Study on Pricing Strategies of BPMS

INSTITUTE FOR TECHNOLOGY AND MANAGEMENT CHENNAI

PRICING STRATEGIES OF CUECENT BUSINESS PROCESS MANAGEMENT SUIT

The report is submitted as partial fulfillment of t

Business School, Siruseri, Chennai.

Institute for Technology and Management Business School


A REPORT

ON


as partial fulfillment of the requirement of PGDM program

Business School, Siruseri, Chennai.

By

KRISHANU NAUG

Institute for Technology and Management Business School

Siruseri, Chennai

July 2011



he requirement of PGDM program of ITM



AUTHORISATION

I hereby declare that the project entitled “REPORT ON PRICING STRATEGIES OF CUECENT

BUSINESS PROCESS MANAGEMENT SUIT” is submitted for the partial fulfillment of the

requirement for the Post Graduate Diploma in Management (PGDM) of Institute for Technology

and Management. It is my original work and was not submitted for the award of any degree in

any university before.

Date: - 11/07/2011 Signature

Place: Chennai Krishanu Naug

(SRS2010PGDM18F013)


ACKNOWLEDGEMENT

I have great pleasure in successful completion of this work titled “REPORT ON PRICING

STRATEGIES OF CUECENT BUSINESS PROCESS MANAGEMENT SUIT”

I would like to acknowledge and extend my heartfelt gratitude to the following persons who have

made the completion of this project possible

Our Director, DR G. K Sharma, for his vital encouragement and support.

Prof P V Jaikumar, Registrar and my faculty guide, for his understanding and assistance.

Mr. N Chandrakumar , Regional Manager, BCT and my company guide for the help and

inspiration he extended.

All my fellow classmates and faculty members of ITM Chennai for assisting in the collection of

useful information related to the project.

I acknowledge the authors, whose works gave me insight and information related to this subject.

Last but not the least my family, who encouraged me to extend my studies; with their help and

support, I have been able to complete this work.

Krishanu Naug


EXECUTIVE SUMMARY

The World has changed so fast in last few decades, more so in last few years. The way the

organizations use to run has changed indeed. The indication of this, we get in our daily life,

imagine you call a mobile service centre for a solution, if you don’t get the solution within an

hour, you get irate. The turnaround time (TAT) has reduced, customers need quick response or

solution otherwise they will take their business away, to your competitors. Now how can we

improve TAT, this can only be done, if your company has a smooth business process system.

CEOs and COOs are working hard towards making a comprehensive, scientific and efficient

process system. Thus business process management or BPM evolved, which increased

efficiency, effectiveness and agility in an organization.

Better processes produce lower costs, higher revenues, motivated employees, and happier

customers. Business Process Management (BPM) is an approach that’s designed to produce

better processes. BPM is a collaborative effort between business units and the IT world, and this

effort fosters a new paradigm of efficient and logical business processes.

The most dramatic examples of economic value driven by process improvement come from the

companies that have led the adoption of the Six Sigma (and Lean Six Sigma) methodology –

most notably General Electric (GE). Mikel Harry, one of the founders of the Six Sigma

methodology, has documented the economic impact of focusing on process improvement. Using

the base measure of his methodology – Sigma, Dr. Harry provides a tangible example of how

companies like GE have benefited from a commitment to process improvement:

With just a one-sigma shift, companies will experience a 20 percent margin improvement, a 12

to 18 percent increase in capacity, a 12 percent reduction in the number of employees, as well

as a 10 to 30 percent capital reduction


A basic investment in a BPM can yield significant returns. Without any process redesign,

Connecticut-based research firm Gartner indicates that companies can still expect to receive

significant operational improvements for any given process. In fact, the typical BPMS projects

are driving more value – a lot more. Even a few years ago, Gartner reported that 78% of BPM

projects saw an internal rate of return (IRR) of greater than 15%. Moreover, these projects

typically deploy quickly (67% in less than six months, 50% in less than four months). So

companies have already been able to realize significant value with rapid returns by driving

process improvement with BPM.

In India, as we approach the end of 2011 many firms and government organizations adopting

BPM technology. Indian domestic process management services segment forecast to reach $683

million in 2010, a 31.1 percent increase from 2009 revenue of $521 million, according to Gartner

Inc. The market will experience steady growth through 2014 when process management services

revenue in India will reach $1.6 billion. Thus India is the future market for all BPM vendors with

huge investment in infrastructure and high FDIs which lead to high industrialization. To cash in

this market almost all the global BPM vendors are present in India along with some home grown

vendors.

Bahwan Cybertek ( an MNC operating in US, Middle East, India, started their operation in 2010.

Although the company was established way back in 1999 in India having offices in Chennai,

Bangalore, Mumbai but as a BPM vendor it is quite new to India Indian market, in fact it started

its operation last year.

As the competition is so high, BCT has to become proactive in all respects. When there are so

many competitors with more or less same product features than only one thing that keep a

company ahead of others is its marketing, and of all marketing strategies price is the one element

of the marketing mix that produces revenue; the other elements produce costs. Prices are perhaps

the easiest element of the marketing program to adjust; product features, channels, and even

communications take more time. Price also communicates to the market the company’s intended

value positioning of its product or brand. A well designed and marketed product can command a

price premium and reap big profits. Pricing has far reaching effects beyond the cost of the


product. Pricing is just as much a positioning statement as a definition of the cost to buy. Pricing

defines the entry threshold: who your buyers are and their sensitivities, which competitors you

will encounter, who you will be negotiating with and what the customers' expectations will be.

From a marketing perspective, the goal of pricing strategy is to assign a price that is the

monetary equivalent of the value the customer perceives in the product while meeting profit and

return on investment goals. To analyze and to develop a pricing strategy that can give an edge to

BCT over others in Business process management suit (BPMS) sales, we undertook various

research methods like literature review, sample survey, observation, schedule and questionnaire.

So far we have done extensive research on secondary source of data like data collected from

Connecticut-based research firm Gartner on what is the trend of BPMS in 2011? How many

vendors are engaged? What is the future prospect of BPM in India? Similarly data has also been

collected from Forester, BPM trend, BPM.com. This secondary source along with various blogs

written on pricing by experts has helped us to analyze various strategies that we should adopt to

stay ahead of others.

The analysis has been done on various pricings methods that we can apply; changes in software

pricing now days, and pricing strategies that can give our product Cuecent an edge. It is a fact

that with economic slowdown many companies along with BCT have incurred losses. So a

revision in pricing of a product is a necessity otherwise customer will not buy. However the

economic downturn has provided some of the medium sized technology players in the industry

(Such as Bahwan CyberTek Inc, with its CUECENT brand of products) with a chance to rapidly

mature there BPM product offerings.

The project is more of an approach towards pricing a BPM product than actual pricing of the

product because it is tough to price it. The pricing of BPM product varies with the requirement.

In simplest of language if we consider BPM as clay and various sub products of it as different

clay pots. Now initially BPM vendors use to sell only the BPM frameworks and the buyers use it

according to their requirement, we can say that buyers create their own clay pot according to

their requirement. But now a day’s Vendors are coming up with readymade product to

customer’s needs, thus charging them accordingly. So price varies from client to client, vendors

also need to take care of after sales services because that is what clients look for now a day’s. In


this project we generally took secondary data to clarify. The surveys done by Forrester, Gartner

and BPM trend helped prepare the project and also useful inputs were taken from the book BPM

for dummies. The purpose of the project is get to the bottom of the factors that decides the actual

price. The project is not about comparison of prices between two BPM products of different

product but the approach that need to be taken towards sensible pricing. The idea is to see how

one company beats other in sales, is the price that really matters. For example Apple’s recent

turnover is $200 Billion and that replaces the software giant for decades like IBM behind (IBM

turnover $150 Billion). How Apple which is predominantly a hardware manufacturer beat IBM

which is a giant in software field in last few years. It has to be the policies and intelligent pricing

methods. That is what we will analyze in this project.


TABLE OF CONTENTS

S NO CONTENTS

Cover and Title Page

Certificate of completion

Authorization

Acknowledgement

Executive Summary

1 Introduction

1.1 How companies price generally

1.2 Purpose

1.3 BPM in India

1.4 Company background

2 BPM – A New technological Dawn

2.1 How BPM Benefits

2.2 Why changing to BPM make sense now

2.3 BPM Advantage

3 Developing Pricing Strategies

3.1 Software Pricing

3.2 Cost based and value based pricing models

3.3 Moving from cost to value

4 Competition in India


5 Methodology

5.1 BPM adoption and usages

5.2 Analysis of pricing approach

5.3 Industry specific approach

5.4 Final Analysis

6 Conclusion

7 Recommendation

8 Bibliography


1. INTRODUCTION:

Price is the one element of the marketing mix that produces revenue; the other elements produce

costs. Prices are perhaps the easiest element of the marketing program to adjust; product features,

channels, and even communications take more time. Price also communicates to the market the

company’s intended value positioning of its product or brand. A well designed and marketed

product can command a price premium and reap big profits.

Pricing has far reaching effects beyond the cost of the product. Pricing is just as much a

positioning statement as a definition of the cost to buy. Pricing defines the entry threshold: who

your buyers are and their sensitivities, which competitors you will encounter, who you will be

negotiating with and what the customers' expectations will be.

The most important thing in developing any marketing strategy, including pricing strategy, is to

understand as much as possible about current and potential customers. The more you know about

their motivations, sensitivities, needs, and their own customers, the more likely you will be to

maximize both the effectiveness of your product as well as your own revenue stream.

The purpose of this project is to explore the interrelation between product and pricing. The

product which we will explore here is Cuecent’s Business process management suit (BPMS).

The entire study will revolve around the Cuecent’s BPMS product. So, what is BPMS? What is

Cuecent? What is the purpose of this project? We will discuss it later. For now, in short,

Cuecent’s BPMS is a business Process management suit which aim to reduce the time and effort

required to develop business system by up to 70% compared to traditional software development

methods. Cuecent’s BPMS is the flagship product of Bahwan Cybertek and more precisely for

ease of pricing the product; Cuecent’s BPMS is software.

Software pricing has traditionally been focused on the vendor’s internal business objectives of

covering costs, achieving specified margins, and meeting the competition. Pricing methods such

as flat price, tiered pricing, MIPS-based, usage-based, per user, per seat, and pay as you go, are

often tactical in nature and easily matched by competitors, which can undermine profitability by

accelerating the commoditization process. Conversely, a value-based approach charges a price

based on the customer’s perceived value of the benefits received. Value-based pricing


methodologies can be used to estimate the market value of new software concepts at various

stages of the development process in addition to pricing new products for launch.

From a marketing perspective, the goal of pricing strategy is to assign a price that is the

monetary equivalent of the value the customer perceives in the product while meeting profit and

return on investment goals.

1.1 HOW COMPANIES PRICE GENERALLY

Companies do their pricing in a variety of ways. In small companies, prices are often set by the

boss. In large companies, pricing is handled by division and product-line managers. Even here

top management sets general pricing objectives and policies and often approves the prices

proposed by lower levels of management. In industries where pricing is a key factor (aerospace,

oil, railroad, software),companies will often establish a pricing department to set or assist others

in determining appropriate prices .This department reports to the marketing department , finance

department , or top management. Others who exert an influence on pricing include sales

managers, finance managers, production managers and accountants.

Executives complain that pricing is a big headache—and one that getting worse by the day.

Many companies do not handle pricing well and throw up their hands with strategies such as this.

“We determine our costs and take our industry’s traditional margins.” Other common mistakes

are not revising price often enough to capitalize on market changes; setting price independently

of the rest of the marketing mix rather than as an intrinsic element of market-positioning

strategy; and not varying price enough for different product items, market segments, distribution

channels, and purchase occasions. GE CEO Jeffrey Immelt offers a lament to which many

executives can relate.

We are getting the sales forces better trained and equipped with better tools and metrics. A good

example is what we are doing to create discipline around pricing. Not long ago, a guy here

named Dave McCalpin did an analysis of our pricing in appliances and found out that $5 billion

of it is discretionary. Given all the decisions that sales representatives can make on their own,

that’s how much is in play. It was the most astounding number I would ever heard—and that’s


just in appliances. Extrapolating across our businesses, there may be $50 billion that few people

are tracking or accountable for. We would never allow something like that on the cost side.

When it comes to prices we pay, we study them, we map them, we work them. But with the

prices we changed, we are too sloppy.

For any organization, effectively designing and implementing pricing strategies requires a

thorough understanding of consumer pricing psychology and a systematic approach to setting,

adapting, and changing prices.

A firm must set a price for the first time when it develops a new product, when it introduces its

regular product into a new distribution channel or geographical area, and when it enters bids on

new contract work. The firm must decide where to position its product on quality and price.

Following are the six steps of setting the Price of a product-

Step 1: Selecting the pricing objective

Step 2: Determining the demand

Step 3: Estimating cost

Step 4: Analyzing Competitor’s costs, Prices, and offers

Step 5: Selecting a pricing Method

Step 6: Selecting the final price.

We will get into it in details, latter; it is just an introduction of pricing and its importance in

business.


1.2 PURPOSE OF DEVELOPING PRICING STRATEGIES FOR

PRODUCT CUECENT

India comprises of about 821,212 companies in 2009 which includes governmental and private

sectors. As the second largest growing economy in the world since 2008, India is now in a

marathon of being the most powerful economy of the world. A country depends on its corporate

affairs to grow its economy. With globalization, companies are able to expand their base of

operations, grow their workforce with minimal investments and offer services to broad range of

consumers.

