Business Fundas has been revamped

To all our thousands of subscribers, we thank you for being there for us patiently. We have finally revamped the Business Fundas website, after its database crashed at the hosting server. Do mail us your comments and suggestions on how we can improve the look and feel of this blog.  A wordpress based new theme has been implemented, and we have made a substantial effort to speed up the page loading time. Also, we have minimized the external links to social media directly. Hope all these changes would ensure a better readability from all places, including work.

Pricing models for Outsourcing and BPOs

Outsourcing in current times is more value adding exercise done to enhance competitive advantage by focusing on the areas of core competency rather than just a cost saving practice, as it used to be. Its role as a business-value-creator is established across the world in terms of long-term gains like increased customer satisfaction and decreased customer churn along with short term cost cutting. Along with changes in outsourcing objectives and practices, the pricing models also keep changing in the outsourcing industry.

A transaction based pricing model is based totally on the number of transactions. It draws theory from the concept of economics of scale from resource sharing and usage based pricing. In this pricing model the client typically pays the service provider for individual transactions or per unit of work performed by the resources deployed. In such a model, SMEs benefit drastically from resource sharing with overall lower cost of outsourcing. An average base level of transaction is defined in the SOW, the fluctuation from which impacts the per-transaction base level pricing, in this model.

Similarly, an FTE based pricing model is one where the client pays for the time & material invested directly by the service provider. Often in outsourcing contracts, this is further broken down into multiple categories dependent on the expertise of the resources deployed, complexity of tasks performed (which impacts turn-around time of task completion), degree of domain experience and onshore/offshore presence. Typically these are fully loaded costs with often standardized SOWs including factors like number and level of resources deployed; infrastructure and external dependencies bundled into the price points.

While another variation of pricing models that can under serious contemplation is the Risk/Reward sharing pricing models, where the benefits and the losses of the services outsourced are shared amongst the partners. This is a move towards greater collaboration between separate partners in a value chain. However, for such a pricing model to be really successful there has to be significant maturity in the process level which can then be mapped to quantifiable benefits. As of now, since the services rendered by BPOs/KPOs are yet to reach the required level of maturity, these pricing models are yet to be adopted as industry standards.

Next comes the big question: When to choose which pricing model? Typically transaction-based pricing models would be more suitable for Small or Medium sized organizations where transaction count would not be significantly high. In such organization, keeping a dedicated division (with active resources) would be more cost-intensive than sourcing it to third party service providers. Thus in such scenarios, a transaction based costing would be more beneficial. Similarly, if the transaction volume is on the higher side, a FTE based pricing model (and outsourcing SOW) would be more cost effective and thus more suitable for the organization. Also, if the transaction levels are subject to high degree of fluctuation, a transaction based model (and thus the SOW) is more suitable and beneficial for both the parties involved in the deal.
Do let us know if you have any feedback in this context.

Principles of Google – The Chrome Story

For years Google has tried to hunt down Paid link exchanges and Black Hat SEO tactics by penalizing websites investing on paid links to rank higher in Google search, by getting back juice from back links. Has the time come when the internet major is caught red handed involved in practicing exactly what it punishes others for? The “Is Google Evil” question has again returned to haunt this innovator which has given us a new life through its innovative web based offerings.

While this goof-up may have not been done intentionally, in an attempt to promote Google Chrome, it has got into a mix up, when paid bloggers in-inadvertently placed -do-follow links instead of no-follow links to the Google Chrome download page. This created a huge influx of juice to the Chrome page when a video advertisement of the same was launched. It was an attempt from Google to become the market leader in the Internet Browser industry, by re-branding and relaunching Chrome.  This happened after Google hired Unruly Media, an international media agency, to get a number of paid bloggers to promote a video for its Chrome browser featuring a US flour company. However, another SEO firm named Essence Digital has “come to the rescue” of Google by declaring that it acted as an intermediary between Google and Unruly Media.

However, to clear up this “mistake” Google has now lowered Chrome’s position in the Search results, in an apparent effort to correct the mistake. However, it is interesting to note at this juncture the degree of strictness with which Google penalizes bloggers and webmasters for indulging in link exchanges, link purchases or even black hat SEO tactics.

In an era where management principles are often scrutinized for ethical legitimacy, this blunder by our favorite Web Prodigy, will no doubt leave a lasting impact on its fans like us. While Google “might not have” authorised this campaign directly, it is indeed in violation of their own webmaster guidelines, and thus the managers of Google should be held liable to fulfill a higher ethical standard, given the fact that they take such a strict action against similar defaulters.

How Technology will change Small & Medium sized Business

And here come 2012. The era of computing has seen some dramatic improvements in 2011. But what is interesting is the evolving focus of technology majors from large enterprises to small and medium sized businesses. So what could be the major movers and shakers for the next two years as we gear ourselves to ride this wave of technological evolution, more in terms of focus and perspective?

