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2023 Sourcing & Pricing Trends Manifesto (an Advisor’s PoV)

Avoid tacos at 7-Eleven and coffee at Taco Bell. Source matters in everything you consume and that applies to Sourcing and Price Benchmarking trends too.

Don’t ask an advisor what the size of ChatGPT in sourcing deals will be in 2025 and don’t ask a researcher how best to calibrate your multi-million-dollar contracts. You are bound to be misled in either case.

There’s so much broad stroking on IT-BPO Sourcing & Pricing trends going around that I decided not to write a blog post but a MANIFESTO! 🙂

Be Mindful of Muddying the Waters

Contracts with remit ranging from managed services to supporting Digital Transformation need to clearly delineate the solution and the underlying people and commercial construct. The Capacity and Capability charters are very distinct and painting both with the same brush can lead to a less than an Optimum outcome for both parties.

Acceleration in Outcome Based Pricing

There is an increased enterprise propensity in the market for committed outsourcing outcomes and the same is manifesting itself in increased instances of outcome-based pricing contracts. However, what construes as “outcome” can vary across contracts. Some points to note:

  • “Outcomes” can range from clearly defining tangible end-states, and/or clearly establishing scope, milestones, and deliverables in IT and BPS Strategy & Change contracts, delivering XLAs/BLA targets, self-funded transformation programs that avoid upfront surge in expense and cash outflow
  • Enterprises want to ensure more skin in the game for providers till the end of engagement term; equitable risk and reward sharing – typically capped risk and reward as opposed to pure pain/gainshare constructs
  • Most enterprises and providers align on a complimentary due-diligence to get a sense of the enterprise environment before engaging in an outcome-based contract so as not to go in “blind” with an unclear view on risk or rewards

Therefore, the definition of “outcome” may vary, but the model is expected to sustain and gain momentum across contract types.

Contract Lock-ins

One still sees so many enterprises locked in long term contracts, punitive termination penalties, proprietary technologies, and inflexible financials. Such relationships are the ones where there is seldom any innovation. The provider sees no additional gains to be made from a client stuck in one’s chair whereas the client sees no reason to invest more resources in a lopsided arrangement – and the relationship plummets.

But in an industry so interconnected and stakeholders so transient, the word gets out. Such troubled accounts become competitive targets and the provider starts losing ground. That’s the thing – a contract can have lock in, word of mouth doesn’t.

The Curious Case of BOT

This may be a bit of memory jog as this is not about the automation BOT that has been the top of mind recall in recent times but rather the good old, Build-Operate-Transfer (BOT) that is making a quiet but definitive comeback to the boardroom discussions. During the pandemic and post ‘The Great Resignation’, firms have and are continuing to de-risk their alternate service delivery models. As part of this, enterprises are increasingly assessing and executing BOT transactions. The drivers for them to do this are multifold e.g., deleveraging third-party outsourced portfolio, managing sensitivities around product development, building digital talent inhouse etc. While the classic BOT remains intact, its close variant, Virtual Captive, is increasingly gaining traction as this model offers a good balance between ‘Control’ and ‘Risk’. The supply side is becoming increasingly mature and arming their portfolios with innovative and agile ‘as-a-Service’ solutions.

Next time, when you are looking beyond Managed Services but do not just have the appetite for own captive, definitely worth adding this to the list of options. Lets you ‘test-drive’ offshore on a ‘Pay-as-you-grow’ model.

Know more about our GCC Lifecycle Advisory Services

PERSPECTIVES

Acceleration in Outcome Based Pricing
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