India is rapidly gaining confidence to become giant players in globalization through international

expansion. From agriculture to bollywood, from cars like Nano to IT companies like Infosys,

Indian Inc is setting up as a powerhouse of next generation global economy.

As India strives towards achieving this title of powerhouse, it is a mandate that its processes are

automated as well as fine tuned. Business Process Management is a systematic approach to

improve an organization’s business processes. Indian Inc is in need of Business Process

Automation

1.3 BPM IN INDIA

Here are few statistics of Business Process in India

Since 1997, more than fifteen Indian companies have won the coveted Deming Prize, a

prestigious Japanese prize which is a byword for excellence in quality and management.

Indian IT industry servicing global customers has led to the adoption of SEI CMM certifications

on a significant scale.

India has the largest number of companies at Level 5, which is the highest level of CMM

The Government of India launched the National e-Governance Plan (NeGP) in 2006, with the

intent of supporting a citizen-centric and business-centric environment within the country.


Gartner Says Indian Domestic Process Management Services Market to Grow 31 Percent in 2010

India domestic process management services segment forecast to reach $683 million in 2010, a

31.1 percent increase from 2009 revenue of $521 million, according to Gartner inc ***. The

market will experience steady growth through 2014 when process management services revenue

in India will reach $1.6 billion.

The conclusion that we can draw from above collected data that India is booming in terms of

economy and industrial growth, more and more companies are turning towards use of BPMS to

increase their business efficiency. So, to cash in this Big Indian market all the companies are

bringing in new marketing schemes and setting suitable pricing strategies.

The clear purpose for designing and developing a pricing strategy for the product Cuecent is to

establish BCT as an influential player in India’s BPM market, to provide Indian companies with

alternatives with respect to BPMS products and to provide latest BPM technology at a reasonable

price of superior quality .Bahwan Cybertek’s flagship product Cuecent is considered to be a

middle level player in Indian market. Before we develop pricing strategies we must see, who are

the competitors of Cuecent in Indian Market? We will discuss about the competitors in details

latter, for now let me tell you that all the big global Vendors of BPMS are present in India, at

least approximately more than 20 Vendors are operating in this sector. In short competition is

tough. In such a tough competitive market, correct pricing strategies are of utmost importance. If

we over price the product we may not find any buyer and if we under price it, we would incur

heavy losses. So there has to be a balance between these two extremes.

After economic slowdown companies in India are not taking risk. And the main motto is cost

cutting. So, most of the companies are not ready to implement an expensive BPMS which cost

around 200000 to 850000 USD. So, initial idea is to try out an inexpensive product from a small

or mid level vendor like BCT.

According to Gartner the Indian market will experience steady growth through 2014 when

process management service in India will reach 1.6 Billion USD. So, there is a big opportunity

lies ahead. According to recent survey around 18% of the companies are using BPMS and most

of them don’t have BPM trained workforce. So, implementing BPMS from big vendors such as


IBM, Oracle will be expensive, on top of it consultancy charges could be as high as $200/hr. So,

it is advisable for companies to implement the BPMS technology in phase manner. If the

technology works than they can approach management to implement BPMS in entire enterprise.

So for initial implementation of BPMS in one unit, company should approach small and medium

size BPMS vendors because big vendors like Oracle or IBM’s product can be expensive whereas

a product from others ( small or mid level vendors) will be cost effective for the company.

Small vendors often in recession or in economic downturn may get acquired by other big firm or

may get close down. So companies buying product from small vendors should be very cautious .

Thus a startup company (or a company who don’t want expensive BPMS) should approach mid

level Vendors like Bahwan Cybertek, which will give them sense of security, because BCT has

presence in other fields as well and can withstand the wind of recession. Also BCT will provide

product at cheaper rate with best quality in comparison to big vendors.

1.4 BACKGROUND

CUECENT

“BPM is going to be the dominant management discipline in the 21st Century and is already the

way that leading companies manage their businesses as a management discipline.”

Globalization, emerging markets, mergers and acquisitions, increasing competition, evolving

compliance laws and new technologies - all present significant challenges to businesses as they

strive for sustained growth, market supremacy and improved shareholder value. Adapting to

meet the ever-changing business conditions demands prompt process innovation and requires

management to continually transform the way they drive their business. Cuecent products are

designed to drive business process agility and operational excellence in such dynamic

environments. Cuecent products help you keep pace. Explore the product selection below to

begin building the IT infrastructure that’s right for you

Cuecent, a product research and development division of Bahwan CyberTek, is a leading

provider of BPM and BPM-based strategic solutions designed to drive business process agility in

dynamic business environments while maintaining competitive and operational excellence,


productivity, growth and profitability. Cuecent BPM is a comprehensive Business Process

Management Suite that leverages leading-edge technologies to automate and optimize complex

business processes allowing organizations to focus on accelerating change rather than on

technology limitations. Capitalizing on the vast implementation experience, industry expertise

and a CUstomer CENTric approach, Cuecent has also developed strategic solutions based on the

BPM Platform to address critical vertical and cross-vertical market requirements.

Established in 1999 and with operations spanning United States, Middle East, Asia and Africa,

Cuecent has consistently delivered real business benefits to over 300 customers across multiple

business segments.

The CUECENT Business Process Management Suite (BPMS) is a comprehensive Business

Process Management (BPM) suite designed to automate and optimize complex system,

document and human centric business processes engaging people, technology and processes

across the value chain allowing organizations to:

1. Manage the entire process lifecycle – from design to optimization.

2. Ascertain continuous process improvement using closed-loop control.

3. Reduce time to introduce new processes by up to 70 percent.

4. Improve employee productivity by up to 30 percent.

5. Cut operational costs by up to 40 percent by automating and standardizing processes

6. Improve speed-to-market and drive process agility

7. Extend ROI of existing technology investments

8. Integration of disparate systems and processes during mergers and acquisitions

9. Ensure continuous compliance with internal best practices and regulatory standards

10. Increase competitive advantage and customer satisfaction

The four tightly integrated components of Cuecent BPM allow organizations to design, integrate,

deploy, execute, monitor and optimize their critical business processes and operations:

CUECENT BPMN – Visual Process Modeling environment compliant with BPMN and XPDL

standards


CUECENT Enterprise Service Bus (ESB) – SOA based Enterprise Service Bus providing a

standard based interface for integrating disparate systems

CUECENT e-Business Process Automation & Collaboration (ebPAC) – Workflow

orchestration and execution platform

CUECENT Business Activity Monitor (BAM) – Real time analytics and performance

measurement platform for decision making

BAHWAN CYBERTEK

Bahwan CyberTek Inc. (BCT) is an associate company of the 4 billion dollar Bahwan group,

with more than 1100 employees worldwide and operations spanning United States, Middle East,

Asia and Africa. Its CUECENT line of products offer a complete BPM suite and several

BPM/SOA based products and solution frameworks targeting Banking and Financial Services,

Government, Oil and Gas, and High Tech business domains.

The tagline of Bahwan Cybertek is “evolving your business” and the tagline of Cuecent is

simplifying complexities. Company’s Vision states that “From adapting to change to anticipating

change, today’s businesses need to create the change to stay ahead”

We differentiate ourselves from other pure play BPM vendors by offering complete solutions in

terms of a world class BPM platform, combined with business domain specific solution offerings

and further leveraging our state-of-the art, CMMi Level 5 global delivery model to provide our

clients cost effective end-to-end solutions and a rapid time to market.

While we service more than 300 clients globally, Banking and Financial Services consists of the

lion’s share of clients with many vertical products offerings including Integrated Channel

Manager (Retail Banking Channel Integration Solution), Branch Transformation (Branch

productivity software for retail banks), eREMIT (Global remittance solution), ePay (Bill

Presentment and Payment Solutions), FPMS (Finance and Portfolio Management Solutions) etc.

We have a strong presence in e-Government services and helped many cities worldwide to make

a space for themselves in the list of the best e-governed cities of the world. Energy and High

Tech compose of other two major market segments. While on one hand we can boast of


delivering very large energy solutions in coordination with premium players like Shell and DHL,

on the other hand we have enabled many start-up’s and small technology companies to build

highly successful product offerings on top of our premium BPM platform.

Through last nine years of existence BCT has won several premium awards for instance Red

Herring Top 100, Deloitte Technology Fast 50 and Information Week Best Product Company.

1. BPM- A NEW TECHNOLOGICAL DAWN

Better processes produce lower cost, higher revenues, motivated employees, and happier

customers. Business Process Management (BPM) is an approach that’s designed to produce

better processes. BPM is a collaborative effort between business units and the IT world, and this

effort fosters a new paradigm of efficient and logical business processes. In this chapter, you get

an introduction to BPM and see how it can benefit your business. You also see why now a good

time to implement BPM is and why your existing tools just won’t do the job.

In today’s dynamic business environment, organizations need to be agile so they’re ready to

respond to whatever challenges come their way. BPM provides that agility by giving you more

direct control over your operational processes. You can make better use of technology and your

entire enterprise becomes far more responsive, helping you meet your goals. BPM helps create

value for the enterprise through growth, improved performance, better productivity, and higher

staff.

BPM can help your organization become more agile in a number of different ways:

� Increased productivity: In today’s economy you need to do more with fewer resources.

Applying BPM principles helps your enterprise increase its productivity.

� Speed to market: When a new idea or product comes along, effective BPM helps you be one

of the leaders, not one of the followers who were too late to take advantage of the new market.

� reaching the global market: BPM can help you streamline your supply chain operations, so

you can take advantage of opportunities no matter where they may exist.


� Achieving compliance: Keeping up with complex compliance, regulatory, and corporate

governance requirements can be very costly and time-consuming. Using BPM, you can keep

these costs under control.

� Accelerating innovation: You need a business environment where innovation isn’t only

encouraged but also where innovation is a normal part of daily operation. He, too, BPM can help

make that possible.

The agile and flexible organization has the ability to meet the needs of the customer and be the

winner at the end of the day. Practices such as Six Sigma and Lean Six Sigma as well as the

work of quality control experts such as Deming are fully incorporated in BPM methodology.

BPM actually enables you to leverage these practices to provide even greater benefits to your

enterprise.

2.1 UNDERSTANDING HOW BPM BENEFITS BUSINESS

The basic operational value proposition of BPM is the ability to process more with less effort and

higher quality. As a result, BPM has become a cornerstone discipline for companies that want to

grow revenues quickly while controlling resource costs. Business processes are pervasive in any

organization. These processes represent all the activities that organizations in all industries

undertake. Some processes are highly structured, such as high-volume manufacturing processes,

while others, such as medical care that must be tailored to specific patients’ needs, are more

unstructured. You may not think of the activities performed within your organization as business

processes, but that’s exactly what they are. As you try to improve your operations, you’re

engaging in a process improvement project. Clearly, you want to leverage advanced

methodologies and technologies to deliver consistent, repeatable, and more efficient outcomes as

you work on this improvement project. BPM helps you define and manage your business

processes so you can reach your desired goals.

The basic operational value proposition of BPM is the ability to process more with less effort and

higher quality. So BPM has become a cornerstone technology for companies that must grow

revenues quickly while containing their growth in headcount. These companies have made the

case for BPM based on three core benefits – efficiency, effectiveness and agility. Depending on


the process, these different benefits will be realized in different proportions and in different

cycles.

Efficiency

It is typical for a company to first see efficiency benefits when deploying BPM. Most processes

have significant waste because of manual effort, poor hand-offs between departments and a

general inability to monitor overall progress. The initial deployment of a BPM solution

eliminates these problems – and the benefit is typically expressed in full-time equivalent time

saved.

Effectiveness

Once a company has realized the basic efficiencies that a more controlled process brings, they

will often focus on making the process more effective. These are where some of the largest gains

are realized. The returns here are typically expressed in the context of handling exceptions better

or making better decisions. One telecommunication service provider found that by better

controlling their billing disputes process better they were able to reduce by $3 million the

amount they were paying out each quarter (approximately 10%). Their BPM deployment helped

them identify duplicate issues, research disputes more completely and enforce more consistent

payout policies.

For processes that are regulated, this level of control and consistency provides an added benefit –

the avoidance of fines because of incorrect, inconsistent or lack of timely execution of the

process. In some cases, this benefit can be monetized (e.g. reduction in fines), but often this

compliance benefit is viewed as critical even if a financial benefit cannot be directly associated

with it.

Agility

The final key benefit BPM provides is agility. In the era of the Service Oriented Architecture

(SOA) and On-Demand market messages, agility is a well understood concept. In the world of


process management, the ability to change quickly is essential. Our customers change their key

processes 4-7 times per year. The driver for change can be internal or external. New

opportunities can arise. New partners or customers need you to support a different way of doing

business. Federal or international regulations can require you to change your processes. BPM

provides the platform you need to be able to change your processes – faster and in a more

controlled fashion than any other option. Agility benefits typically include supporting federal

regulations faster – eliminating chances of fines or delays in approval. Another example includes

the ability to change a process to accommodate unforeseen events. An insurance agency can

quickly adjust their claims approval threshold upward when a natural disaster happens in a

specific part of the country. It can be difficult to calculate hard returns from agility, though most

organizations recognize that the ability to quickly adapt processes is a critical competitive

capability.

Efficiency

Eliminate Manual Data

Entry

Reduction in time to add a new employee record into the HR

System from 9 hours to 10 minutes.

Reduce Process Cycle

Time

Reduction in compensation processing timing for 12,000

sales reps from 33 days down to 7.

Reduce Manual

Analysis/Routing

Elimination of 80% of the manual work previously required to

Route invoice exceptions to the appropriate resolution teams.

Effectiveness

Handle Exceptions

Faster and

Better

Evolve process from saving 5% of distressed shipments to saving

70% - yielding $2M per quarter in saved revenues.

