By Ernie Zibert, Nick Diacoumis & Mohan Ayyappath
Copyright 2016 Ernie Zibert
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Table of Contents
Want to ensure you are implementing best-practice in your IT costs or your IT Managed Services Agreement Pricing framework? The answer is P5.
Definition of P5
P5 = Price per Period per Person
All elements of your IT pricing should be aligned to P5. If they are not, then you do not have the highest level of transparency in IT costs and moreover you do not have alignment between your IT costs and your demand for IT services.
Isn’t my PxQ pricing model the same as P5?
Over the past twenty years many IT pricing models were based upon Price times Quantity (PxQ). These pricing model have, in the main, been driven by IT technology layers. For example, firms can pay a price per server per month. That is, a technology layer, ie., Server, costs ‘x’ per month for that firm. These pricing models simply tell us the number of servers procured by the firm. They do not tell us whether the number of servers is right for the firm or whether the type of server (usually, small, medium, large) is right for the firm. In short, these now traditional PxQ pricing models missed an element of the P5 model. They are simply, P3 pricing models; price per period. They are not linked with staff demand or staff numbers.
Current pricing models do not support business needs
This is further supported by the fact that Gartner in 2014 realised that something was not quite right in the cloud purchasing model and have now added a new category to their Magic quadrant to include management of the cloud server- [+ Cloud Enabled Managed Hosting+].
What about price per staff for desktop support, surely that’s a P5 pricing model?
Close, but not quite right. The key element missing in this apparent P5 pricing model is that is only relates to one portion of the IT service. A true P5 pricing model is based upon a Service, not an part or element of a service. In this case, a Desktop P5 or more appropriately Deskside P5 covers the entire end-user (staff) member deskside service. This would include the cost of the device as well as its support.
Examples of P5
Cloud based services have accelerated the adoption of P5 pricing models. The best examples are Microsoft’s Office 365 service and its competitor’s, Google Apps service. In both these you pay a price per staff member per month for the service. Another example of a true P5 pricing model, on the application or business transaction layer, is Salesforce. Again, with Salesforce you pay a price per staff member per month.
Limitations of current purported P5 pricing models
As mentioned above, there are many examples, particularly in the IaaS and PaaS domain, where the pricing model is really a P3 masquerading as a P5. Moreover, nearly all of the current generation of IT Managed Services Agreements are rife with P3 pricing models. These pricing models are not aligned with staff numbers and as a result if you increase your staff numbers you may or may not have a requirement to incur further IT costs, ie., need a bigger or more servers. This lack of alignment has frustrated many executives and boards in their ability to effectively manage IT costs and performance.
In other words, non-P5 pricing models represent only a portion of the IT Service. They are incomplete and as a result can result in unpredictable IT costs both internally (soft) and externally (hard).
SaaS is P5
The good news is that all of the SaaS pricing models are true P5. Consider the Salesforce or Microsoft 365 Service. Do you or your firm really care how many servers or the size of the servers needed to support this service? No. What you do care about is the reliability and security of the business transactions this service provides. Is it always available? Can my staff still perform their work activities outside the office? Does it facilitate collaboration? etc.
Is P5 the final pricing model or will we need a P7?
IT pricing is heading in the direction of a consistent P5 pricing model. There is, however, still a way to go. Firms need to remain vigilant to ensure they steadfastly seek and secure P5 pricing models for all IT services.
Aristotle’s teleion concept rings true here. Teleion is the Greek word for perfect or perfection. It is a key criterion for happiness. P5 is complete. That is, is has all the parts to enable a firm to be happy with IT pricing. It does not lack anything of note or anything that might be reasonably regarding as needed in terms of an IT pricing model. It is the best of its kind today, and as shown, vastly superior to the alternatives, such as P3 pricing models. And it is final. It is hard to envisage any other attribute that would make the model better. Therefore, we consider a P5 IT pricing model as final and a worthy choice for firms to pursue.
How many categories of P5 pricing are there?
The answer is that there must be at least two today and at least three in the future. Today, there can be a price per staff member for their staff device and at least one more for their business application. In our view, the staff device P5 should incorporate many elements, such as Office 365 costs, anti-virus costs, support/management costs and the actual device cost amortised over a two or three-year refresh cycle. That is, a P5 deskside price must collect together the elements in an inclusive way, containing within its price every element worth attaining for the service to be complete.
In terms of applications, firms must actively seek out SaaS solutions/services, such as Xero for their accounting platforms, and similar SaaS services for their industry vertical transactions. For example, recruitment firms could use , investment firms could use or for funds management, not-for-profit’s could use or [+ Microsoft’s Grant Manager Plus+] for grant management. The list goes on.
True P5 pricing models for IT services comprise a staff device price and an application price.
In the future the authors see that network costs will also become P5. How this will be realised will become apparent over the next year or so.
P5 or a price-per-person-per-month is the transparent and demand aligned IT pricing model firms have been seeking for more than a generation. Firms are urged to review all their IT costs and compare them against a P5 model. If they do not fit, they will not fit your firm.
About the primary author:
Ernie Zibert is an influential IT Management Executive with 20+ years of international achievement in leveraging technology and strategic partnerships to drive growth, performance, flexibility, and customer satisfaction. A proven change agent, capable of orchestrating transformative business strategy. Champions innovation with a focus on developing flexible, scalable solutions for customer and organisational problems. Diverse experience across government, communications and media, and finance industries. World class financial, relationship and commercial management of IT sourcing relationships. Respected leader in highly-matrixed global corporate environments and in the Australian IT Services community.
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