Total Cost of Ownership: Claiming the High Ground

Transcription

1 Total Cost of Ownership: Claiming the High Ground InfluenceHR 2017 David Wilson, CEO / 9-Oct-17 1

2 Fosway Group - Europe s #1 HR Analyst 9-Oct-17 2

3 Total Cost of Ownership: Claiming the High Ground The competitive market place for Cloud HCM solutions is driving massive investments from Enterprise leaders as well as innovative start ups. But in the quest for sales numbers, have we missed something critical; what do these systems really cost customers to run, and are there fundamental differences in the cost profiles between leading vendors? 9-Oct-17 3

4 Why talk about TCO? Fosway Research Project: timescales, approach, deliverables Initial insights from research so far Key messages for Vendor strategy 9-Oct-17 4

5 WHY TALK ABOUT TCO? for Key research focus Fosway for many years - Reviewing for learning and talent solutions, and now for Cloud HCM - Only analyst (globally) to build into our public vendor assessment tools (Fosway 9-Grid ) 9-Oct-17 5

6 WHY TALK ABOUT TCO? for A critical corporate topic but little real insight in reality! TCO impacts: Business case and investment decisions Vendor selection processes and outcomes Decisions on implementation partners Deployed reality / ongoing BAU An opportunity for thought leadership & market influence?!? 9-Oct-17 6

7 The Total Cost of Ownership of Cloud HCM solutions: What really are the facts? 9-Oct-17 7

8 FOSWAY TCO RESEARCH: KEY GOALS 1. A comprehensive model of the TCO for Cloud HCM solutions to positively influence corporate decisions 2. Validated data ranges and assumptions that can be used by the market 3. Key insights into reality of the TCO impact of different Cloud HCM vendor solution decisions and strategies 9-Oct-17 8

9 CLOUD HCM TCO RESEARCH PROJECT Timescales: - Phase 1 1H 2017 (complete) - Phase 2 into 2018 Methodology: - Interview not survey driven (confidentiality is key = we want trusted data) - Focus on Fosway Corporate Research Network Multinationals & Corporates - Focusing on deeper insights + validation with visibility from RFPs etc Deliverables: - TCO Model & validated data ranges/assumptions - Fosway research papers & related presentation content 9-Oct-17 9

10 Key Corporate Insights Initial Indications 9-Oct-17 10

11 GENERAL OBSERVATIONS, in reality TCO discussion applies more to business/investment case & to vendor selection than ongoing management and benefits realisation TCO is rarely total - all corporates underestimate it - Deliberately: consciously exclude from the TCO case to undersell real full cost - Through ignorance: incomplete view of costs or lack of access to underlying information, or false assumptions No visibility of Cost to Value - i.e. cost incurred before the organisation sees any hard value out of the system - This is an interesting measure alongside time to value and overall TCO 9-Oct-17 11

12 TCO MODEL & COMPLETENESS Current corporate TCO calculations are incomplete Typical focus = external license and implementation Frequently Missing elements: - Selection and contracting costs - Internal resource profiles and change costs - Ongoing operations, new skill profiles/resources - Ongoing management of integrations - BAU support model or outsourced resources - Governance, especially in federated/decentralised organisations - Innovation management and future value extraction 9-Oct-17 12

13 STARTING ASSUMPTIONS ARE CRITICAL Often incorrect assumptions distort analysis: - Ability to substitute critical supporting processes, e.g. payroll - Assumed early decommissioning of existing systems or service contracts - Visibility of full suite TCO vs partial TCO with segmented modular deployment - Beyond deployment role of own vs use of external contract resources - Role and costs of IT engagement both in implementation and ongoing ops 3 year TCO calculations overly weight the cost of initial deployment in overall calculation - In 5+ year, cost of operating will become the dominant factor - But watch for segmented or partial deployment assumptions! 9-Oct-17 13