Make Better Decisions Better review process results in $3M saved in billing dispute write-

offs that would formerly just been processed because the process was

poorly controlled.

Consistent Execution Customer satisfaction improvement to 92% based on proactive tasks

that help ensure the home loan process executes better and faster.

Agility


Faster Regulatory

Compliance

Change customs related processes after September 11, 2001 within 90

days to comply with new federal regulations for better shipping

visibility.

Support New Business

Models

Ability to change shipping partners within 10 minutes in core process

allows manufacturer to change primary shipper every quarter – based

on best bid provided.

Speed and agility are very important factors in the success of any business. Take the fast-food

restaurant business as an example. Look at any fast-food restaurant on the corner during

lunchtime. They serve many times the number of lunches of the typical sit down restaurant

simply because the industry is fast. People typically have a limited amount of time for lunch, and

they know that the fast-food restaurant will serve them quickly. Customers don’t like to wait for

products or answers. This example is excellent for seeing how managing a business process

effectively can greatly improve the speed of an operation. By using BPM, your managers have

unimpeded access to data as well as well-defined systems to help them make decisions quickly.

Typically, when organizations thought about process improvement, they focused on the

orchestration of the various tasks that comprise the end-to-end process. But the decisions that

take place in the process are equally important. BPM can help you automate high-volume

operational decisions so they can be made more quickly and in a highly repeatable manner. In

this way, managers gain the tools they need to more easily make important decisions quickly.

Making better decisions

Because BPM can help make sure that your managers have complete information, they’re able to

make better decisions. In addition, by helping you automate many decision-making processes, by

using BPM, you can be sure that most decisions are made in a much more consistent manner.

Because these decisions are based on solidly defined rules, they’re likely to be more in line with

the goals of your organization.BPM also enables you to see your processes in action and to see

how decisions affect your bottom line. As a result, you’re able to do more than simply react; you

can alter the process to better manage new opportunities or looming threats. BPM gives you the


tools to improve the processes and decisions proactively. This process improvement ultimately

means that decisions aren’t only made faster, but also better decisions are made.

2.2 WHY CHANGING TO BPM NOW MAKES SENSE

Every organization has a number of processes in place, but there is also likely to be a certain

amount of inertia because people are used to doing things certain ways. Sure, people may agree

that some improvement may be possible, but without seeing the big picture they don’t see the

need for change.

Unfortunately, burying your head in the sand simply fills your nostrils with a bunch of gritty

sand while leaving the most vulnerable parts of your body exposed. Organizations that ignore the

need for change are doing the equivalent of burying their head in the sand. Not only will the

problems not go away, but the competition will rush ahead and win the business race. At its core,

BPM takes rigid, independent processes and transforms them into flexible, choreographed

business services that work together to create substantial business value. This transformation can

help the organization to adapt to an ever faster changing business climate and global economic

challenge.

Take advantage of the opportunities

Difficult times create excellent opportunities for those people and organizations that are willing

to invest in the future. While everyone else is sitting around complaining, you can begin the

planning and implement changes that ensure a long and profitable future for your organization.

By using BPM, you not only improve your current processes, but also you build and deploy new

capabilities and improve your Return on Investment (ROI). In fact, by implementing BPM now,

you’ll be able to make the necessary improvements faster, at a much lower cost, and you’ll be

able to better leverage your existing resources, thus having an even more positive effect on ROI.

With BPM, the benefits go beyond what you may expect. For example, your customers are likely

to see improved customer service and satisfaction while your partners and suppliers will


experience improved communications, faster response, and an organization that’s generally

easier to do business with. These changes position your company to take advantage of new

opportunities in ways that simply aren’t possible now. Whether you choose to optimize current

operations or develop new processes and applications, BPM can help.

2.3 THE BPM ADVANTAGE

BPM provides you with productivity improvements compared to other solutions for number of

reasons:

� Built-in functionality : The tools you need to define process improvements and

implementation, such as modeling, workflow, simulation, and so on, are typically built into a

BPM suite.

� Cohesive development environment: Because the tools you need are integrated into the

BPM suite, those tools are designed to work together, which simplifies implementation and

change management.

� Graphical development tools: Leading BPM suites support graphical development of process

solutions instead of requiring complex and highly technical coding. This speeds development

and reduces the technical skills necessary to deploy BPM. BPM simply lets companies create a

platform for process improvement easier and faster. Often, however, you can encounter a

challenge in justifying the BPM investment as opposed to following the traditional paths, such as

buying or building a custom application. BPM offers a high ROI, rapid

Development and the tools to drive process improvement . In addition, BPM can help your

organization become more agile and able to face the challenges of the future. These materials are

the copyright of Wiley Publishing, Inc. and any dissemination, distribution, or unauthorized use

is strictly prohibited.


3 DEVELOPING PRICING STRATEGIES

Now developing a pricing strategy for Cuecent BPM indeed needs a systematic approach. As we

have already discussed that there are six steps of setting the Price of a product according to

Philip Kotler.

Steps 1 – Selecting the pricing objective

A company first decides where it wants to position its market offering. The clearer the firm’s

objectives, the easier it is to set price. Five major objectives are survival, maximum current

profit, maximum market share, maximum market skimming, and product quality leadership

Survival companies pursue survival as their major objective if they are plagued with over-

capacity, intense capacity, or changing consumer wants. As long as prices cover variable costs

and some fixed costs, the company stays in business, Survival is a short-run objective; in the

long run, the firm must learn how to add value or face extinction.

Maximum Current Profit many companies try to set a price that will maximize current profits.

They estimate the demand and costs associated with alternative prices and choose the price that

produces maximum current profit, cash flow, or rate of return on investment (ROI). This strategy

assumes that the firm has knowledge of its demand and cost function in reality

Maximum Market Share some companies want to maximize their market share. They believe

that a higher sales volume will lead to lower unit costs and higher long-run profit. They set the

lowest price, assuming the market is price sensitive.

Maximum Market Skimming companies unveiling new technology favor setting high prices to

maximize market skimming. Sony is a frequent practitioner of market skimming pricing. In

which prices start high and slowly drops over time.


Step 2: Determining Demand

Each price will lead to a different level of demand and will therefore have a different impact on a

company’s marketing objectives. The relationship between price and demand is captured in a

demand curve. In the normal case, the two are inversely related. The higher the price, the lower

the demand. In the case of prestige goods, the demand curve sometimes slopes upward. One

perfume company raised its price and sold more perfume rather than less! Some consumers take

the higher price to signify a better product. However, if the price is too high, the level of demand

may fall.

Step 3: Estimating Costs

Demand sets a ceiling on the price the company can charge for its product. Cost set the floor.

The company wants to charge a price that covers its cost of producing, distributing and selling

the product, including a fair return for its effort and risk. Yet, when companies price products to

cover their full costs, profitability isn’t always the net result.

Types of costs

A company’s costs take two forms, fixed and variable. Fixed costs (also known as overheads) are

costs that do not vary with production level or sales revenue. A company must pay bills each

month for rent, heat, interest, salaries and so on regardless of output.

Variable costs vary directly with the level of production, Total cost consist of the sum of the

fixed and variable cost for a given level of production. Average cost per unit at that level of

production; it equals total cost divided by production. Management wants to change a price that

will at least cover the total production cost at given level of production.


Step 4: Analyzing Competitor’s Costs, Prices, and Offers

Within the range of possible prices determined by market demand and company costs, the firm

must take competitors’ costs, prices, and possible price reactions into account. The firm should

first consider the nearest competitor’s price. If the firm’s offer contains features not offered by

the nearest competitors’ price. If the firm’s offer contains features not offered by the nearest

competitors, it should evaluate their worth to the customer and add that value to the competitor’s

price. If the competitor’s offer contains some features not offered by the firm, the firm should

subtract their value from its own price. Now the firm can decide whether it can charge more, the

same, or less than the competitors.

The introduction of any price or the change of any existing price can provoke a response from

customers, competitors, distributors, suppliers, and even government. Competitors are most

likely to react when the numbers of firms are few, the product is homogenous, and buyers are

highly informed.

Step 5: Selecting a pricing method

Given the customer’s demand schedule, the cost function, and competitors’ prices, the company

is now ready to select a price. We will examine six price setting methods: mark up pricing, target

– return pricing, perceived value pricing, value pricing, going rate pricing and auction type

pricing.

Mark up pricing : The most elementary pricing method is to add a standard mark up to the

product’s cost. Construction companies submit job bids by estimating the total project cost and

adding a standard for profit.

Target-Return Pricing: In target-return pricing, the firm determines the price that would yield

its target rate of ROI. General motors have priced its automobile to achieve 15% to 20% ROI.

Perceived value pricing, an increasing number of companies now base their price on the

customer’s perceived value. Perceived value is made up of several elements, such as the buyer’s

image of the product performance, the channel deliverables, the warranty quality, customer

support, and softer attributes such as the supplier’s reputation, trust worthiness, and esteem


Value pricing, in recent years, several companies have adopted value pricing. They win loyal

customers by charging a fairly low price for a high quality offering. Value pricing is thus not a

matter of simply setting lower prices; it is a matter of reengineering the company’s operation to

become a low-cost producer without sacrificing quality, to attract a large number of value-

conscious customers.

Going rate pricing: In going rate pricing the firm bases its price largely on competitors’ prices,

charging the same more, or less than major competitors.

Auction type pricing, auction type pricing is growing more popular, especially with the growth

of internet.

Step 6: selecting the final price:

Pricing method narrow the range from which the company must select its final price. In selecting

that price, the company must consider additional factors, including the impact of other marketing

activities, company pricing policies, gain-and-risk-sharing pricing, and the impact of price on the

other parties.

Above pricing strategy is general overview of how pricing is done in business but when it comes

to software or IT product industry there are slight changes in the approach.

3.1 SOFTWARE PRICING STRATEGIES

We are dealing with BPMS which is software. So we have to study all the complexities related to

software pricing strategies also.

Pricing Model

Before delving into details, here are some common pricing strategies. Note that combinations of these

models are possible.

Per Unit

Also known as the 'per seat' model in software. This is the way most people buy their material

objects: home, car, software licenses, etc.


Concurrent Users

Cost is determined by the number of users that can access the service, application, etc. at the

same time. The concurrent user model is common with server based applications such as

databases.

Per Usage

In the per usage model, the cost is proportional to the extent of usage. The most common

example is long distance calls and home utilities such as electricity and gas. Depending on the

product, an initializing or installation fee might be tied in.

Per Unit of Infrastructure

The product, such as a database, is licensed per the number of CPUs on the machine that runs the

application.

Revenue Share

The customer pays a percentage of the additional revenue achieved when utilizing the product.

The revenue share model works best when the vendor manages the collection of the revenue.

Costs Savings

The customer pays a percentage of the savings achieved when utilizing the product. This can

cause customer antagonism because the need to open books and share financial information will

be seen as an intrusion.

Site License

The customer pays a flat fee. Site Licenses are used mostly when usage is wide-spread in large

companies. A site license saves customers the trouble of managing licenses when the number of

users fluctuates.

The pricing model should always be tested against sales scenarios. The best fit should be within

the target market. Most models will not be optimized for some segments. In some cases, it may

cause money to be left on the table or deals to be lost due to too high of a price. One way to test

the fit is to list various sales scenarios and compare the effect on revenue caused by changes of

the pricing model and the price points that feed into it. This exercise should be repeated at least


twice a year. The assumptions used in the comparison should be validated and the model should

be tested on the previous quarters' sales.

Another test for the fit of the pricing model and price point within a market segment is that a

comparison with the competitors' pricing must be made. Take into account the pricing

differential based upon positioning and functional differences. If the differences between your

price and that of your competitors' cannot be justified, you will either have to change the model

or the pricing factors in it.

The last test is the market. Make sure that your prospects and customers 'get it'. The pricing

model should be simple to explain. If you need more than a couple of sentences to explain the

pricing model, it is too complex.

3.2 COST BASED PRICING AND VALUE BASED PRICING MODE L

Software pricing has traditionally been focused on the vendor’s internal business objectives of

covering costs, achieving specified margins, and meeting the competition. Pricing methods such

as flat price, tiered pricing, MIPS-based, usage-based, per user, per seat, and pay as you go, are

often tactical in nature and easily matched by competitors, which can undermine profitability by

accelerating the commoditization process. Conversely, a value-based approach charges a price

based on the customer’s perceived value of the benefits received. Value-based pricing

methodologies can be used to estimate the market value of new software concepts at various

stages of the development process in addition to pricing new products for launch.

1. TRADITIONAL COST-BASED PRICING

Cost-based software pricing is historically the most popular method since it relies on more

readily available information from the cost-accounting system. This data is generated as a matter

of course to produce operating results, budgets, and financial statements. It is imbued with an

aura of authenticity. Financial, marketing, and product managers are schooled to price the


software product to yield a desired return on fully allocated costs. No product

development/business plan for a new software product would be approved without an attractive

ROI as its center piece. This financial roadmap to profitability, which ignores the voice of the

customer, can become a blueprint for mediocre market results. Cost-based pricing strategies can

exploit the market power of the seller to force a higher price on to the seller. The fundamental

problems with cost-driven pricing derive from the assumptions that must be made about product

costs. First, unit costs are volume dependent. Fixed cost per unit is an allocated number that

varies with projected volume. The allocation procedures, be they direct labor hours, or some

other surrogate metric, are not very precise. Therefore, product costs are imprecise at best and a

continually moving target at worst.

