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The Changing World for Buyers A Customers View

The Changing World for Buyers A Customers View. Andrew Rogers nationalgrid Multisourcing Pricing What keeps me awake……. Background. Andrew Rogers nationalgrid FTSE 20 Company Electricity and Gas Transmission Utility UK and US presence Heavily regulated by Ofgem

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The Changing World for Buyers A Customers View

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  1. The Changing World for BuyersA Customers View Andrew Rogers nationalgrid Multisourcing Pricing What keeps me awake……

  2. Background • Andrew Rogers • nationalgrid • FTSE 20 Company • Electricity and Gas Transmission Utility • UK and US presence • Heavily regulated by Ofgem • Looking for IS Globalisation to support business • Many suppliers • 7 year deal with CSC for Infrastructure Operations and support • Applications development and support • Wipro • TCS • Zensar • Plus in-house • Specific projects with IBM, Accenture

  3. Multi-vendor sourcing and issues • Organisational • Geographical Boundaries and Governance • Retained in-house staffing and knowledge base • Development and retention of staff • Operational • Service delivery – SLA’s • Ownership • Escalation • Split loyalties • Onshore, Offshore – Nearshore • Market Trends – new players • New supplier business models

  4. Risk Based Pricing ? • “Risk Based Pricing” – what does it mean in relation to outsourcing arrangements ? • Nobody is sure ! • Which means one of two things: • The concepts are new(ish) to the industry, and have therefore not become “industry standardised” (likely) It is (almost by definition), an approach to pricing deals that is currently most widely used in single, or limited process transactions (such as procurement) • Good enough definition: • Where Supplier prices its services to the Client on the basis of payment against business results delivered, rather than delivery of “input functions” (such as server capacity and availability).

  5. Considerations • Vendors have typically priced on the basis of “standard” internal service line costings, plus margin. With the pricing decisions being made at “deal point of sale.” • Risk based pricing would typically contain an element of projected client account (or portfolio) profitability • Portfolio Potential Modelling • To make a portfolio approach to pricing work, vendors would need to analyse its potential customer set from a number of differing perspectives, such as market segment, channel, product, price …etc, and to ensure that it map this modeling back to its service line costing model • Billing, Reporting, Collecting • Unless the pricing approach can effectively be billed, service level achieved reported, and collected, the any pricing approach will ultimately fail, and end in vendor / customer aggravation or re-negotiation

  6. Why Are People Talking About RBP ? • Overall outsourcing “market” is growing • Deal sizes are decreasing • BPO is increasing • Single process BPO is a feature • Contract re-structures account for about 1/3 of the current transaction activity (TPI Index 2006) • Vendors are pushing “utility" models • What this means • Still an attractive market for entrants • More room for niche players, with interesting financial models • Offshoring tends to drive a more transactional modelling approach • Single process assumption can aid portfolio modelling, billing, reporting, collections • Clients are more knowledgeable “second time around” in terms of contracting and in supplier management

  7. Source Data

  8. Future ? • Probably more deals featuring innovative or risk based pricing approaches • Better reporting and metrics • Closer alignment between the business and “sourcing management” departments • Industry is still immature • Sales message is ahead of actuals • Customer processing of MI will be key • Will tend to lead clients down the road of multi vendor management

  9. Remember You need to get the basics right • Understand where the incentives lies • Drive the behaviour patterns • Manage rigorously • Do not be frightened to invoke penalties • Which one is appropriate • No magic formula • Obtain a realistic view of the price before assigning a type of contract

  10. What keeps us awake at night • Obtaining the right mix moving forward • Vendors and suppliers still selling hard • Continually improving service delivery • Innovation on new products and services • Growing nationalgrid business • IS delivering business benefits for growth • Reducing costs for delivering IS services • Contract renewal / restructuring • BPO – Shared Services • Consolidating shared services within company • Investigating best sourcing solutions

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