Clearing the services fog

One of the more regular complaints of organisations using IT services is the lack of pricing and service transparency from 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.

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 and service improvements 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, nine-to-five telephone helpline service would suffice; or else the provider may be required to maintain an overly complex – and therefore expensive – legacy infrastructure that would actually benefit from standardisation.

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 trying to tear down this curtain – or information barrier – between themselves and their outsourcers. CIOs 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.

Why, for example, should one provider price their email service at E15 per user when another is charging only U5? There may, in fact, be valid reasons for this kind of spread: it may result from 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 versus 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.

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. For example, catalogues may drill down into the various elements of desktop support which includes both personal productivity software (e.g. MS Office) and applications enterprise (CRM, ERP, billing, inventory, etc) along with hardware, connectivity, peripherals and so on.

One of the first challenges in creating such a service catalogue is to have a clear idea of current market services and 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 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 those of their peers.

These trends towards pricing transparency, which makes it easier to compare market prices, are 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.

Ultimately, of course, competitive edge is determined by the quality of customer service as well as price. Perhaps ironically, the provision of a more transparent service catalogue, while exposing suppliers to market comparison, offers just the kind of value-added service that builds trust and wins customer loyalty.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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