14 What should you include in a Cloud HCM TCO calculations? The following lists provide some useful guidance on what organisations should include in building their TCO calculations. Whilst comprehensive, you should consider your own organisation s approach to managing IT projects and factor these into your own listing. Naturally not all costs will be known and it may be appropriate to include budgetary estimates, based on your experience, to help build a clearer sense of your own projected TCO with reference to the specific context of your project and organisation. The more detail you are able to add, especially around based on employee FTE costs the better. Typically you should model these cost over a 5 year time frame. Discovering Acquiring Licensing Implementing Operating Innovating Project concept evaluation Assessing IT technical, architecture strategy & security needs Defining HR process scope & needs Organisational reach regional, structural, extended enterprise Value proposition and tangible benefits Stakeholder engagement Solutions and migration strategy Business impact analysis Initial business case operating model definition Document needs Project sign off and governance Vendor long listing Vendor engagement management RFI, RFP management Technical IT verification Vendor use case assessment Functionality assessment UX & UI assessment Service level assessment Vendor shortlisting Vendor selection Project and resource planning Adding in costs for specialist independent advice during both the discovery and acquiring phases is a good way to accelerate and de-risk Cloud HCM projects. License negotiation Legal verification Contracting Fully costed business case Project governance & sign off Understanding the phasing of license costs is an important way to manage TCO. Most organisations will require the submission of a business case based on final negotiated fees prior to finally signing contracts. Project governance & programme management Change & stakeholder management IT testing and architecture integration Communications, engagement & training Process and workflow definition Solution configuration and process set-up Translation & localisations Solution integrations & interfaces Data archiving, cleansing, mapping, testing and migration Process, UX, UI and configuration UAT Pilot and feedback management Support process, help & Helpdesk set-up End user support & helpdesk Systems administration & management Bug/fix management Vendor SLA and success management Process administration Change management Ongoing user training Communications Data monitoring, cleansing & verification Reporting & analytics Solution governance Version control IT and IT architecture management Change control & operating enhancement KPI, ROI and value tracking & business impact reporting Update and bug fix testing New functionality /module assessment Innovation planning Impact analysis reporting User group & vendor community engagement Ongoing HR effectiveness & efficiency research Innovation prioritisation & governance Many organisations manage HR innovation not as a projected cost, but on a project by project business case. 9-Oct-17 14

15 Where are the real costs in Cloud HCM? Research shows significant variation in the costs of each stage depending on the context and complexity of the customer organisation, but what are the averages? In overall terms, yes The following two models provide a reasonable starting point for estimating the 5 year TCO. The first focuses on the average ration between the different TCO stages, and the second as a rule of thumb for estimating individual TCO stages relative to an assumed annual Cloud license cost. But there are significant variants What are the key drivers of variation based on these calculations? 1. Existing customer systems complexity and legacy including complexity of migrations and integrations 2. Implementation Strategy rip and replace vs incremental implementation 3. Licensing assumptions including point of incurring full Cloud license cost 4. Operating cost scope and assumptions beyond system management, governance and support Note: the latter approach assumes significant variations depending on solution choice and customer context. 9-Oct-17 15

16 Where are the real costs in Cloud HCM? What s the average ratio between the different cost stages of TCO over 5 years? Estimated average proportion of 5 year TCO for each stage Discovering Acquiring Licensing Implementing Operating 5% 3% 35%. 20% 30% Median % across a range of vendor solutions and high/low complexity scenarios in an organisation of 10k employees Innovating 1 7% 9-Oct-17 16

17 Or typically 5YR TCO = SaaS License x Oct-17 17

18 Why is this important? Implications for Vendors and Claiming the High Ground 9-Oct-17 18

19 WHY TALK ABOUT TCO? for A critical corporate topic but little real insight in reality! TCO impacts: Business case and investment decisions Vendor selection processes and outcomes Decisions on implementation partners Deployed reality / ongoing BAU An opportunity for thought leadership & market influence?!? 9-Oct-17 19

20 WHY TALK ABOUT TCO? for TCO impacts: Business case and investment decisions Vendor selection processes and outcomes Decisions on implementation partners Deployed reality / ongoing BAU 9-Oct-17 20

