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[This post was originally published as the first in a four-part series on July 29, 2012.]
This 4-part series will provide a look at software provider and management consulting pricing trends and negotiation strategies within the procurement and operations area. It provides insight to buying organizations that may be helpful in negotiating with vendors such as Ariba, SAP, Oracle, Emptoris, Zycus and others, as well as recommendations for how best to engage with consultancies for price and value in the current environment. Summary takeaways and elements from the series include:
- How companies should budget for upward price pressure for certain modules and suites in both new deals and potentially renewals
- How certain modular areas have remained flat (and why now may be a good time to negotiate with certain providers in these markets)
- The divergence of pricing strategies between certain providers and others
- The best ways to use Ariba as a means of driving overall pricing down in a deal (if and only if a company is serious about using Ariba as an option)
- Using SAP/Ariba uncertainty and post-acquisition integration to your advantage
- Buyer versus supplier fees (and how to think about quantifying supplier fees in a total cost equation)
- Approaches to negotiating for value with management consultants in a time of high demand and utilization with few bodies on the bench – which are probably not the ones you want on your project, anyway
- Understanding the potential benefits of working with boutique firms in the services sphere
Introduction and Context: Software and Services Pricing (Mid-Year 2012)
If you were to ask a forward-thinking individual obsessed with getting the best deal for procurement software what the biggest change in the past six months has been, she wouldn't likely respond with a line about the latest acquisition (e.g., SAP/Ariba) announcement's impact on pricing or even some new licensing model in the cloud (e.g., Amazon AWS) that is going to change the SaaS landscape permanently sometime in the coming years.
No, this individual would call out just how much the pricing environment for procurement software has evolved in the past year and the variance between certain modules that are seeing price inflation compared with others that are largely flat (and where good deals can be negotiated under the right circumstance). Moreover, she'd probably talk about new strategies – and there are new ones – to truly put someone in the driver's seat in negotiations and ongoing vendor management.
In the area of consulting, our trusty procurement services buying expert would also note changes – and probably not for the better from a pricing standpoint. Consulting fees have stabilized (and in some cases increased) within procurement and operations for the past few years since the last downturn. Even though many organizations have gotten smarter about how to buy professional services (shameless plug alert: read Peter Smith's book on the subject) few have been able to drive any savings off of day rates for consultants in the procurement and supply chain field.
Services Supply and Demand – Do the Math
This is simply a supply and demand equation, with procurement and operations team member utilization rates at many consultancies above 90% (some above 100%). Smaller firms may have some flexibility in pricing, potentially on a mixed-fee model (even larger firms will consider contingency-based pricing under the right circumstances if they have CEO or board-level contacts), but in general, the pricing needle for fixed-fee process and strategy consulting services is pointing north given current market demand.
Blended rates are easily in the $2,500-2,750 day rate range at smaller firms and some of the Big 5 (which can also go higher depending on firm and project teams). And some boutiques with less of a pyramid model are capturing rates that are higher than these. At the top of the pricing spectrum, the traditional strategy and operations firms are getting $4K per day and higher blended rates in the area for transformation and other procurement and operations work.
It's a good time to be a consulting partner, that's for sure (if you don't get a heart attack or divorce from managing all the client stress, work and teams). This, of course, is not good news for those buying procurement or supply chain focused management consulting services, a topic we'll explore in the subsequent columns in this series in the coming weeks, along with detailed price trends on different areas of software as well.
Exploring the Rest of the Series – Part 2, Part 3 and Part 4
As readers look to maximize their time investment in reading only the most important parts of this series that will matter to them, they should consider that Part 2 will focus on specific pricing trends exploring modular pricing trends and negotiation/vendor management strategies.
Part 3 will explore trends in suite (source to pay and P2P) pricing and negotiation/vendor management strategies. And Part 4 will provide additional color on the pricing of professional services (management consulting) within the procurement and operations sphere – and the best way of negotiating for value from consultants during a time of high demand (hint: focus on SOW management, outcomes and building relationships with the provider's A team).