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 pricing metrics typically drive 90% or more of the total supplier charges. And, within these pricing metrics, we found several key productivity ratios that (depending on scope) tend to drive the supplier pricing models:
• Mainframe MIPs: MIPs per FTE • Mainframe Storage: TBs per FTE • Open Systems Images: Unix Images or Wintel Images per FTE • Open Systems Storage: TBs per FTE • Network Devices: Routers per FTE, Firewalls per FTE, etc.
• End User Devices: PCs per FTE • Service Desk: Users or Seats per FTE
If you’re in the market constantly, you should know where the market is and when a supplier challenges the market equilibrium. But there are two other good sources of information to validate the reasonableness of supplier productivity assumptions:
1. The IT outsourcing suppliers. Quite a few suppliers are willing to have a open conversation about what are reasonable productivity expectations under varying circumstances. When we use CostMarking in a client situation, we “walk our talk” on pricing transparency and are open to the Supplier challenging our assumptions on productivity and thus informing our views. Their input continues to help our understanding of where the market’s range is on productivity. We have found that suppliers who are confident in their operations will talk about productivity measures and ongoing efforts to improve them.
2. Published information. Hardware and software suppliers publish studies and viewpoints on the value of their hardware or tools for improving productivity. This information is great for validating what we see in the market or to challenge an outsourcing supplier’s view on what should be considered best-in-class productivity levels.
Something to keep in mind: exploring a supplier’s implicit productivity isn’t limited to pricing a new deal. IT outsourcing contracts typically allow for benchmarking but classic benchmarking studies can produce epic debates about the comparability of benchmark data. The alternative approach of focusing on supplier productivity as a primary component of supplier cost enables the two parties to challenge and address the true requirements, risks and costs of delivering the IT service.