2. Tiered-pricing: Tiered-pricing attempts to package software benefits according to user

requirements and their willingness to pay. This approach to pricing is an attempt to link software

product costs to perceived customer value. IBM was among the first software vendors to use

tiered-pricing plan that was based on the categories of processors for its mainframe computers.

Costs to the customer were arbitrarily increased when software was run on a more powerful

system, increasing profits for IBM. The logic here is more powerful systems increased the user’s

productivity and ROI. The added benefit to IBM of this approach is IBM’s cost did not increase

proportionally, resulting in more profit. The assumption was that the customer should be willing

to pay more for the increase in value. Since customers were skeptical of unmeasured increases in

productivity and aware of IBM’s software economics, this method tended to increase the already

high pricing tension between IBM and its customers.

Tiered-pricing is viewed more favorably when the customer can easily see the increase in value

received and the pricing scheme offers desirable choices. Nokia recently created pricing tiers for

its software development tools. The developers’ forum is now free, but heavy users of support

services will be charged on a tiered basis for bundled services. Similarly, Adobe introduced

tiered prices for its Acrobat products based on how customers use them [20]. For example,

customers who create PDF documents add comments, and sign them will pay more than

customers who only create PDF documents.


3. MIPS-based pricing: Software prices are based on the on the theoretical throughput of the

system (MIPS) on which the software is running. Use more MIPS, pay more licensing fees.

MIPS pricing schemes evolved from earlier tiered approaches. This scheme is based more on the

vendor’s attempt to recover cost and ensure margins than it is on precise measurement of

customer value. The user paid upfront for this capability based on the computing power of the

machine the software was running on. However, this scheme could result in different costs for

the same software doing the same tasks, but run on different machines with different MIPS

signatures

In 2000, IBM was the market leader in the mainframe software market with a market share that

exceeded 60%. This market position provided IBM with tremendous pricing power. Most ISVs

followed IBM’s pricing methods and customers had little choice but to pay if they wanted IBM

software. Since 1980 the cost of IBM software had remained approximately $2000 per MIPS for

the average user. On the surface IBM appears to have increased customer value by not passing

on cost inflation to its users. However, a user in 1980 with a capacity of 10 MIPS that was using

2,000 MIPS in 2000 would have seen its licensing fees increase from $20,000 to $4 million a

year. This increase equates to a CAGR of approximately 30% in software prices for IBM.

Needless to say, IBM customers, facing accelerating needs for installed MIPS, were not pleased

with these economics.

The current variant of the MIPS model is called workload license charges (WLC) . WLC pricing

attempts to resolve the customer’s distaste for being charged for capacity they do not use by

introducing variable WLC and flat WLC options. Under the variable option a user may choose to

pay for full capacity (based on the software’s capacity units constrained by the hardware’s

capability) or for some sub-capacity WLC. The monthly subscription charge for sub-capacity

WLC is based on the software’s capacity, given the capability of the logical partition in which it

runs, not the full capacity of the central processor complex. The software vendor sets the WLC

based on its cost structure and desired margins. As the price of computer hardware has continued

to fall, and competitive options have increased, customers have increasingly pushed back on this

type of pricing model.


4. User-based pricing: This is another cost-based pricing method that tends to benefit the

vendor more than the user by maximizing license fee revenues. The charge is based on the

number of users that utilize a collection of software features over a given period of time. It

attempts to assign costs to a particular number of users or workstations. It is an easier model to

work with than tiered or MIPS-based approaches. The principal variations on this theme are

described below

a. Per-user pricing. Prices to the individual user who typically can use the product on an

unlimited basis for the term of the license . The price is set on assumptions about product costs

and customer use. This approach typically offers one price for a specified number of users.

Oracle has recently introduced user based pricing for its E-Business Suite. The goal is provide a

simplified licensing model that is sensitive to the customer’s changing, and sometimes

unpredictable.

b. High water mark pricing . Charges are based on the maximum number of concurrent users

over a given time period.

c. Per seat or per client pricing. Similar to per user pricing, except that the license is assigned

to the workstation and can be used by a designated number of users . The big problem

confronting software vendors is nobody knows how to define what a “user” is anymore. With

outsourcing, a user could be someone outside the corporation. User-based pricing also makes

customers pay for software that may not be used sufficiently to justify its cost.

5. Usage-based pricing. Customers pay only for what they actually use on a transaction basis.

This model is also known as “pay-as-you-go pricing” or network-based pricing model. It is often

associated with an application service provider (ASP) model. This model charges for outsourced

services by transaction, time in use, peak period, or some other subscription metric. The

application is delivered over the Web. Typically, users pay a minimal set up charge, the use fee,

and for service and support. In addition to the lower TCO for the ASP model, customers can

deploy their applications more quickly, which reduces their time-to-market.


VALUE-BASED PRICING

As we have seen from the previous section, software vendors often approach pricing from the

requirements to cover costs and achieve profit objectives—often to the detriment of their

customer relationships. The circular logic of the cost approach where costs sets price and price

influences sales volume bedevils the pricing process. The key to value-based pricing success is

the recognition that the price the customer is willing to pay depends on the customer’s value

requirements, not the vendor’s. Buyers make judgments about benefits and prices and choose

those products that maximize their perceived value. The goal of value-based pricing is to enable

more profitable pricing by capturing more value. That price should, in turn, determine the level

of product (development) costs that the company is willing to incur.

A. Building the Foundation for Value-Based Pricing

Customer value is the overall benefit derived from the product, as the customer perceives it, at

the price the customer is willing to pay. At the core of perceived value pricing is the requirement

that companies must first understand how the customer perceives value. Perceived value can be

defined in terms of the tradeoff between perceived benefits received and the perceived price for

acquiring the product or service that delivers those benefits [30]. Software developers should

understand what these tradeoffs are and how they should influence software design. In addition

to understanding the product’s cost structure, the software-pricing manager must set the market

objectives for how the product will be priced. A key factor that must be taken into account in all

pricing decisions is the shared economies or cross subsidies that occur in multi-product firms.

Shared economies can distort the pricing picture when one product or segment absorbs more of

the average costs than another. The average price across the product line or across segments may

obscure distortions in individual products or segments. In order to control the potential for shared

economies to distort pricing strategy, three global pricing objectives will be considered:

differential pricing objectives, competitive pricing objectives, and product-line pricing

objectives.


Differential pricing objectives are considered when the product is sold across segments at

different prices with shared costs and potential shared benefits. For instance a high-price segment

may subsidize a low-price one. But the increased volume in the low-price segment may lower

overall product costs to the long-run benefit of all consumers. Competitive pricing objectives are

set to exploit a competitor’s vulnerability.

A sufficiently low price may keep competitors out of a key segment. Product-line pricing

objectives enable the exploitation of shared economies across the product line and across

segments. Shared engineering, production, and marketing costs should be considered in setting

the pricing objectives.

The second major factor to be considered is the pre-purchase characteristics of consumers that

may predominate in any pricing situation and enable different pricing strategies to be utilized.

Some customers have high search costs since they place a high importance on their time and

opportunity costs. They are not willing to spend time searching for product information. Since

they are not well informed they tend to associate high prices with high quality or to buy

randomly at higher prices. Others may search somewhat more actively to take advantage of

discounts. Customers with low reservation prices have no pressing need for the product and will

wait for a lower price. Others may have high reservation prices for the same product but are in

another defined value segment. Finally, customers can be segmented into unique groups based

on special transaction costs. These costs include product evaluation, shipping and handling,

installation, switching costs, cost of capital, and investment risk. This is a key characteristic in

enterprise software pricing since the transaction costs are often a significant part of the lifecycle

costs.

B. Value-Based Software Pricing

1. Penetration Pricing Strategies. Penetration strategies target market segments where buyers

have a high degree of price sensitivity y. Price-sensitive buyers typically have low reservation

prices. Delivering benefits that are perceived as industry standard at a price that is sufficiently

low to generate increases in sales volume creates customer value.


a. Low-price leader (low reservation price/competitive pricing). Low-price leaders target

buyers with low reservation prices. This strategy targets the mass-market buyers with reasonable

features at a low price. The competitive pricing objective recognizes that the market has reached

maturity. Linux and Star Office are using this strategy to target Microsoft. Sun Microsystems has

launched an attack on Microsoft’s desktop software by charging only $100 per user for a suite of

StarOffice productivity applications that also includes Java-Linux, Mozilla browser, and Java

security and email Sun’s average per user license fee is 40-50% of that charged by Microsoft.

Buyers following and economic value added (EVA) model would be attracted to the lower

software prices that would increase ROI provided the features, advantages, and benefits were

industry standard.

b. Experience-curve pricing (low reservation price/competitive pricing). This competitive

strategy targets buyers with low reservation prices. The initial price is set below cost in order to

build volume and move more rapidly down the cost curve toward profitability. The low price is

intended to ramp volume quickly and to keep out competition. Vendors that market shrink-

wrapped consumer software may use this approach to target high-volume price-sensitive

segments in mature markets.

c. Bundling (low reservation price/product-line pricing). This strategy features several

applications that are packaged together and priced as a single product. It targets buyers with low

reservation prices. It is a product-line strategy since it maximizes sales of complementary

products within the product line. There may be differing preferences for each individual product,

but overall demand is increased if the value is perceived to be greater for the bundled package. A

good example is Microsoft Office Suite. The intent is to provide outstanding value by bundling

products that are used together at an attractive price. Microsoft benefits since their incremental

packaging costs and transaction costs are minimized. Bundling increases volume and penetration

while creating barriers to the competition.

2. Skim-Pricing Strategies. Skim strategies target buyers that are relatively insensitive to price .

All have high search costs. Some will engage in search behavior and perceive a high degree of

value in the features, advantages, and benefits of the product. For example, innovators are often

willing to pay more since they perceive opportunity in their ability to exploit the unique value of


a new product. Others are unwilling to search and see the high price as a cue indicating high

quality.

a. Price signaling (high search costs/segment differential pricing). This strategy is often used

for segment differential pricing of new products where time is a primary factor in the decision

process. Innovators with high search costs and a high degree of trust in the brand do not want

invest heavily to evaluate product alternatives. Information about price is more easily acquired

than that about quality or performance. The high price signals the benefits these buyers desire.

Buyers in this situation demand a high level of service and rapid response for their continued

loyalty.

b. Reference pricing (high search costs/competitive pricing). This competitive pricing

strategy is a variant of price signaling. Buyers have high search costs and higher perceived risk

than the innovators. They need a reference point to calibrate the value in the price-quality

relationship. Use of a reference price strategy can benchmark the higher price of an established

competitor. Comparison with the higher-priced product highlights the value of the moderate

priced product and vice versa.

c. Image/prestige pricing (high search costs/product-line pricing). This product line strategy

targets customers with high search costs who are attracted to brands that have achieved a

reputation for high quality and exclusivity. The buyer’s self image is emotionally linked to the

brand’s image. Buyers have expectations for exclusiveness and high levels of support and

service.

3. Hybrid Pricing Strategies. Hybrid strategies combine elements of skimming and penetration

strategies. Combinations of high search costs, low reservation prices, and/or special transaction

costs may characterize potential buyers. Special transaction costs might include the complex and

expensive evaluation process for enterprise software or the switching cost for changing software

vendors.

a. Cost-plus pricing (special transaction costs/competitive pricing). Competitive pricing

strategy that is often used by software vendors that develop systems for the government, or other

large customers, where risks are not easily quantified, and special transaction costs are high.

Cost-plus pricing guarantees the vendor a rate of return on project costs. Perhaps this strategy


should be classified as a “skimming’ strategy since costs usually are higher than budgeted. In a

response to the high prices that often result from cost plus, government customers place COTS

(commercial off-the-shelf) pricing specifications in the contract where non-custom software

applications can meet their requirements.

b. Complementary pricing. Complementary pricing is a product-line strategy that exploits the

special transaction costs of products that are used jointly but sold separately. The base product

(low reservation price/product-line pricing) is sold at a low price that minimizes resistance to

purchase. Higher profits are then made on the complementary consumable products (special

transaction costs/product-line pricing) or services due to the special transaction costs. For

example ASP software services minimize the front-end investment and special transaction costs

by eliminating the need for purchasing software or servers.

Profit is made on the higher margin complementary transaction-based services and support.

Similar relationships exist in the marketing of printers and ink, razors and blades, and anti-virus

software and virus definition support. The “loss leader” strategy is a variant approach. A

complementary pricing strategy is used by SPSS, Inc. The company sells the license for a basic

package of statistical programs at an attractive price, especially for academic users. Sophisticated

users that opt for additional functionality are charged a premium for add-in programs that depend

on the functionality of the base module. Microsoft extended this pricing strategy to exploit its

complementary relationship with computer manufacturers using Intel processors to achieve near

monopoly pricing power for operating systems and office application software. The company is

attempting to use a complementary pricing strategy with its web services offerings and meeting

customer resistance as it reverts to a cost-based pricing mentality.

c. Premium pricing. Marketers address different groups of customers by using a product-line

strategy that addresses the higher search costs of some groups and the lower reservation prices of

others. This practice is also known as “price lining.” The strategy is implemented by pricing

versions of the product to address entry level, mid-level, and high-end premium-buying

customers. Prices are set based on the levels of the value the buyer perceives in each market

segment. End Note is a popular bibliographic software product that is priced differently for

students and professors, although the product’s functionality is identical. Professors pay twice as


much as students. The logic here is the student market (low reservation price/product-line

pricing) is much larger and has lower unit

costs, than the professorial market (high search costs/product line pricing), which is small and

perceives higher product benefits due to the publication requirements of their profession.

d. Random discounting (high search costs/segment differential pricing). A random

discounting strategy maintains a high skimming price but offers discounts on a random basis as

an incentive to new buyers to try the product. The price break serves to draw attention to the

product. This strategy can be applied for a variant of the ASP pricing scenario where users can

try the product at a discount before they sign up for a longer-term license.

e. Periodic discounting (low reservation price/segment differential pricing) . Periodic

discounting strategy creates customer value for sequential classes of buyers with increasingly

low reservation prices. The Initial strategy focuses on skimming the inelastic demand of the

innovator then reducing prices on a predictable basis as the market matures in order to attract

more price sensitive customer groups. Intel uses this strategy to market its microprocessors. The

strategy works best for products that enjoy relatively long technology and market life cycles with

multiple applications across numerous segments. Software companies generally do not use this

strategy since they would prefer existing customers to upgrade to the new version where their

costs for customer acquisition would be zero.

f. Second-market discounting (differential pricing special transaction costs). For second

market discounting, marketers introduce an existing product to a new market where buyers are

more price-sensitive than the primary market and have identifiable special transaction costs. For

instance, Microsoft has offered second market discounts to buyers that are contemplating

implementations of Linux based operating systems in the server market. Microsoft is offering a

standard solution with predicable costs vs. the Linux installation that might generate higher

installation, customization, and maintenance costs. Second market discounting is often used to

penetrate international market and private label/generic products markets.


