When tough times hit, it’s a natural reflex to want to minimise costs as much as possible, as soon as possible. But is this really the best way to protect a business, or are there cleverer ways to get more out of the companies you work with?
When it comes to managed services and consultancy, there are often better ways to get more value for your IT spend than simply taking a hatchet to the invoices. In fact, if you’re willing to combine cost reduction with renewed commitment to a joint relationship, you may find there are advantages to be gained.
“A lot of the time we find that companies have huge untapped resources in the form of data that they’re not making the most of,” said Anne Fitzsimons, director of global technology services for IBM Ireland.
“Some of the things we do around analytics can help them turn their data into business intelligence, and that in turn can help them grow their business. It comes down to firstly understanding the customer’s business. If we just respond to a market request, then we’re missing a trick. We have to understand our client’s business and what their challenges are.”
According to Fitzsimons, consultants need to help clients grow their business. “In certain cases that may mean that they need to take costs out, and we’re well positioned to do that due to our economies of scale. But in other cases, it can be something as simple as taking the time to look at the client’s business and see where extra value can be found,” she said.
Of course, cost is a real issue that can’t simply be massaged away with added value offerings, but Fitzsimons and others like her are adamant that taking a broader view of the issue, and taking advantage of the expertise of the companies you work with, can pay dividends.
Business outcomes
“Over the past few years companies have rightly put a lot more focus on cost and trying to drive efficiencies in the way they do business. While price is clearly an important component of cost, we are finding the focus is now shifting much more to the delivery of business outcomes and overcoming the business challenges our clients are experiencing in the current challenging environment,” said Pat Power, a senior executive with Accenture.
“Companies are putting a value on specific business outcomes, and then working closely with providers and partners like Accenture to help them realise these outcomes, rather than simply focusing on the cost of providing a specific service to customers or citizens.”
Power argues that the current situation many Irish service providers find themselves in effectively allows those companies that are really switched onto the needs of their clients to gain a foothold in the market, even while others are going out of business.
“Companies are differentiating themselves by demonstrating how they help to achieve these business outcomes, and this is particularly relevant in managed services and outsourcing arrangements. These tend to be long term in their nature, and it goes without saying that the agreement must deliver sustainable business benefits for both parties if it is to stand the test of time,” he said.
“If the agreement disproportionately favours one party over the other then it is bound to unwind sooner or later, probably with negative commercial consequences for both. The key to a successful outsourced agreement is the clear understanding by both the client and provider of the value the other party is expecting of the agreement.”
Output focus
Power cautions companies against getting involved in managed service or outsourcing contracts which appear to be constructed around ‘inputs’ such as the number of people engaged, as opposed to ‘outputs’, such as the number of customer transactions supported, number of users or IT applications supported, or number of new system requirements successfully tested.
“When agreements don’t focus on the value delivered, the resulting relationships can often experience behaviours driven by conflicting goals. For example the client may need to reduce costs to stay competitive, while the provider may be motivated only to retain or grow staff numbers to protect revenue,” he said.
“It can be far more productive to challenge the provider to deliver the same or better business outcome at a lower cost. At the same time, the agreement should give the provider the latitude to be creative and pursue alternative delivery models that meet the client’s required outcomes while maintaining the provider’s margins.”
Declan Kavanagh, managing director of Sogeti Ireland, agrees, and further suggests that in addition to focusing on the benefit rather than the process, client companies should also be turning the tables on service providers, putting the onus on them to come up with ways to add value to their companies in order to keep all or part of their business.
Driving value
“Let’s be real, most organisations are going to have to cut their outgoing costs, but they should also focus on driving more value from what they do spend,” he said. “Straight cutting has consequences above and beyond reducing your overheads. It can damage your ability to respond to the market in the medium to long term as well.
“It’s too easy to just cut costs – that is a short term path, but there’s no point if it’s done without logic or real engagement in the consequences both for the supplier and the client. A lot of our new engagements are with companies asking us ‘how can you help us do this better, how can we deliver our software more efficiently, at lower costs but still improve quality and shorten the cycle times?'”
On the back of this kind of growth, Sogeti is reporting increased interest in the agile software development methodology, which focuses on collaborative development and incremental delivery.
