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Economic slowdown will force CIOs to redress SaaS pricing

Business will need to work more efficiently and spend less, which means CIOs will need to forge new value-based partnerships with IT suppliers

Economists estimate that the UK will see unemployment rise to levels not seen since the early 1980s, as companies scale back to keep afloat in the wake of the coronavirus pandemic.

Many businesses will struggle to recover economically, which will inevitably lead to job cuts as companies try to reduce their operating costs.

Earlier in June, CBI director general Carolyn Fairbairn said: “The government’s support of business during the crisis has saved countless firms. But the rising number of redundancies and benefit claimants shows just how hugely damaging this pandemic has been for our economy.

“The survival of many businesses in hard-hit sectors still hangs in the balance over the summer as schemes begin to wind down. These firms cannot wait until the autumn for further action.”

In a recent report, the CBI urged the government to encourage businesses to adopt leading-edge technologies to reduce the UK’s productivity gap when compared to other countries.

In May this year, the World Economic Forum’s (WEF) Covid-19 risks outlook report noted that the need to respond to economic disruption caused by virus containment policies was driving and facilitating rapid advances in tech-driven production trends including automation and 3D printing, and related processes such as distributed working and the onshoring of production.

With lockdown measures easing, many businesses are expected to push ahead with digital transformation initiatives, in order to do more with less, improve efficiency and adapt to the “new normal”.

InvestCorp’s paper Digital process automation: driver of future economic growth suggests that the next wave of transformational technologies has arrived and is further accelerating robotics, analytics, artificial intelligence and machine learning. According to InvestCorp, this step-change in technical capabilities will boost productivity and enable companies to realise substantial performance gains through digital process automation.

However, just as in the banking crisis of 2008, businesses will look at where to cut costs, which will have a direct impact on CIOs’ ability to deliver digital transformation projects that can accelerate business recovery.

In a recent conversation with Computer Weekly, Martin Thompson, founder of the Itam Forum, said he expected an increase in demand for software asset management as businesses look to reduce software licensing and maintenance costs. This also applies to cloud subscriptions.

But Ted Schadler, principal analyst at Forrester, warned that too many providers have stubbornly held on to pricing and contract models based on future deployment, rather than actual value delivery. “CIOs that accepted these models are now locked into paying for non-existent employees, users, page views or transactions,” he wrote in Forrester’s paper The pandemic recession demands a digital response.

The analyst firm predicted that the software-as-a-service (SaaS) providers that will be most successful in the future will be those that best provide the agility and outcomes that customers need by aligning subscriptions with the value that customers get from their software.

Rather than pay for licences or clicks on a website, Schadler suggested in the report a new form of supplier relationship, based on pulling together an ecosystem of IT providers, to achieve a measurable business outcome.

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Cloud providers offer prepackaged components that businesses can deploy to move quickly, he said. By pulling together cloud-based components, businesses can build a unique architecture that can fulfil a unique value proposition, Schadler added.

According to Forrester, businesses can become more agile if they work with platforms that accelerate change. 

For instance, oil exploration business ConocoPhillips has used the Mendix low-code platform to create a centre of excellence focused on building applications that can be scaled across the company. Mendix offers a cloud-based platform as a service for low-code application development, to build containerised apps that run on Cloud Foundry.

According to ConocoPhillips, with support from the centre of excellence, individuals who are not in traditional developer roles will be able to develop applications that are designed to deliver efficiencies and solve business problems.

“This shift in our approach enables our IT team to deliver solutions that provide differentiated value to ConocoPhillips in select capabilities,” said Mike Pfister, chief information officer at ConocoPhillips. “Our focus is on innovating in the areas that give us a competitive edge.” 

IT has an important role to play in helping companies gain an edge to support business recovery. If Forrester’s model for working with IT suppliers represents the new normal in supplier relationship management, CIOs will need to develop an ecosystem of partners that can work cohesively to deliver a measurable business outcome.

Given the pay-per-use model used by the public infrastructure-as-a-service (IaaS) providers, Schadler said cloud infrastructure, platform and AI providers such as Alibaba, Amazon, Google, IBM and Microsoft are well aligned with outcomes – a critical component of innovation through ecosystems.

Forrester predicted that as value-based ecosystems develop, SaaS providers will need to adapt their subscription pricing model to build in value-based metrics.

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