Analysis

We already went through all the possible pricing models and different pricing techniques. Let us

take cost based pricing model first and see which one is the best between User based and usage

based pricing model.

Software pricing strategies are undergoing rapid change. As a result of changing market

conditions - particularly in the client/server applications arena - customers are demanding that

vendors change their pricing models to more effectively meet modern needs. They are no longer

willing to accept pricing models designed to benefit the vendor, not the user

What are these demands for client/server pricing models? Above all, customers want a pricing

model that makes sense. Specifically, they say the model should be closely tied to how they

realize value from software; it should be easily understood; and it should be flexible enough so

they can buy the configuration they desire.

Vendors have recently begun to respond to such concerns as they move toward user-oriented

pricing. The first major step was to eliminate hardware configuration as a primary driver of

client/server application software pricing. At one time, the size of a mainframe computer was

accepted as a reasonable metric for determining the value of associated software.

In an effort to be more equitable in their pricing, many vendors have begun to base pricing on the

number of users. User-based pricing acknowledges that not all users are equal. Most customers

feel that this is a fair representation of the software's real value.

Initially, users were typically defined as the number of workstations on which client/server

software was installed. But as more firms moved to client/server computing, the model evolved

to concurrent users or types of users, such as standard (normal usage) and casual (occasional

usage).

This change in the user metric was requested by customers who believe that not all users derive

the same value from software. Based on this model, a customer could order software for 15


concurrent users (which might actually represent a total of 30 users) or 10 standard and 20 casual

users.

By introducing user-based pricing, while minimizing hardware configuration as a pricing metric,

vendors are addressing customers' needs for meaningful client/server application software

pricing. Not only is user-based pricing simpler, but it allows customers more flexibility so they

can budget effectively for software usage. This pricing model is becoming an accepted

measurement of the value that customers derive from their software.

While user based pricing models remain the most common models for client/server software,

usage-based models have recently been gaining attention. With usage-based models, which

depend on some type of metering software, value is determined by the amount of time the

software is used. Many customers are urging vendors to offer pricing based on metered usage

because their price for software would depend on how often they use it.

With this model, as with others, the question still remains as to how to best determine the value

of software. Let's look at an example that compares two different models for evaluating value.

Suppose a corporation is evaluating a client/server purchasing application. While the new system

allows either centralized or decentralized entry of requisitions, the company has decided to

implement decentralized entry.

Requisition entry at the company is currently a centralized function: Physical requisition

documents are prepared, usually by administrative personnel, and then routed to the purchasing

department where they are manually entered. Because the new purchasing application will allow

decentralized requisition entry, the firm wins save money by eliminating the requisition entry

position within the purchasing department and will improve purchasing function efficiency by

reducing delays.

What pricing model will reflect the increased value provided by decentralized requisition entry?

If the company operated on a user-based pricing model, it would have to take into account that

decentralized entry means there are more casual users accessing the purchasing system to enter

requisitions.


What if the firm was using the metered pricing model? The amount of time spent entering

requisitions may increase slightly, but will likely remain similar to what it was with centralized

entry This would imply that the firm derives the same value whether the function is centralized

or decentralized. However, we know this is not the case. Here, the metered-usage model did not

adequately reflect value to the user.

In trying to tie the value of the software to the pricing model, metered usage alone does not

always work as effectively as we would like. This does not mean that it is not a useful

measurement of value. However, it does suggest that even if it increases complexity, it may be

necessary to apply additional metrics - such as standard or casual user-based pricing - to

effectively establish the value customers obtain from client/server application software.

Some vendors are beginning to explore approaches that will combine user-based models with

metered-usage models. The combination of these two models is a better gauge of the software's

true value to the customer. In this combination pricing model, more consideration is typically

given to the metered-usage element of the model. But, by taking into account the total number of

users, the incremental value associated with a wider distribution of software is recognized, as is

the actual usage of the software.

3.3 MOVING FROM COST TO VALUE

Now let us take Value based model and see how it is more effective than cost based model.As

the software business has matured and become more competitive it is increasingly important that

pricing strategy be based on perceived customer value. Software should be designed with the

knowledge of how customers value specific attributes and how much they well pay for them. The

power of choice mandates that those products that deliver superior value will win in the market

place. To be successful software development must become more value based. The following

discussion reviews the basics of customer value analysis and the dimensionality of the factors

that drive the customers’ perceptions of value.


A. Customer Value Analysis.

As we discussed above, software vendors typically concentrate on cost-based metrics to arrive at

their product prices. Once the vendor has quoted a price, potential buyers can readily compare

the price with offers from the competition. However, if the vendor instead offers demonstrably

superior value, even at a higher price, the advantage is far less easily duplicated by the

competition. The following value concepts are foundational to the development of value-based

pricing strategies.

1. Perceived Value. Not all customer value drivers have economic impacts that can be measured

directly. A software product that has a better graphical display may be more pleasing to the eye,

but has no value in the traditional economic sense. A buyer may feel “safer” buying software

from IBM if there is a higher perception of reliability, trust, and commitment to the market, but it

is hard to quantify objectively in product value terms. One technique that is often used to

measure perceived value is conjoint analysis or trade-off analysis. This technique enables

managers to compute the consumers’ utility functions for individual variables and to understand

how they are combined, traded off, and otherwise valued. Conjoint analysis is useful for pricing

since the feature tradeoffs at different levels of price can be mapped.

2. Economic Value to the Customer (EVC). Alternately called “value-in-use” or “exchange

value”, EVC is the maximum amount a customer would be willing to pay for the software,

assuming s/he is fully informed about the product and competitive offerings. It is analogous to

the reservation price. EVC answers the question, “What’s it worth to you?” EVC measures the

life-cycle economic costs and benefits to the user of one product when compared with a

reference product. Software products are evaluated on purchase price, installation costs,

maintenance costs, operating costs, disposal costs, and benefits that can be monetized over the

use cycle. These costs and revenues are benchmarked against the buyer’s reference product.

3. Economic Value Added (EVA). Broadly stated, EVA measures a company’s net operating

profit after taxes. It focuses the organization on earning a target rate of return over and above the

cost of capital. Both software developers and purchasers use the concept to answer the question:

“Will this asset generate returns above the cost of capital?” For software or other IT investments

customers substitute the monetized net financial benefits of the investment for net operating


profit. EVA forces managers to measure the financial impact of software investments and to be

aware of the impact of the cost of capital on investment returns.

4. Price Sensitivity Measurement (PSM). PSM models are useful for estimating market

demand and for calculating the proportion of buyers that would buy the product within a specific

price range. PSM determines the limits of buyer resistance over a range of prices that relate to

the product’s value perceptions. These value perceptions are market segment specific and based

on the buyer’s perceptions of product value, buying intentions, and spending capabilities.

Typical outputs from the model are the upper and lower bounds for the acceptable price range

and the optimal pricing point. PSM is very useful for pricing alternate software configurations in

the early stages of development and throughout the development cycle.

B. Customer Value Drivers.

In order to create the foundation for setting prices, it is necessary that product developers and

managers understand what the customer’s value drivers are and how important each is in the

purchase decision. Customer value drivers are emotional links that summarize customer beliefs

about the product and firm, create positive attitudes and feelings, provide the basis for

differentiation, and provide the reason to buy. Value drivers are the expression of the customer’s

evaluations of the product, the perceived credibility of the vendor, and the confidence the

customer has in the brand. The customers’ value drivers need to be reflected in the design

requirements of the software if the value is to be subsequently captured by the pricing

mechanism on the product’s launch.

Unlike the cost approach, where competitors readily match price-performance attributes, value-

based pricing strategies provide the strategist with a full complement of customer value drivers

to appeal to. The primary value driver classes are:

1. Economic value. Economic-value drivers are based on the buyer’s perceptions about the cost

of acquiring, owning, installing, using, and disposing of a product or service. Economic value is

associated with cost element of Seth’s functional value. The concept encompasses costs savings

and ROI impact deriving from the purchase of the product.


2. Performance value. Performance value is based on the buyer’s perceptions of the utility to be

derived from the functional features, advantages, and benefits associated with a product or a

service. This value driver is associated with Seth’s functional value.

3. Supplier Value. The buyer’s perceptions about credibility of the vendor and trust in the

business relationship links directly to brand acceptance It is relatively easy for competitors to

match economic and performance value by changes in price and product design. A strong brand

provides a greater barrier to competition since it takes much longer to change perceptions about a

company. Strong brands support skimming strategies across a broad range of pricing objectives.

4. Buyer Motivations. The buyer’s psychological motivations and goals for a particular

purchase are central to the decision process. Cost-based pricing does not consider these higher-

level motivations. Psychological motives arise from the buyer’s need for recognition, esteem,

and belonging. Additional motivations may involve novelty seeking and knowledge acquisition.

Buyer motivations are often subjective and emotional. This value driver is analogous to Sheth’s

emotional value and epistemic value.

5. The Buying Situation. Purchase behavior always occurs within a situational context .The

situation may act as a constraint or to facilitate a given purchase or it may have no effect at all.

The buying situation is analogous to Sheth’s conditional value. Key situational variables are:

a. Task definition. The task situation addresses the question: “What objective or task will the

software be used for?” Knowledge of the specific task will help to define the software use

situation and product requirements.

b. Resource capability. This variable focuses on the physical and intellectual resources of the

buyer including budgets, infrastructure, and technical skills. Software marketers would be

interested in whether the buyer has in-house IT department and how self-sufficient the company

is. Customers with a high degree of IT resources may qualify as potential development partners.

They are good sources of product and price-related information.

c. Time horizon. Time is an important influence on price perceptions. Buyers with short

decision time horizons tend to be less price sensitive. Key questions to be addressed are: “How


long until the buyer is ready to make a decision? How long does the buyer anticipate using the

software?”

d. Social influences. What is the composition and role dynamics of the buying center team that

will influence the purchase the software?

e. Experience. Highly experienced buyers tend to have stronger product-related attitudes, which

influence subsequent evaluations of product and price. Developers and marketers need to answer

the question: “How experienced is the buyer with similar software?”

f. Availability . Availability refers to the ease of finding purchase related information about the

product or company. The operant questions are: “Is the product available? How available is

objective information on the product’s performance and risks?”

4 COMPETITION IN INDIA

Indian businesses are seeing high growth, riding on the rising demand patterns of the large and

growing Indian consumer class. With businesses having to handle huge volumes and

transactions, and human centric processes still being popular, enterprises are moving toward

workflow and BPM products to increase customer reach and the scale of their business. Almost

all the global BPM vendors have a significant presence in India and are working at increasing

their reach. While a lot has been written on the global BPM players, we thought it would be

interesting to look at the home-grown Indian BPM players, how they grew, challenges faced

unique to India, and, finally, the possible trends for the future. We looked at the local BPM

vendors who, while catering to the needs of Indian organizations, are servicing customers in

other countries as well. In this article, we focus on companies offering BPMS products. This

article is based on interactions with the senior management of the BPM product vendors and

from information available on the product websites. In addition to company-specific information,

we also gathered perspectives on the awareness and readiness of the Indian market with respect

to BPM. This article is divided into three parts: analysis of the Indian BPM products,


perspectives on the Indian BPM market, and, finally, some thoughts on possible trends for the

future.

The “Indian” BPM products

Most of the Indian BPM products have been in the market for the last 8 to 9 years, steadily

increasing their customer base and product features (a list of the BPM vendors we looked at is

given at the end of this Column). The two mature products, Omniflow from Newgen and Skelta

BPM.NET from Skelta have around 600 to 800 implementations across the world. Most of the

other companies are in a mature start up mode with a development staff of around 30 to 50

people. The focus appears to be more on the product sales than on the marketing aspects. The

websites provide details of the products with case studies and solutions offered.

Market Focus:

Most of the products surveyed focus on some specific industry vertical as they have built the

required domain knowledge in-house for those verticals. Karomi focuses on the manufacturing

sector, especially the medium to large auto and auto ancillary organizations, with solutions for

the quality management processes (e.g., auditing processes), HR processes, and vendor

payments, deployed on their BPM engine. BizApp Studio from AppPoint has most of its

implementations in the medium and large BFSI, Hi-tech, and government organizations. A

leading stock exchange in India has used BizApp for their compliance management process,

comprised of more than three hundred activities, that integrates the brokers and sub brokers.

