Demystifying Relationship Opportunities with your Incumbent AMS Provider

In an ideal scenario, the benefits of an established relationship with your AMS (Application Management Services) provider should be evident. A mature relationship should drive the appropriate level of efficiency within your delivery model, demonstrated through cost reductions realized over time, continuously improved service levels, and innovation. However, our experience reveals that vendor incumbency often leads to value erosion across the various areas of your relationship, resulting in a 15% to 20% average opportunity loss when all factors are considered.

Leveraging our work on over 350 engagements, UpperEdge analyzed AMS incumbent provider relationships in five key areas of an AMS partnership – relationship, pricing/contract terms, service levels, efficiency, and demand.

The results of this analysis can be used to identify potential risks and opportunities in your current AMS relationship and help form your re-negotiation strategy in advance of your next inflection point (e.g., renewal).  The areas and findings uncover some unexpected outcomes:

• Relationship
  

  An assessment of the current state of your partnership and governance model with your provider, including the health and maturity of executive- and account-level relationships, and your approach to contract and operations management.

  • Findings: Multiple instances of executive-level relationships needed to be elevated and matured in support of value-driven liaisons for increased negotiation leverage when the time comes.

• Pricing / Contract Terms

  A mark-to-market appraisal of your rates, volume discount structure, and contract terms will provide a view of where your commercial construct stands against the market.

  • Findings: On average, rate reduction opportunities ranged from 8% to 10%, primarily attributable to initial rate cards that are off-market and to the value erosion due to annual COLA (cost-of-living adjustments).

• Service Levels

  An evaluation of your existing SLA framework and your provider’s approach to accountability and continuous service-level improvements.

  • Findings: In our experience, it is not uncommon for a long-term AMS relationship to include sub-optimized SLA threshold measurements with no contractually committed service level improvement targets year-over-year. This is often the product of a stagnant delivery model whereby the maturity of a relationship does not translate into the expected on-going service level improvements.

• Efficiency

  A measurement of your provider’s support efficiency in comparison to industry averages based upon your staffing levels and current and projected ticket volume requirements.

  • Findings: In certain cases, staffing levels are not properly adjusted to account for reductions in ticket volume requirements and decreasing resolution times, which can result in substantial inefficiency costs over time. On average, UpperEdge has observed 7% to 9% of “bloat’ in the staffing models we have analyzed.

• Demand

  A consideration of your projected IT services demand in the context of your AMS relationship, including how such demand can inform your sourcing strategy and create leverage for the purpose of a re-negotiation.

  • Findings: A holistic view of demand across service towers (e.g., AMS, Infrastructure & Operations, Project), including demand in the much-coveted digital space, will support your sourcing strategy and often be your primary point of leverage in the context of a sole-source re-negotiation. Positioning net new and displacement opportunities should be a key component of your negotiation strategy as it will substantially enhance the probability of a successful negotiation outcome.

Rightsizing your existing AMS relationship, or any IT services relationships, will be highly dependent upon obtaining a clear view of your current state and understanding the various risks and opportunities on the table. The findings will inform your negotiation strategy and empower your team throughout the negotiation process to drive towards a successful outcome for your organization.

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