ever outsourced a piece of their operation. While striving for the lowest price possible, in order for the transaction – and long term relationship – to be…
An effective pricing model is a foundational component for long-term success in an outsourcing relationship. Success or failure in a relationship can often be traced in part to the wisdom, or lack thereof, of the pricing model. A good pricing model will create predictability while serving to align interests, allocate…
There have been numerous articles written over the past couple of years linking productivity gains with the anemic jobs recovery. This spring USA Today ran a story that focused on the US being out of step with the rest of the industrialized nations by having a faster growing economy, but…
Horses for Sources recently published the output of a study which showed that buyers of outsourced services are saving money, but aren’t seeing a whole lot more. The report stated that over 95% of current buyers of outsourced services view their outsourcing engagements as effective at reducing their operating costs.…
Typically, Suppliers ask for cost of living adjustments (COLAs) in IT outsourcing agreements to adjust prices periodically for inflation. We believe that the general assumption that a COLA is appropriate to “balance risk” in a three to five year IT deal should be challenged. The Supplier community is highly sophisticated…
In our prior blog, Outsourcing Pricing and Implied Productivity we discussed the value of having a reverse engineered pricing model to evaluate supplier pricing. The idea is that by creating transparency into supplier pricing based on the factors of production (i.e., hardware, software, facilities, labor and margin) a rational pricing…
In Outsourcing Pricing and Implied Productivity, we discussed the advantages of understanding the underlying staff productivity assumptions in a supplier’s solution and pricing. What are the key IT infrastructure productivity measures that underpin a supplier’s price? We’ve found that in medium to large, full service infrastructure outsourcing deals, a few…
Typically, the unit prices for outsourced IT infrastructure services include a base charge (or fixed price) and unit rates applied to defined units of consumption. The units could be physical devices, virtual instances, events (e.g., opening a help ticket) or any other measurable unit designed to account for changes in…
This question comes up whenever a client considers outsourcing IT. What they are really asking is: “Am I paying the right price for the entire life of the deal?” At the beginning of a deal the outsourcing customer typically relies on competition to get the lowest price. On the other…