ProKosha focuses on e-business and small and medium services organizations. While most of

their implementations have been in the order management process, an interesting case study is

the usage of ProChara, their workflow engine for the facilities management help desk of a large

global infrastructure major with focus on airports, highways, and energy. SOAIntegrator from

SOA Matrix focuses on integration centric processes. One of their solutions is an innovative use

of BPMS in the telecom space for real-time monitoring and control of the equipment at the

telecom transmission tower site. The solution involves receiving data from each tower,

automatically generating trouble tickets based on data, and integrating with other systems such as


asset management, IVRS, Email, etc. Newgen software’s flagship BPM product, Omni Flow, is

mentioned in Gartner’s Magic Quadrant for BPMS-Jan 2009 report in “Vendors considered, but

not included,” though it is included under the niche players in the Gartner’s Magic Quadrant for

ECM October 2009 report. Newgen’s knowledge of best practices and rapid implementation has

been highlighted as the differentiator.

The front-end processes of banks (loan processing, check processing) and insurance

organizations (claims processing, policy issuance, etc.), BPOs, and shared service centers are the

primary customers for Newgen. Cheque truncation, which uses its BPM and Document

Management offerings, is one the most successful solutions from Newgen. Skelta was named as

a cool vendor by Gartner in the March 2009 “Cool Vendors in Business Process Management,

2009” as the product can be used in an embedded mode in addition to its SAS offering. BPOs, IT

organizations, and BFSI are the predominant verticals where Skelta has been successful.

Interestingly, Skelta has a considerable amount of implementations where it is used in an OEM

mode in other products and SAS offerings. Karomi is another product that has used the OEM

mode in a Loan Origination system and in Healthcare in the Radiology Area. While most of the

products adopt a vertical solution based approach to sell the BPMS capabilities to the customers,

the large vendors have been able to sell more horizontal solutions (like Compliance

Management) built on the BPM stack, in addition to the generic BPM stack offered to clients as a

base for building their processes. Implementations of the Indian BPM products appear to be still

largely on the human workflows around project management, quality management (process

audits, service tickets and helpdesk), document management, imaging, and external party

interfaces. However, penetration into the core value chain processes appears to occur less often.

Most of the vendors (the smaller ones), though predominantly focused on the Indian market, also

have presence in other countries like Kenya, Mexico, the Middle East, Australia, US, and UK.

Newgen has over 800 implementations across 40 countries. Skelta similarly has a larger

percentage of sales from US, Europe, and rest of the world, as compared to sales in India.

Marketing Approach:

While the larger companies either have or are moving towards an established sales force, by and

large the approach to new customer acquisition seems to be through alliances with SI partners,

word of mouth publicity, and personal contacts. Most of the vendors have a partner who handles


the product implementation, while the initial requirements analysis and process design is handled

by their own team. The focus of most companies seems to be on product development and

research, and marketing is now becoming a focus area. The typical competition the Indian

vendors face in the Indian market is from the global BPM products like Filenet, Savvion,

Pegasystems, and Documentum, and rarely the other Indian products. This is largely due to the

fact that the there is minimal overlap in the market segment addressed by the Indian vendors.

Apart from the BPM product vendors, some of the large Indian IT services and consulting

enterprises have their own BPM platforms that are used by them to develop workflow enabled

applications and other business solutions for their customers. PEAS is the BPM platform from

Infosys that is the workflow component in its flagship banking product, Finacle, and in a few

other solutions for the BFSI segment. Polaris offers a host of solutions built on its BPM platform,

Intellect Business process studio.

BPM market in India, as seen by the Indian vendors

BPM product vendors have some interesting observations and findings about the BPM market in

India. As with other products and services, Indian companies tend to be more conscious of the

price-value equation of the BPM products they are buying. This works as an advantage for the

Indian BPM products as they are more cost effective, as compared to a global player, for the

same set of capabilities and features. On the other hand, a longer sales cycle is found not just for

government projects but also in most of the private sector. Awareness and appreciation of the

value of BPM as a horizontal value-product is still gaining critical mass, especially outside the IT

community. There is some lack of clarity between a document management system and a BPM

product. Customers sometimes mistakenly look for document management solutions when the

process which they want to improve typically involves some paper forms and documents. Since

several organizations (especially smaller ones) either do not have an IT group or have a very

small team focused on program management, creating awareness of BPM technologies is the

first challenge. Especially in smaller companies, what appears to be selling is not BPM as a

horizontal offering but vertical solutions built on top of the BPM product. The initial sale is

made through the business folks as a specific vertical solution offering, and the IT groups get

involved during implementation. The BPM product vendors find that they are sometimes called

in to make process changes even after implementation. BPO/ITES and the IT sectors appear to


be the most mature with respect to appreciation of BPM’s full range of capabilities and promise.

These organizations make all process changes and new, process deployments onto the BPM

platform by themselves with little support required from the BPM vendors.

There are specific instances that highlight the maturity and vision of Indian organizations – like

the implementation of BizApp studio by an NGO for its “missing child” initiative. The project

involves linking the various offices of the NGO, police departments, railway stations, and bus

stations to handle the information and activities related to reporting and locating missing

children.

The Way Forward

The Indian BPM vendors are working on building strategic partnerships with the large Indian IT

services companies. This is critical for them to increase their ability to execute and deliver to

their customers. They would have to work on marketing, training, and strategic alignment with

the IT services companies to ensure that these organizations consider them when recommending

a product to their customers. Here, they face a tough challenge from global BPM product

vendors due to the latter’s greater branding and marketing efforts (collateral, sales, and

marketing activities, training sessions, evaluation copies, open workshops, and events) in their

outreach to the IT service companies. The Indian BPM vendors can leverage their strengths of

being local companies, with deep knowledge of specific verticals, dedicated teams for customer

accounts, ease of dealing due to reduced bureaucracy, ability to make quick decisions on

customer specific requirements, knowledge of local partners and vendors, etc. These products are

already making an impact on the BPM landscape of India and are now expanding their reach to

other countries. The innovative features and capabilities of the Indian BPM products are also

catching the attention of the global players and the consolidation in the global BPM product

space has had its impact in India as well. Skelta was recently acquired by Invensys, a UK based

organization, while SAP AG had earlier acquired Yasu technologies, an India-based business

rules product company.

As the Indian BPM market matures with greater awareness and adoption, and more innovative

products from Indian and global players, we are in for exciting times in the Indian market.


5. METHODOLOGY

Collection of Primary data

We collect primary data during the course of doing experiments in an experimental research but

in case we do research of descriptive type and perform surveys, whether sample surveys or

census surveys, then we can obtain primary data either through observation or through direct

communication with respondents in one or another or through personal interviews.

Collection of secondary data

Secondary data means data that are already available i.e. they refer to the data which have

already been collected and analyzed by someone else. Secondary data may be either be published

data or unpublished data. In this project we would use a mix of both primary and secondary data.

The data after collection has to be processed and analyzed in accordance with the outline laid

down for the purpose at the time of developing the research plan. This is essential for a scientific

study and for ensuring that we have all the relevant data for making contemplated comparison

and analysis. The term analysis refers to the computation of certain measures along with

searching for pattern of relationship that exist among data groups.

The role of statistics in research is to function as tool in designing research, analysis its data and

drawing conclusions there from. Most research studies result in a large volume of raw data which

must be suitably reduced so that the same can be read easily and can be used for further analysis.

We will start with the secondary data sources i.e. data collected from magazine, internet etc.

Following information has been collected from BPM.com. The Survey explores current practices

within all organizations and government agencies, regarding business management, process

Modeling and re-engineering.

In total approximately 500 respondents spanning a range of countries, industrial sector and

company size complete the survey. Responses were individually validated scrubbed of BPM

vendors

This version of the report presents the early results and initial analysis, including various cross-

tabulations and examinations for statistical significance.


5.1 BPM ADOPTION AND USAGE

Majority of the respondents were based in either Europe or North America and cover almost 60

individual countries (of which the United States was the single most common.)

18.95

11.58

4.21

Regional Distribution


BPM ADOPTION AND USAGE


which the United States was the single most common.)

32.11

33.16

4.21

Regional Distribution

N America

Europe

Asia/ocenia

S America

Africa/Middle east



N America

Asia/ocenia

S America

Africa/Middle east


Roughly one-third of the respondents worked for firms with more than 5000 employees equally

one-third with between 2 and 500 employees.

When company size and region are compared, in the main the spread is responsibly consistent

except that very large firms are overly represented in Arica/middle east sample and smaller firms

particularly common in Europe and

From the above data we can see the BPM presence is much more in Europe and North America

compare to other continent. In Asia/Oceania BPM usage is merely 18.95% thus BPM adoption in

India is also less. We can say the BPM technology is new

reasons for this such as slow economic progress, habit of working in old system or may be

economic slowdown.

After economic slowdown companies in India are not taking enough risk. And the main motto of

Indian corporate market is cost cutting.

expensive BPM suit from big

experience steady growth through 2014 when process management service in India will reach 1.6

Billion. So a correct pricing strate

33.68

8.95


third of the respondents worked for firms with more than 5000 employees equally

third with between 2 and 500 employees.



particularly common in Europe and South America.

ata we can see the BPM presence is much more in Europe and North America


India is also less. We can say the BPM technology is new in India. There could be various

easons for this such as slow economic progress, habit of working in old system or may be


rporate market is cost cutting. So most of the companies are not ready to implement an

expensive BPM suit from big vendors. But according to Gartner the Indian market will


Billion. So a correct pricing strategy is very important to cash in Indian market.

18.95

15.79

10.53

12.11

8.95

Company Size

2 to 99

100 to 500

500 to 1000

1000 to 2000

2500 to 5000

>5000


third of the respondents worked for firms with more than 5000 employees equally



ata we can see the BPM presence is much more in Europe and North America


India. There could be various

easons for this such as slow economic progress, habit of working in old system or may be


companies are not ready to implement an

But according to Gartner the Indian market will


2 to 99

100 to 500

500 to 1000

1000 to 2000

2500 to 5000

>5000


If you notice from above data of “company size”, the large companies are adopting BPMS more,

compare to small companies, reason is small companies may not like to invest a huge some on

money on adopting BPMS.

From the above discussions what can be naturally inferred is that at the end of the current

downturn, there is a high probability that the only BPM vendors left intact will be the large

companies with deep pockets and a very few pure-play BPM vendors who have a deep enough

niche in specific areas to survive the ice age. For instance companies like Oracle, Software AG

and IBM will not have any problems surviving the downturn but many of the very innovative

small pure play BPM companies could disappear by the end of 2009 (For obvious reasons we

would rather not name them). This scenario does not help the cost conscious customers since the

smaller players are usually more flexible on the cost as well as more receptive to customer

concerns and feedback. In the past the smaller BPM players have been very successful due to

their strategic partnership with the clients whereby the vendors have gone out of the way to build

features and pre-packaged workflows, specific to a niche domain. This cost and feature

flexibility would vanish if the smaller players disappear.

However the downturn has provided some of the medium sized technology players in the

industry (Such as Bahwan CyberTek Inc, with its CUECENT brand of products) with a chance to

rapidly mature there BPM product offerings. There low outsourced product development

structures, high engineering quality (Such as CMM Level V) and broad market reach combined

with a healthy cash situation provides the customers a much needed option. Especially as BPM

standards mature and the product becomes more a commodity, these players will provide the

customers a low cost reliable option to the premium priced solutions from the likes of Oracle and

TIBCO.

Bahwan Cybertek has deep pockets and global presence and is going to be a long term player

irrespective of the market. So from the stability and survival perspective they are similar to

Oracle, IBM and Software AG.

Various studies indicate that a BPM pilot project could easily cost the customer anywhere from

$200,000 to $850,000 in software licensing costs. If you do not possess in-house BPM skills, you


may also have to leverage at least three vendor consultants working for six month to complete a

BPMT pilot project, at an average cost of $200 per hour, amounting to approximately $500,000

in total services cost. Thus a complete pilot project could cost you anywhere from $700,000 to

$1.35 Million using a very conservative estimate. (We have not included several other costs here

for instance hardware, Operating Systems, Application Servers, System Administration,

Maintenance and support, Infrastructure etc) In today’s economic environment, for most medium

sized businesses (And even large sized businesses if you have taken a bailout package from the

government!) justifying $1.3 million for a pilot project to prove the benefits of BPM projects will

be a hard sell. In such a case what are our options? Obviously, postponing the BPM initiative

would be a bad choice since you would lose the learning and will be left far behind on

technology leadership. What is suggested is to find a cheaper option to get started and then wait

for the better times before you decide to pursue the premium products, which require millions of

dollars of investments.

Many small companies which have not started adopting BPM and companies who are not

looking for huge investment on BPMS are our target market. We can set a pricing strategy which

will suit us as well as our customers.

Bahwan Cybertek (BCT) has to come forward with following flexibility in pricing strategies.

1. Various studies indicate that a BPM pilot project could easily cost the customer anywhere

from $200,000 to $850,000 in software licensing costs. We have to give discount to our

customer negotiation basis. We cannot charge them $200,000 because that may drive

them away, we may have to give a discount of 40% to 50%.

2. We can offer their entire BPM product suite upfront without any user licensing,

providing

a full product suite at no upfront cost.

3. We can employee thousands of consultants across the globe and can provide our

customer with BPM services at 50% of the industry cost.


4. Further Products like CUECENT BPMS come with default platform certifications on

JBoss and Linux and hence could help our customer execute a highly reliable, effective

and affordable BPM strategy.

