Over 40% of senior business executives are looking to suppliers and external parties to co-develop and deliver measureable business outcomes. Telling suppliers to forget their old pricing metrics and focus instead in delivering value while also sharing risks and rewards requires a new set of skills on both sides of the negotiating table. This is a real challenge for both suppliers and buyers, and it takes both parties out of their comfort zones into new territory for risk management, project control and revenue sharing.
Forrester’s Forrsights data reveals business executives want to see more value delivered from IT projects and more outcome-based contracts. This is a priority for them in the next few years and sourcing professionals must develop and enhance their skills in this key area or risk getting left behind.
Whether it’s increasing revenues, driving more client subscriptions, cutting costs, facilitating more paperwork processing in less time or driving up customer satisfaction and retention, some IT companies are now offering outcome based contracts and are happy to be paid purely on the results.
Unfortunately for some of today’s technology giants, clients don’t want to pay anymore for software licenses, hardware products or time & materials staffing. They want the suppliers to have ‘skin in the game’ and want to pay based only on the value delivered and the outcome achieved.
To help their organizations navigate through the emerging world of business outcome based contracts, we have identified three key principals of change that both suppliers and buyers will need to address:
Over the last few years, there have been fantastic advances in technology that have brought us almost a billion smartphones and tablets. These handy mobile computers give us access to our Microsoft Windows and Office products anytime and from anywhere. No longer are we tied to the old clunky desktop device in the office. This is good stuff: It lifts the age-old location-dependent restrictions that meant nothing got done unless you were physically in the office.
There’s only one hitch: Microsoft continues to apply licensing models that count physical devices. Device counting is fine if I have multiple access devices each with their own Windows and Office software versions installed. But when I only have one version of Windows and Office but wish to access that version remotely or virtually via multiple access devices, why should I have to pay more for the privilege? In today’s increasingly cloud-delivered software world that simply counts users not devices, that’s the question more and more people are asking.
Some details: With Windows 8, users that have a "primary device" licensed under a volume agreement with Software Assurance (SA) for Windows can access Windows on- or off-premise on up to 4 devices by buying the new Companion Subscription License (CSL). Prior to the advent of the CSL, each extra device required a Virtual Desktop Access (VDA) subscription in order to provide virtual access to their Windows desktop.
Vanity Fair ran a terrific article in its recent August issue, entitled "Microsoft’s Lost Decade." The gist of the article is that since 2000, Microsoft, under the guidance of CEO Steve Ballmer, has fallen flat and failed in most new arenas it’s tried to enter: e-books, music, search, social networking, etc. It also highlights that in recent years, Microsoft has been much more of a follower than an innovator. So it should be no surprise then that at our recent Forrester Research sourcing and vendor management Forums, I found that the one vendor that inspired most discussion, disagreements, and polarized opinion amongst the attendees was Microsoft.
Why? The theme of our Forums was "innovation," and this question repeatedly arose: Is Microsoft ready to take back a position as a leading innovator? It certainly dominates the market, and its huge revenues always cause mutterings of discontent (or is it jealousy?) from others in the market, but when it comes down to innovation — and to paraphrase Monty Python — just what has Microsoft ever given us?
Let me give you a straw poll of comments overheard at our recent Forums:
· Various operating systems for the fledgling PC market had been around before IBM handed the golden goose to Microsoft to deliver an operating system for its entry into the PC market place.
· On the desktop, Lotus 123 was the first good spreadsheet and WordPerfect was the first good word processing program. Both were crushed when MS Office came along offering what many at the time thought were inferior products in Excel and Word, but which enjoyed the benefits of being bundled into one integrated suite.
Software audits are a bit like public transport; you can wait for ages for a bus and nothing turns up and then all of a sudden five come along at the same time. It shouldn’t surprise anyone that software vendors are running more licensing audits today than ever before. The challenging economic climate has driven down the volume of new license sales for many vendors, so they are looking to backfill that revenue gap by auditing their clients and by finding which ones are using more licenses than they actually purchased.
Looking at Forrester’s inquiries over the last few years, we can see a steady increase in calls asking for help with a Software Audit. The main vendors we see active in the software auditing space at the moment are IBM, Microsoft, Oracle, and SAP. That’s not surprising, as they’re the major software vendors overall. More clients means more audits. And audits certainly aren’t limited to these players; vendors of all sizes are auditing.
But software audits don’t need to be a horror show. If you are well prepared for an audit and have good Software Asset Management procedures in place then you should have nothing to fear. If you aren’t prepared, perhaps in blissful denial that such an event would happen to you, then let this be a warning; in the software audit space, no one can hear you scream.
Un-licensed software usage is easy to miss. There are many potential causes but the outcome is usually the same; you owe more money to the software vendor!
So be prepared. And preparation starts with this: once the audit request arrives make sure you:
Understand the vendor’s Audit process
Establish a single point of contact within your organization
Establish your audit team
Get ahead of the audit by thoroughly reviewing your license entitlements and your actual usage before the Vendor’s audit team arrives
I’ve been with Forrester for just over a month now. It’s great to be involved with our clients and communities and to be helping businesses across the world evaluate the quality of software suppliers' proposals from a commercial perspective (e.g., is this a great deal or can the supplier do better?). One of the best parts of being at Forrester now is seeing the continuation of the work I did prior to joining Forrester — advising businesses on software contract and pricing negotiations. One thing I noticed then, and continue to hear about now, is the reluctance of software suppliers like IBM, BMC, CA, and Compuware to publish meaningful list prices or to explain how their price book worked or how discounts had been determined. Time and again I had to ask suppliers to un-bundle prices and confirm the basis for the net prices they were proposing. Does anyone else agree with me that pricing should be clear and transparent and not a black art?
Here’s an example of an “art” that should be science: list pricing. While it’s logical to think list pricing is the same foundation upon which all bids are built, that’s actually not the case. Often, I found that my clients were being quoted “list pricing” that was different. Isn’t list pricing supposed to be the same by definition? Which is why you may with good reason doubt the validity of a list price or the competitiveness of a discount that you’re being offered by a software supplier. It’s why I love my work, and why you should make sure you get third-party validation of your deals.
How you do validate your software vendors’ list pricing and proposed discounts?