“We’ve observed a much greater uptake in this in the marketplace – quite a few of our customers are doing this. It gets functionality to the end user very quickly and brings the benefit to the business very fast in order of its priorities. You’re not waiting for six, nine or 12 months for a big bang delivery of a benefit,” said Kavanagh. “Agile is something that’s been talked about for years, but the uptake was slow until the last 18 months or so.”
Behind such market developments is the perceived increased importance of the relationship between service providers or consultants and their clients.
“Seventy per cent of our revenues next year will come from our current clients and any growth will come from them, so relationships are unbelievably important in our business. We’re in this together, so if they have problems we have problems, and vice versa,” said Kavanagh.
“Rather than seeing your providers as a cost base, there’s actually never been a better time to call them up and ask them to get creative about the way they work with your company. Ask them if they can find ways to make themselves more valuable to you.”
Relationship importance
Catherine Casey, head of marketing for Fujitsu Ireland agrees that relationships are everything when it comes to managed services. “Nominally we’re in the business of managed services, but really we’re in the business of people. The people who work here are the same people who are out on customer’s sites or who are taking calls, so the relationships they have with our customers are key,” she said.
“Building that up over time is important, right from the beginning. It starts at the tender stage – the people you put in to pitch for the business are the same people the client should see when the managed service starts up. The cultures have to match and the client hires the service based on the people they interact with.”
Companies like Fujitsu, Accenture, Sogeti and IBM are operating in a very different marketplace to the one that existed even 18 months ago, and have had to adapt to make the best of the situations they find themselves in.
“Everyone is extremely price conscious – there is no bigger factor at work in the market – so finding ways of adding value is extremely important. We look at what technology new clients already have installed, what they’ve already spent on and look at what they need to buy to plug any gaps,” said Casey.
“We don’t just throw technology at them – it’s not always just about finding things for clients to spend money on that will give them some advantage. You have to look at how to squeeze the best out of what they have already. Often the capital just isn’t there so it has to be about finding clever ways of helping them save.”
Financial officer
Similarly, IBM has noticed some key changes in how new business is pitched for and won. For a start, the person signing off on new deals is not the same person as before.
“As you might expect, chief financial officers (CFOs) are taking a bigger role in the decision making process,” said Fitzsimons of IBM Ireland. “The key thing for us has been to make sure we’re talking to the right individual. If we’re talking to the IT manager about business transformation then it’s very difficult to have a meaningful conversation – it’s hard to get across the nature of the value that can be achieved.”
“But if you’re talking to the CFO then it’s a much easier conversation. Their perspective is different and they see that it’s not just about tinkering with the plumbing, it’s about re-engineering processes, infrastructure, software and retraining people.”
Fitzsimons said that her company sometimes has to battle the presumption that because it’s so large, it must only be interested in premium contracts with large financial institutions.
“We’ve really changed our focus, and there’s now much more focus on small and medium-sized businesses and the mid-market. From our perspective, we’ve put a lot of investment into our managed services business, and a key driver in that business is keeping costs down. The emphasis within that on return on investment and cost management has played to our strengths, in that we have the message that CFOs are interested in listening to,” she said.
Securing deals
All this change is, of course, good news for the consumer, the company that pays the bills. As the economy has constricted and things have gotten tougher, the lengths companies will go to secure deals have increased.
“Managed services providers have become much more flexible. They pretty much work with whatever you need or want,” said Motjaba Akbari, head of IT for the K Club in Kildare. “They definitely struggle and compete strongly with each other for business.”
The K Club recently installed a EUR*100,000 VMware-based virtualised private cloud and high-speed network, a move which should see the hotel and leisure complex achieve major cost and power savings, and become carbon-neutral by 2020.
“There was a point when there wasn’t anything left to cut, so we ended up looking at our services to see what exactly we were spending, and asking ourselves how could we minimise that spend. Working with Datapac, we came up with a way of looking at our data centre energy costs,” said Akbari.
“We looked at our emission records and noted that we were responsible for about 2,000 tonnes of CO2 every year. When we looked at how much our servers were costing, it worked out at around EUR*155,000 in power and cooling costs alone – so we put in a new solution that allows us to save around EUR*80,000 over five years on our electricity costs.”
“We all know that there will be shifts in the economic fortunes of the country, but when that shift occurs again and our collective fortunes improve, then that’s the time for the providers of services such as Datapac, or ourselves as consumers of those services, to focus on small businesses and sharing the energy costs you are incurring.”
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