In the face of increased market and financial pressures
IT service providers are looking to ways to be more competitive
through pricing and improved levels of service. They are also being
pressured by their customers to provide more business-oriented
solutions and greater transparency when it comes to costs and
service level agreements, writes Paul Michaels, director of
consulting atMetri
UK.
In response, outsourcers are developing a new generation of
service catalogues with clearer pricing structures and more
flexible provisioning options, in the hopes of winning back the
competitive edge they need to survive current economic
challenges
Cutting through the fog
One of the persistent complaints of organisations using IT
services is the lack of pricing & service transparency of their
outsource providers. There are several contributing factors to this
including the complex way in which supplier contracts are presented
to the customer and the often arbitrary way that services are
bundled together which makes it difficult to compare the price of
individual service components with competitive offerings on a
'like-for-like' basis. As a result of this blur, clients assume -
accurately or not - that they are paying more than they should but
don't have access to the information they need to prove it.
Revisiting service packages
For their part, suppliers (whether external service providers or
corporate IT support for internal clients) may be aware that their
pricing structures are not competitive, but have either never
informed their clients of more cost-efficient options, or do not
themselves know where greater savings (or service improvements), or
'right-sizing' can be achieved. For example, a service level
agreement (SLA) may include a platinum level service with 24/7
on-site support where a bronze-level service, 9-to-5 telephone
helpline service would suffice. Or the provider may be required to
maintain an overly complex - and therefore expensive - legacy
infrastructure that would actually benefit from
standardisation.
Customers demand market data
Over the past year or so, fuelled by the frustration of not
feeling in control and further driven by recent credit-crunch
induced pressures to reduce costs, corporate IT departments have
been tearing down this curtain - or information barrier - between
themselves and their outsourcers. CIO's are becoming increasingly
self-educated and want to know exactly what they are getting, how
much they are paying and how it compares with other offerings.
The danger to service providers is that if their competition is
providing more open pricing detail to meet market requirements,
those who withhold, or simply don't possess, sufficiently
comprehensive information are on a collision course with customers
who are sourcing data from either specialist consultants or the
marketplace and may use it to challenge their providers.
Challenging supplier costs
Why, for example, should one service provider price their email
service at EUR15 per user when another is charging only EUR5? There
may, in fact, be valid reasons for the spread according to factors
such as different corporate cultures, IT platforms, varying
complexities of an enterprise configuration (a small,
single-location company with a hundred employees and low turnover
vs. a multinational organisation with thousands of staff and a high
turnover) plus a host of other differentials and quality of service
deliverables.
Given that suppliers and clients typically have a different view
about fair pricing, the truth is usually somewhere in the middle.
In these cases, either side may seek arbitration from an
independent benchmarking consultant who can provide comparative
market prices, explain the components that impact cost and suggest
efficiency options that will benefit both parties. A specialist
may, for example, suggest that it is more cost efficient for some
IT support to remain in-house, or that functions that are currently
internal should be outsourced.
Transparent service catalogues
To combat these challenges presented by today's savvy customers,
service providers are being forced to respond by building more
transparent service catalogues with more clearly defined pricing
structures and a far greater degree of service component
granularity that drills down into the various elements of, say,
Desktop Support, which includes both Productivity software (e.g. MS
Office) and enterprise (CRM, ERP, billing, inventory, etc.)
applications along with hardware, connectivity, peripherals
etc.
One of the first challenges in creating such a service catalogue
is to have a clear idea of current market services & prices.
Given that many service providers don't have access to this type of
information - which may require knowledge of pricing structures
across multiple global locations - their first port of call is
frequently to embark on a study with the help of a benchmark
specialist in order to determine if their prices, Service
deliveries and service levels match their peers. And where they do
not, to find out where prices or service bundling may need to be
re-visited.
Commoditisation of services
In parallel with new service catalogue developments, there is an
increasing trend towards the commoditisation of IT support services
like enterprise Email, Storage and the Helpdesk, to create more
standardised environments. This commodity approach is changing user
behaviour, making it easier to pick and choose and order just those
components needed at any given time.
Looking for margin
These trends to pricing transparency and commoditisation, which
makes it easier to compare market prices, is putting immense strain
on supplier margins. No longer can service providers simply apply
an across-the-board uplift of 30% on top of cost. Rather, they must
look to increasing margins by reducing costs.
This can be done by working smarter through initiatives like
relocating service centres or software development offshore,
creating a more stable and standardised IT platform, or by
optimising existing equipment with new technology & techniques
such as virtualisation.
Ultimately, of course, competitive edge is determined as much by
the quality of customer service as by price. Perhaps ironically,
the provision of a more transparent service catalogue, while it
exposes suppliers to market comparison, offers just the kind of
value-added service that builds trust and wins customer
loyalty.