Products like CUECENT BPMS were built for such combinations and hence are extremely

popular in the emerging market due to their less expensive footprint. Once the project is in

production for a couple of month, it will be real straightforward to compile the cost savings,

compared to a Solaris/WebLogic based deployment using expensive products like Oracle and

TIBCO. On top when you add the revenue effects or strategic advantages of the new project, it

will be a compelling case for senior management to seriously consider BPM as there next

technology step.

We believe that if the above recommendations are strictly followed and consulting costs are kept

considerably low by engaging the vendor only for architectural advice and employee training, it

should be possible to cut company pilot projects cost by as much as 80%. And more than

anything it should be possible to get started on the pilot with zero upfront investment. (You

should be paying your licensing cost after 6 to 9 months of development, only when you decide

to go into production!)


5.2 ANALYSIS OF PRICING APPROACH

As we have already discussed pricing is also heavily dependent on competition, so let us see this

survey done by BPM trend in 2009.

If your organization is using a BPMS Suite, what Suite are you using? asked in 2005,2007

&2009

2005 2007 2009

Adobe Lifecycle

Workflow

2% 3%

Appian 3% 2%

Ascentn AgilePoint 0% 1%

BEA/Fuego BPM

Suite

4% 3%

EMC/Documentum 5% 5%

Global 360 Ent.

BPM Suite

1% 1%

Handysoft BizFlow 0% 1%

IBM WebSphere BPM 18% 15%

IBM/Filenet 11% 4%

Intalio 4% 4%

jBPM 1% 4%

Lombardi 3% 5%

Metastorm BPM 5% 5%

Oracle BPEL Process

Mang.

9% 9%

Pegasystems Smart BPM Suite

1%

1%

SAP NetWeaver 11% 8%

Savvion 5% 2%

Singularity 0% 1%

TIBCO iProcess Suite 7% 9%

Workpoint 1% 0%


Ultimus BPM Suite 2% 2%

webMethods Fabric 4% 2%

Other, please specify 42% 51%

The above table shows the various vendors in international market, out of them IBM, Lombardi,

Oracle and SAP are the leaders whereas many promising vendors such as Metastorm and

Savvion has a strong hold in India. One name which is missing from the list is Cordys who has

done very well in last few years. But the most important fact is the other categories which are

51% in 2009 which is encouraging sign for companies like Bahwan Cybertek.

BPM System Vendors, based on their evolution can be classified into 4 categories:

Pure-play BPM System vendors : These are the niche BPM system providers who have defined

this space. They offer BPM system in its purest form; rich and complete in functionality. They

also are the thought leaders and responsible for continuously inventing this space by adding new

features and functionalities. The leading vendors in this category are: Action

Technologies, Savvion, Metatorm, Fuego, and Pegasystems.

Business Integration vendors: Traditionally, these are EAI / middleware vendors offering

integration software such as message brokers, and integration brokers with STP (Straight through

Processing) capabilities. These vendors are now enriching their integration solution suite by

adding BPM components. They are positioning their BPM offering more as a complete

integration offering rather than process management offering. These vendors

are: IBM, Tibco, WebMethods, Vitria, and Oracle.

Workflow & Document Management vendors: These are the vendors who have traditionally

provided document management & document centric workflow systems. Such systems although


supported human to human workflow, they lacked human to system and system to system

integration capabilities. These vendors are now enriching their offering by enhancing their

workflow & document management systems to an integrated suite of BPM & Content

Management systems. These vendors are: Filenet, Documentum, Hummingbird, Newgen.

Enterprise Applications Vendors: They are enterprise application vendors providing packaged

solutions such as ERP, CRM, or SCM systems. They are getting into BPM space with a vision to

be the one stop shop for their existing and potential clients offering complete range of

information technology solutions supporting flexible and integrated execution of processes. SAP

leads this pack with its Netweaver offering.

Now after we discussed the need of BPM in India and the competition, let us see how the IT

market prospect in India in the coming years. The Indian IT services and products market is

expected to grow at 17 percent till 2014, a research study says. According to the study brought

out by Cyber Media Research, the overall India domestic IT services and products markets will

touch Rs.1,71,698 crore-level in 2012, while the size of the segment will touch Rs.2,33,930 crore

by 2014. 'A large chunk of IT hardware and software products will witness good traction on

account of the healthy growth in IT services as enterprises try to gain the best leverage out of

their IT deployment,' said Anirban Banerjee, associate vice president of CyberMedia Research.

Banerjee further said that domestic IT services and IT-enabled services markets will grow at a

compounded annual growth rate (CAGR) of 21.1 percent and will reach Rs.98,188 crore by

2014. IT product segments like software are expected to grow by 20.1 percent followed by

servers at 13.3 percent and personal computers at 12.9 percent 'driven by new deployments plus

productivity enhancement initiatives in the business enterprise segment, and continued strong

consumer demand for clients, particularly for notebook PCs', said the report.

So the IT market in India continue to grow, above facts are justified by the trend of Indian

economy, Kaushik Basu the chief economic advisor, Ministry of finance, India said India can

achieve double digit GDP in next few years. The Infrastructure is improving and thus it has

created a base for Entrepreneurship in India. As a result more and more companies are coming

up , the small and medium business sector in India is going to evolve as a major contributing


factor towards Indian Economy. To tap this market segment many BPM vendors are already

present in India.

Now from perspective of BCT, taping the market will not be easy because of mainly two reasons

BPM is still not considered by many Indian companies as a necessity, 2.The presence of huge

competition in India. So the solution is to target specific market, like many small BPM vendors

does in India, such as Karomi focuses on the manufacturing sector, especially the medium to

large auto and auto ancillary organizations, with solutions for the quality management processes

(e.g., auditing processes), HR processes, and vendor payments, deployed on their BPM engine.

BizApp Studio from AppPoint has most of its implementations in the medium and large BFSI,

Hi-tech, and government organizations. A leading stock exchange in India has used BizApp for

their compliance management process, comprised of more than three hundred activities, that

integrates the brokers and sub brokers. ProKosha focuses on e-business and small and medium

services organizations. While most of their implementations have been in the order management

process, an interesting case study is the usage of ProChara, their workflow engine for the

facilities management help desk of a large global infrastructure major with focus on airports,

highways, and energy. So BCT should focus on specific sector and set its pricing strategy on that

basis.

5.3 INDUSTRY SPECIFIC APPROACH

Indian Economy is in good shape many of its sectors are in profit, some of the major profit

making sector with high future growth are Banking, healthcare, entertainment and manufacturing

sectors. We will look into all this sectors and find out where BCT can suitably involve and

corner the market.

Healthcare

India healthcare industry is growing at a rapid speed thanks to flexible government policies and

improvement in infrastructure development. A new phenomenon has come up in healthcare

sector by the name of medical tourism and it is worth $330 million in India. Assocham in 2009


estimated that over 1, 80,000 foreigners visited Indian medical centres in the first eight months

of 2008. This shows the increasing demand of healthcare centres in India, thus it gives a very

good opportunity to BPM vendors to tie up with Fortis, Wockhardt. , Apollo to provide

customized BPM service. Let us see what BPM can do in Healthcare sector. Recently, Health

Care saw the emergence of solutions such as Electronic Medical Record’s Systems Information

Systems, Clinical Practice Management Systems and Decision Support. But these systems are all

still focused on the functions of individual micro-management. The emergence of business

process management as an approach to automation, centralization, and the process of health

care can help in operational efficiency, sweeping increase in productivity, a high-quality health

care for more patients and compliance with mandatory compliance regulations.

How BPM can help Healthcare sectors in increasing their businesses, as we know BPM

wherever used increased efficiency, decreased cost of production and improved customer

services, so in healthcare sectors also it can do the same. In US hearts bypass surgery costs

$85000, the same surgery in India costs $8500 thus the number of patient from US coming to

India increasing every year. The doctors in India believe this low cost high quality medical

service is way they can make India the biggest Healthcare centre but how. With increase in

medical expenses cutting cost and maintaining quality of international standards is tough. In fact

many US patients said the India hospitals such as Wockhardt and Fortis are better equipped than

their American Counterpart, so how it is possible to charge so low for a surgery, one reason is

obviously foreign exchange another skill and caliber of Indian doctors. Dr Ashok Rajgopal of

Fortis hospital held a record of 27 knee replacement surgery in a day. So this make them charge

low. Recently, Mr. Barrack Obama, US president said in America that US citizen must not go for

cheap medical surgery in India, as he assured them US government looking to provide cheap

medical facilities. So after that there was little concern among the Hospitals in India. So just

foreign exchange will not help now, hospitals have bring in an efficient process system, this can

be provided by BPM. Hospital can tie up with small vendors to get customized service. Let us

see how it can reduce costs further keeping the same quality level. Hospital charges patients on

the basis of per hour or per day. Suppose a patient from US pays $500 per day stay at an elite

hospital in India, a knee replacement surgery generally needs a month of care and bed rest but

that may cost $15,000 plus the fee for knee surgery say $10,000 that makes it $25,000. Air fare

and other expenses makes the total expenses quite high, thus may discourage a patient to come to


India. To help Health care sector BPM can implement and a process can be developed where a

patient recovery is monitored in a systematic manner, everything from medication, doctor check

up, other things like diet, exercise should be systemized by BPM so that the management and

doctors can monitor the recovery and if any discrepancy is noticed than they can react

immediately. This will help in quick recovery and reduce their stay in hospital by 30% thus a

patient from US may have to pay 30% less which will encourage them to come. This one

advantage of BPM many other advantages are after surgery care which will improve the

customer service. Fortis hospital has treated 10,000 US patients last year so it is not easy to be in

touch with 10,000 patients to see whether they maintaining their diet well or not, BPM can help

in monitoring them and management and doctors can see all the patients are taken care off or not.

Benefits

Highly improved patient care: BPM makes healthcare companies agile in achieving their goal of

providing best healthcare at the least cost and in minimum time to patients. With streamlined

processes - spread across the enterprise and working towards the single goal - results in patients

getting increased individual focus.

Lower Costs & improved bottom line: With BPM affecting all the aspects of functioning of

Healthcare companies, weaving them seamlessly under one umbrella, enables cutting costs from

every single activity. With proven implementation methodologies like Breakthrough

Methodology, the bottom-line benefits can be rapidly obtained.

Compliance: Ensuring compliance with ever-evolving regulations is a vital function for the

global companies operating in different business environments across the world. BPM helps

companies conform to compliance needs and employ best practices, without sacrificing their

corporate policies.

Diversification: The rapid growth of Healthcare industry has resulted in pure Healthcare

providers going beyond providing mere services and individualized care, and diversifies into

allied Life Sciences domains such as biotechnology, bioinformatics, genetic engineering and


molecular medicine, among others. Having a BPM in place enables such organizations to

effectively manage new ventures by providing complete visibility and tight monitoring for new

processes while leveraging existing investments in business.

In addition to these, there are multiple other equally important benefits such as retaining talent,

leveraging existing investments and drastic improvements in quality and time-to-market.

BPM, therefore, is much more than a mere fad for the Healthcare and Pharmaceutical industry.

To the organizations prepared to adopt it whole-heartedly, it brings tangible and measurable

benefits; thereby ensuring companies can set off on a high growth path.

Banking

Banking case studies, surveys, and related studies around the globe reveal the popularity of BPM

within the banking industry. Banks have reported a 40%-50% improvement in cycle time,

efficiency, and cost, due to BPM adoption. Account opening processes, compliance to

regulations and standards, and the automation of paper-based processes are some of the more

common scenarios for BPM adoption in banks. Adoption of BPM by Indian banks is along

similar lines, with some unique characteristics and challenges. The banking reforms in India, in

line with the World Trade Organization (WTO) requirements, will result in large transformations

in the Indian Banking industry. Starting in April 2009, the second phase of the reforms will open

up the Indian banking sector to foreign banks and provide greater freedom, challenges, and

opportunities for improvement.

In this section we explore the scenario for Indian banking, with its unique challenges, and we

will look at a specific current BPM opportunity related to check processing.

Banking in India: A Brief Perspective

The Indian banking infrastructure has grown significantly over the last decade with over 56,000

branches covering public sector banks (PSBs) and a mix of Indian private players, MNC


(multinational) banks, and smaller regional players. The regulatory system, which is one of the

strong points of the Indian banking industry, is governed by the Reserve Bank of India (RBI).

Since the economic liberalization of the 1990s, the banking industry, which opened up to private

players, has been significantly transformed, with rapidly evolving regulations, high competition,

demanding customers, and technology adoption raising the bar of performance.

Most of the PSBs are large, well-established institutions with more than a century of banking

experience. The PSBs, virtually unchallenged until the 1990s, have automated their core banking

operations based on RBI’s directive. While this provided them with improved efficiencies in

their hitherto largely manual processes, further savings in productivity and reduced manpower

requirements are somewhat limited due to resistance from trade unions and employee

associations. The PSBs have well documented processes, with multiple levels of controls and

approvals, and are more branch-oriented. Most of the PSBs’ processes still involve manual or

semi-automated work, providing an opportunity for BPM in the near future.

The private players, both Indian banks and MNCs, were required to centralize and computerize

from their inception. Hence, they have focused on leaner retail banking operations, consciously

moving away from the bank branch as the hub, with more focus on other channels like ATMs,

online banking, etc. Indian private banks have multiple entities, processes, and infrastructures for

offering products and services like insurance, loans, investments, etc. The various new products

and partnerships have resulted in processes that are still evolving. There is a need to create

efficient processes across different product lines to provide a single-window experience for

customers.