21 WHY TALK ABOUT TCO? TCO impacts: Business case and investment decisions Vendor selection processes and outcomes Decisions on implementation partners Deployed reality / ongoing BAU for Which of course impacts: Ability to Buy & Total Deal Value Competitive assessment & Win Rate Service cost/value & partner decisions/options Customer Advocacy & = Likelihood for Renewals 9-Oct-17 21

22 The Vendor Reality: Understanding your TCO and your competitors better will impact your ability to WIN and COMPETE 9-Oct-17 22

23 FOSWAY S TCO RESEARCH FOR CLOUD HCM Significant differences in vendor licensing assumptions, competitive pricing strategies and ability to deconstruct based on customer scenario Implementation and operating costs will always be at least 50% of the 5 year TCO profile sometimes much more Cost of managing and enabling innovation is woefully underestimated by vendors and corporates alike 9-Oct-17 23

24 25.00 Cloud HCM TCO 5 Years Sample Vendor Comparison Vendor 1 Vendor 2 Vendor 3 Vendor 4 Average Discovery Acquisition Licensing Implementation Operation Innovation 9-Oct-17 24

25 LICENSING Large differences on licensing cost assumptions between different vendors - Starting price level and initial bid pricing - Suite vs Modular price deconstruction by audience - Negotiating position during bid and contracting process But all vendors try to sell the software proposition first and bolt on implementation/integrator costs after - Understandable as can t control integrator costs - Underlying concern that true TCO picture might also kill the sales opportunity 9-Oct-17 25

26 Other Tactics: It s not all about TOTAL Cost 9-Oct-17 26

27 TACTIC 1: THINK Cost to Value Short term value comes from immediate business priorities rather than general HR transformation/change The more they focus on real business priorities, the more time to value (and cost to value) becomes evident If business priorities are talent related (acquisition/ retention/ performance etc), then play to different functional strengths than Core HR Rip and Replace will always defer the point of value versus an incremental approach aligned to priorities 9-Oct-17 27

28 TACTIC 2: THINK LONG TERM Lower full TCO Long term (5 years+) TCO upweights the importance of cost to operate & run and cost to innovate Balances initial implementation cost against true cost of longer term operations, support and innovation Allows longer timeframe for decommissioning assumptions 9-Oct-17 28

29 PURE HCM-LED OPPORTUNITIES: For larger enterprises: Lower total TCO and faster Cost to Value will be an advantage but buying process may limit visibility have to attack this as well as attack the business priorities story! For mid-corp: Mid-tier solutions with lower complexity and license cost should represent a compelling TCO advantage, but are customers tuned into this? BEWARE the Big 3 mindset is a significant challenge 9-Oct-17 29

30 IN SUMMARY Market needs more robust model of TCO, and education on its importance beyond initial business case and simplistic vendor selection Most corporates underestimate TCO significantly Significant profile differences between all the leading Cloud HCM options (and mid-tier players too) 9-Oct-17 30

31 IN SUMMARY KEY VENDOR QUESTIONS How well do your understand your real TCO footprint, and those of your competitors? How can TCO drive a sales and market advantage? Is Cost to Value more relevant than Total Cost? How is TCO driving your Product Roadmap? How do your Service channels optimise TCO? For implementation, operation and innovation realisation? 9-Oct-17 31

32 BUT REMEMBER THE CAVEATS TCO is often deliberately only partial and often used to justify a spend rather than drive the strategy Most corporates underestimate TCO significantly but that s a double edged sword! Can lead to non-decision. Specific data is very confidential and highly variable from customer to customer Vendors are very circumspect over costs too and all tend to simplify the story to focus on selling their element of the solution (i.e. the software) 9-Oct-17 32

33 FOR TCO = a key research theme for 2017/2018 Already core part of our 9-Grid vendor assessment process 9-Oct-17 33

34 FOR TCO = a key research theme for 2017/2018 Already core part of our 9-Grid vendor assessment process Watch this space: New 2017 Fosway 9-Grid for Cloud HCM will be announced Thursday 19 th October 9-Oct-17 34

35 THANK YOU Any Questions? David Wilson, CEO / david.wilson@fosway.com 9-Oct-17 35