  1. Small and Medium Enterprises (Popularly called SMEs) will ride the wave on e-business offerings. The time has come when even the smallest service provider will leverage m-commerce to advertise his service range for the customer in serviceable range, with the growing popularity of location based services. Everyone with a mobile is potentially reachable through this technology, which is fast increasing in popularity. The fact that Forrester Research predicts m-commerce will grow at a compound annual growth rate of 39% through 2016, and that tablet adoption will grow at a compound annual growth rate of 56% per year through 2015, indicates Location Based Services have a really bright future.
  2. With the increased popularity of SaaS models in Information Technology offerings, small business can today harness the power of costly powerful technological resources, shared by multiple users, without shelving off millions of dollars. I foresee more and more focus of offerings in the domain of Business Intelligence, which are in a cloud model, for SMEs from the technology service providers. With the resources moved to a cloud, it would be possible to harness the power of ever improving processing capabilities to the available data and then leverage the information and knowledge and gain competitive advantage. The offerings of Business Intelligence on the cloud, should be of the greatest boon to the SMEs and should have a great rate of technology adoption.
  3. With the increasing access and penetration of the internet, the years to come may witness a growing proliferation of web based start-up ventures, which may operate purely on a click first e-business model. There may be a splurge of knowledge disseminating service providers or web-based internet marketers leveraging the power of affiliate marketing. However, it would remain to be seen whether this time the wave survives longer than the last wave which crumbled during the dotcom burst of the late 1990s. These pure-click e-business models may be further boosted by the integration of such business with the social networking sites like Facebook and Twitter, the likes of which have seen a faster adoption amongst the consumers than any other technology.
  4. With a greater focus on web-based offerings, very soon SMEs will start harnessing the power of open source resources and applications, in the regular operations and transactions. Job monitoring, scheduling, live meeting and communications in general will start being more accessible to the SMEs without deep pockets. This may see a fast growth amongst businesses who are able to assimilate the benefits of the increasingly accessible technological offerings.
  5. Last, but not the least, technology may again be leveraged in providing social services. With the increasing focus on social marketing, and the issues centered on triple bottom line, sustainable governance structures may evolve amongst the SMEs which would be heavily leverage on the power of technological advances in general, and e-Business models in particular.

In short the next few years promises to deliver a lot to us. But to what extent the technology evolution and revolution will witness an adoption and assimilation in the SMEs will be interesting to monitor. What do you feel about this era of technological evolution and its impact on SMEs? Write to us.

Pricing of Telecommunication Network Services

Pricing is one of the key components of services marketing. Service providers like that of telecom service providers, often are at a major dilemma, how to price their offerings? What would be a sensitive price point for converting a potential target customer into an actual consumer? The divide between perceived value of  a service and its perceived cost would often vary across segments of customers for the same service offering.

So how should a pricing manager go about pricing network services?

Typically some of the more classical approaches in pricing Telecommunication Network Services are as follows:

  • Maximization of consumer surplus
  • Welfare maximization
  • Peak load pricing
  • Pareto optimal pricing
  • Ramsey prices
  • Cost based pricing

Here the objective of the pricing manager would be to set a pricing technique which depends on measurable parameters

  • Fully distributed cost pricing (preferred by regulator)
  • It may obscure the fact of inefficient technology
  • Over provisioning of infrastructure
  • Long run incremental cost approach
    • It may be costly to implement

    This pricing technique must ensure that if not at an individual service level, at least at a service bundle level, the price bundles post consumption must be profitable to the service provider.

    Another  major challenge for the pricing manager is how to apportion the cost when same resource produces two services (voice and video). This becomes extensively critical when a cost based pricing mechanism is used. It is important to note at this point that decisions, if not prudently taken, would turn a Business Unit of the service provider into a potential cost center without strategic deliverables. Cost apportionment is especially problematic and questionable in an industry marked by production not directly proportional to input materials (as all services are, where the intellectual capital matters a lot more than tangible artifacts).

    To take care of this challenge, one may approach this dilemma using the following approaches:

    • Subsidy free (very difficult to decide on the price)
    • Sustainable (Ramsey pricing)
    • Activity based costing : It is based on a hierarchy of four levels and is a refinement of FDC approach

    Another major issue is Pricing Services Bundles. Pricing is a major decision point in the adoption of service bundles, especially when the key differentiators are extremely intangible in nature. That again is another ball game. If you find that interesting, you can go through the following article of mine: A Model for Bundling Mobile Value Added Services using Neural Networks, 2012, International Journal of Applied Decision Sciences, Vol. 5, No. 1.

    Do get back to me if you have any queries.

     

     

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