The MNC banks that brought in sophisticated technology, tested products, services, and

processes, face the challenge of replicating and customizing their approaches for the Indian

market and its regulatory norms. Their growth, which, until now, was restricted by regulation, is

set to take off in the coming year due to the banking reforms. There is a huge population (90

million households) in the rural and unorganized employment sector who are both un-banked

and under-banked. The challenge is in designing products and channels to include them. RBI, in

line with global trends, has introduced several regulations such as KYC (Know Your Customer),

AML (Anti-Money Laundering), and Basel II. But Indian banks face unique challenges in


adopting these; for example, KYC requires identity and address proof of the prospective

applicant. Since India does not have a unique individual identifier (like the social security

number in the U.S.), various other identifiers are allowed (passport, voter’s ID, driving license).

There are cases where a customer may not have any of these documents; for example, a senior

female citizen in a rural area. There is also the RBI imperative not to deny banking service to any

customer category or individual. These conditions increase the operational overheads and costs

of the banks and also affect customer experience. Such situations call for flexibility to be built

into process design and the underlying technology. BPM and workflow technologies have been

adopted by banks to handle these compliance requirements; for example, customization of

business rules for customer documentation during account opening for different customer

profiles. While some of the core banking packages has incorporated BPM capabilities to handle

these requirements, other package vendors provide KYC solutions by partnering with BPM

vendors.

One of the current focus areas for RBI is the implementation of the Cheque Truncation System

(CTS), which brings in considerable changes in the processes, technology, and other aspects of

the bank, as well as changes for customers. Cheque Truncation System (CTS): A BPM Exemplar

The “cheque” (also spelled “check”) is one the most favored methods of payment in India. Even

with various electronics payment mechanisms, the pressures on cheque clearing and settlement

are huge, with India being the sixth largest in the world in handling paper-based clearing (1.46

billion cheques during April ’07-March ’08). RBI has launched the Cheque Truncation Initiative

(CTS) (similar to the Check 21 Act in the US) with a time-based plan for adoption across the

country. CTS was piloted through banks in the NCR (National Capital Region – i.e., New Delhi

and neighboring areas) and has been mandated there since February 2008. CTS is being

proactively adopted by other banks across the country as it reduces costs, increases efficiencies,

and improves customer satisfaction. The expected results of CTS are T+0 for local clearing and

T+1 for inter-city clearing, as compared to the current T+3 and T+15 when using physical

cheques. CTS implies that the physical check will not be moved across banks for settlement and

will be truncated at the presenting bank. The image of the check is captured along with the

MICR data, and, based on this, the clearing process is completed. The exact point of truncation

has been left to the individual banks. The check then moves as an image and data through the


clearing house to the payer bank, which verifies the signature and availability of funds, and

completes the clearing process. The verification of the validity of the mandatory aspects of the

check, like signature, date, alteration to the check, is done by the presenting bank. RBI has

defined the time frames for the storage of physical checks and images and also the technological

standards (e.g., grey scale imaging, Public Key Infrastructure, etc). RBI has provided the legal

infrastructure for CTS by modifying the relevant laws (Negotiable Instruments Act and IT Act).

The entire process involves various entities, formats, and rules, and is ideal for a BPM

implementation involving governance, process changes, workflow implementation, application

integration, document management, definition of standards, change management, etc.

Adopting CTS brings unique challenges, such as the multiple languages in which the check may

be written, lack of complete automation in banks to enable STP (Straight through Processing),

etc. The business processes of the banks, related to payments, cash management, interfacing

between banks/clearing houses, will need reengineering. IT processes need changes to handle

electronic payment, imaging, storing/retrieving, business continuity, and security. Process

training and process documentation need to be planned. Various business opportunities exist for

different players. There is a need for consulting around BPR, security, imaging, and network

infrastructure. A new line of business, related to image bureaus, is being created, that can handle

the imaging, storage, and transmission facilities for smaller banks. An outsourcing opportunity

exists around providing imaging services to a group of banks or as a business service to larger

banks in rural areas. Many vendors have built CTS solutions on their BPM and document

management platforms that are gaining popularity with Indian banks. Their solutions integrate

with the existing core banking solutions and provide the required customization. Local vendors –

namely Newgen, Vsoft, ICICI Infotech – and global banking solution providers, like Finacle

(Infosys), partner with other vendors to offer this solution, while others like Flexcube (Oracle)

have built it into their stack. BPM opportunities also exist in corporations, institutions, and

government organizations that have to redefine their accounts payable and receivables to take

advantage of CTS, which provides better cash management and funds realization. For example,

utility companies and credit card providers can truncate the cheques at their locations instead of

physically moving them to their banks.


The current global financial crisis has not had the debilitating effect on the Indian banking

industry that it has had in several other countries. Nevertheless it will constrain market growth,

heighten competition, and increase flux in the regulatory environment. A McKinsey study on

how the Indian banking sector needs to gear up for high performance by 2010 mentions (among

other things) the need for processes to create efficient banking organizations. Further, it also

mentions the need for investments in technology as a key enabler for high performance and for

providing innovative banking services to lower income and rural markets. Opportunity exists for

Indian banks to view BPM in its entirety (and not just as a technology option) and to manage its

processes better as one of the strategic levers – to not just survive, but to succeed, in turbulent

times.

Telecom

It would be unfair if I don’t discuss about the booming telecom sector of India. The sector has

been the fore front of Economic reform in India for past few years. The telecom company such

as Airtel, Idea, Tata Indicom, Reliance and Aircel are few stalwarts of this sector. Let us see how

BPM can fit into this. This is a case study on IBM BPM solution for Bharti Airtel.

Based in New Delhi, Bharti Airtel is India’s largest private-sector telecom operator, with a strong

presence in mobile communications, fixed-line services, and domestic and international long

distance services. Bharti Airtel is India’s sixth-largest company by market capitalization, with

more than 57 million customers (as of 12/31/07) and US$4.2 billion in annual revenues (as of

3/31/07).

Business need:

Bharti Airtel needed to maximize its future flexibility and growth potential by adopting a

business-driven framework for integration, allowing it to implement and deliver new services

rapidly. With competition intensifying in the Indian telecom services market, Bharti Airtel

needed to find a way to focus on developing new services that could set it apart from the

competition and strengthen its customer relationships.

Solution:

Bharti Airtel entered into a comprehensive 10-year agreement with IBM to transform its

processes and take on the management of its IT infrastructure. Its new platform provides a

standardized framework for Bharti Airtel to integrate its channels and customer-facing


processes—enabling a more seamless customer experience, higher customer satisfaction and

more profitable growth.

Benefits:

• Ability to process 1.5 million new customers per month.

• Outsourcing of technology enables Bharti Airtel to focus resources on growing the

business.

5.4 FINAL ANALYSIS

It is the purpose of any project to find a solution for the discussed problem, thus to achieve that

we will have a final analysis on the topic. The pricing of BPM in India is not going to be easy

because of competition, although there is enormous scope and opportunity for companies like

BCT in Indian market. As we have already discussed, India is among the first few countries to

revive from economic downturn of recent years. Indian economy is expected to grow at a rate of

over 8 % in coming years. As we have already discussed, the Banking and Healthcare sector

along with telecom where the growth of BPM is extensively lies. Already the importance of

BPM has been appreciated by the industries in India. A survey was done recently by BPM trend

to support this fact. Few questioned has been asked to company executives regarding BPM and

its adaptation.

By analyzing this survey we can understand the demand for the product and the sectors where

the demand is high. Also we can decide an approach that could help in preparing an appropriate

pricing strategy.


Every company has responded to the worldwide downturn of the last two

years. How would you describe your company’s response – as far as business

process initiatives (Choose one)

2005 2007 2009

We cut back sharply, as a result of the

economic downturn, and there’s no end in sight

10%

We cut back sharply, but now are beginning

to become active again

12%

We cut back, but have continued BPM efforts 29%

We cut back, but are now beginning to

accelerate again

7%

We didn’t cut back our BPM spending 35%

Other, please specify 8%

Total 100%

Companies off late are being hesitant in adopting BPM due to the recent economic slowdown in

the world. From the survey done by BPM trend above we can see that companies are cutting

back on BPM spending but 35% said they did not compromise on BPM spending, even in

economic slowdown. This shows companies started to realize the indispensability of BPM in

today’s Business world.


How much would you estimate your organization spent on business process

analysis, process management, monitoring, redesign and improvement in

2005, 2007 and 2009? Include BPM management, Lean Six Sigma, process

automation and overhead staff. DO NOT include outsourcing

2OO5 2 007 2009

$0-$500,000 57% 51% 54%

$500,000 to $999,999 16% 16% 15%

$1 million $5 million 19% 21% 21%

$5 million to $10

million

3% 4% 4%

Over $10 million 5% 7% 4%

Over $50 million 2% 3%

Total 100% 100%

The above data shows to what extent companies will go to acquire required BPM technology.

This shows although companies are interested in spending on BPM but they will not spend big

initially. In the survey 54% says they would like to spend not more than $500,000. This shows

that companies still don’t want to risk more, they want to spend less first and if it succeeds they

will go for big investment. Thus it will give small vendors like BCT to explore the Indian

market.


The next survey asked participants to provide their opinion regarding electronic healthcare and

its relationship to BPM systems.

This shows the growing importance of healthcare sector, as we have already discussed that

healthcare along with banking and telecom are three important sectors where BCT can play its

role. In the above survey respondents accept that without BPM there is no way forward in

today’s technology based healthcare sector. For example

Bharti Airtel needed to maximize its future flexibility and growth potential by adopting a

business-driven framework for integration, allowing it to implement and deliver new services

rapidly. With competition intensifying in the Indian telecom services market, Bharti Airtel

needed to find a way to focus on developing new services that could set it apart from the

competition and strengthen its customer relationships.

Bharti Airtel entered into a comprehensive 10-year agreement with IBM to transform its

processes and take on the management of its IT infrastructure. Its new platform provides a

standardized framework for Bharti Airtel to integrate its channels and customer-facing

15%

18%

68%

Electronic healthcare as part of healthcare

reform possible without BPM

Yes

Don’t know

No


processes—enabling a more seamless customer experience, higher customer satisfaction and

more profitable growth. This deal is worth billion.

Similarly in banking sector BNP Paribas automatically adjusts product offers and fees based on

customers’ profiles and delivers customized services on demand when it implements a master

data management initiative based on IBM Software.

Thus there are two types of BPM SUITS – one which is expensive provided by big vendors such

as IBM and other inexpensive, industry specific and customized provided by small and mid level

vendors. BCT can explore this inexpensive BPM market. Here BCT has a tough competition

from home grown small vendors such as Skelta and have to quote price accordingly. BPM

products are more about efficiency than price. Sole purpose of BPM is to provide high ROI, so

companies would pay little extra to get that. A right balance of quality services and attractive

price is the right way to go.


6. CONCLUSION

The project is more about the approach towards pricing rather than the pricing in itself. The

reason simply is that, the sales of product BPMS not really follows general marketing principles

like reducing the price to increase the profit kind of thing. In fact it is really tough to quote a

price for a BPM product because it is not any other consumer product where you know the price

of your competitor easily. In case of BPM it is difficult to know the price. When you set a price

for BPM product, you should also see what the features or services are been offered by your

competitors. Your clients will look for what extra you can offer at the same price. The project

started with brief description of BPM, than we discussed the pricing strategies of BPM product,

BPM has many other sub products which we didn’t focus upon as it would take huge amount of

research and time. We discussed pricing models, cost based pricing and value based pricing.

Also we discussed why value based pricing is a better option.

We mainly used secondary data and partly primary data provide by the company. But main

source of information is secondary data from various books, magazine, internet etc. The reason

for heavy dependence on secondary data is because disclosure of primary data on BPM comes

under compliance issue in various companies. Companies really don’t want to disclose their

success mantra to others. So sources such as Gartner, Forrester and BPM trend really have been a

big help.

The project also does a meticulous study on three important sectors where BCT can successfully

launch its BPM products in India; they are Telecom, Banking and Healthcare. Project’s outcome

is to help find BCT a market where it can prosper and helping the company to set a correct price

for its product.


7. RECOMMENDATION

It is recommended that BCT should find specific sector where the product Cuecent can be

successful such as healthcare where the growth is very high. The idea is to set a low price and

make the product more industry specific. The customer must feel that he has been given special

attention and special care. BCT as we know is new to Indian market, its brand is still not matured

among the customers in India. So, it will not be wise of BCT to think of big investments rather it

should apply an industry specific approach. Once they gain a customer then they must try to

retain it by given special offers and discounts. For example as I have stated above Bharti Airtel

and IBM has a long and healthy relationship purely on the basis of special packages and services

offered by the former.

As I have mentioned above if you buy a BPM Suit from a big vendor like IBM the average cost

could be $700,000 to $1.35 million depends on the requirement. So most of the companies in

India wouldn’t like to shell out that kind of money and more so in current economic slowdown.

This is the section which BCT can capture by quoting a price as low as possible. BCT can sell it

for 50% less and can provide technical support along with it. The initial idea should not be big

profit but brand building and gaining confidence of customers. BCT should build special

products for specific industry like Healthcare and become a well known vendor in that sector. As

companies like Newgen and Karomi develop their expertise in BPO and manufacturing sector

respectively (please refer to BPM in India section)


8. BIBLIOGRAPHY

WEBSITES:

www.forrester.com

www.bpmtrend.com

www.gartner.com

www.bahwancybertek.com

www.cuecent.com

www.cxotoday.com

BOOKS:

• Brian Underdahl 2011 BPM for Dummies, Wiley Publishing, Inc.

• Philip Kotler 2009 Marketing Management, Pearson Prentice Hall

• JASVINDER SINGH, Software pricing strategies, University of Helsinki,

dept. of Computer Science.

Study on Pricing Strategies of BPMS

Documents