Maximizing Yield in IT Subscription Services - a case study by AIQ
Maximizing Yield in IT Subscription Services: A Case StudyA large pharmaceutical company based in Europe conducted an RFP toprocure global web conferencing for all of its 80,000 worldwide employees. Thecompany received proposals from a number of service providers, but lacked the technicalknowledge to fully analyze, compare, and understand the proposals.AIQ found that the original RFP did not garner comparable offers, and had omitted important questions thatare critical in supporting a firm award decisionBecause AIQ had worked with this company on a variety oftelecommunications projects for over 25 years, they approached AIQ to “…the client had no perform the analysis of the proposals and provide them with the decision expectations that any support information that they would need to make an award. savings would result.” Finding additional cost savings was not part of the scope of theengagement, and the client had no expectations that any savings wouldresult. AIQ then analyzed the bids, and determined that they were notcomparable offers and had omitted certain important questions that are critical insupporting a firm award decision.To address these deficiencies, AIQ performed the following actions: 1. AIQ conducted a more detailed needs analysis, which involved interviews with company employees on several continents, and a thorough review of the company’s existing usage data, including a traffic study. 2. AIQ built a new RFP online, which included the essential questions that were missing from the original RFP. AIQ also invited additional service providers to participate. Finally, in the new online RFP, AIQ solicited additional licensing models from the service providers. 3. Based on the RFP results, AIQ obtained additional discounts relative to the original offers. 4. AIQ then performed a licensing optimization study in order to determine the best licensing model to use. The results of this study produced substantial additional cost savings. 5. AIQ then negotiated the demand set and pricing down further. 6. Finally, AIQ presented to the client a variety of different models that would meet the client’s needs, including detailed matrices that showed all possible combinations of licensing models, service providers, and port arrangements, at various usage levels determined in the traffic study.At this stage, there were two clear finalists, who had nearly identical costs. The client selected one of these twofinalists, and AIQ then assisted with contract negotiations, and delivered executable contracts to the client.
Outcomes produced not possible by our clients alone: DataAIQ is widely known for producing remarkable outcomes, but it is not often that AIQ can directly measure theincremental benefit that it brings to its clients, compared to what the client’s buying teams could have produced ontheir own. However, this engagement provided some interestinganalytical data that speaks to this question: The ratio between the The pricing that AIQ obtained was much more competitive: The • ratio of the highest cost bid to the lowest cost bid narrowed highest bid and the lowest significantly, from a high 3.4:1 ratio in the original RFP bid is a marker of how responses, to a much more competitive 1.5:1 ratio in the pricing that AIQ obtained (see Figure 1). competitive the market is • The average cost from the service providers decreased by 50%, for a particular initiative, ranging from 25% to 85% decrease, between the pre- and post- AIQ pricing. with lower ratios suggesting a more • For the service provider that the client ended up contracting, the annual cost declined from their initial proposal of $2.8M down to competitive field $0.84M, a 70% improvement. It should be noted that the client wanted to contract with this particular service provider for qualitative reasons, and so the reduction in cost for this particular service provider turned them from being disqualified (due to price) to winning the business. Figure 1: Illustrating AuctionIQ benefit
The incremental benefits of AIQThese are certainly substantial incremental benefits, and they lead to the question: why is the incremental AIQ benefitso large? It is impossible to know the answer to this question with certainty, but we believe the following are allimportant factors: • AIQ brings to bear its strategic, tactical, analytical, and communication processes, refined over 30 years and from more than a thousand separate engagements, all of which are designed to maximize savings yield, which increases the shareholder value for its clients. • AIQ has a clearer view of the telecommunications and IT subscription service markets than any other market participant, adding tens of thousands of individual pricing data points to its database every year, from every relevant service provider, from over 50 countries around the globe, across all telecommunications service categories. The service providers know that AIQ has this market data—including knowledge of what each specific service provider bid on similar services for similar other companies. Knowing this helps them realize that they need to bring their "A" game to AIQ’s projects, and that trying to pad their pricing will be counter-productive in winning or keeping the business. • The AIQ team is well known to the service providers. When companies retain AIQ, it signals the market that the client is serious about obtaining optimal results; it materially demonstrates their commitment. This helps the service providers realize that the initiative is not just a pricing exercise, but that the client’s business can truly be won or lost, based on their competitiveness. • Since AIQ specializes in telecom and IT services procurement, and has such extensive experience in this arena, AIQ brings to its clients valuable insights that relate to the services being procured. For example, in this particular case, web conferencing can be licensed in a variety of ways. Depending on the buyer’s company makeup and usage needs, the different licensing models can produce extraordinary cost swings, in either direction. A high-low variance of 8-10x would not be surprising when comparing the optimal licensing model versus the least optimal model, for a given buyer. And it’s important to know that the very best licensing model for one company can—and usually is—the worst possible model for a different company.If you are in the process of procuring services within AIQ’s area of AIQ has a clearer view of expertise, or having business problems with an existing service provider, the telecommunication give us a call. and IT subscription service We can quickly assess your request and suggest various paths toachieve maximum yield from your telecommunications and IT markets than any other subscription service spend. market participant
About the Author: Bruce Hallberg, AIQ Principal Analyst With over 25 years in the information technology field, including experience ranging from negotiating multi-million dollar contracts to selecting, managing and implementing complex software and hardware systems, Bruce Hallberg is intensely focused on achieving unparalleled cost efficiencies within the framework of delivering against strategic and operational objectives.Mr. Hallberg holds an M.B.A. from Heriot Watt University, and is the author or co-author of 30 books covering a rangeof technology-related subjects. Contact AIQ by visiting us at www.AuctionIQ.com Or call / email us at: 1 (801) 727-4007 / info@AuctionIQ.com