Patent Application
20070214025
The invention relates generally to managing a business engagement, and more particularly, to a solution for selecting and/or implementing a pricing model for a business solution included in the business engagement.
To date, most engagement contracts for business solutions, such as services, product purchases, and/or the like, are based on a “fixed price” pricing model. Using the fixed price pricing model, a provider may determine the price for providing a particular service/good by determining the cost to provide the service/good and adding a certain profit. For example, a service provider may charge $1,100 for a service that costs $1,000 to provide in order to make a ten percent profit. Another pricing model comprises a “venturing” pricing model. Using the venturing pricing model, a provider is given equity in a client as payment, the provider and client form a joint venture, and/or the like, in return for the goods/services provided to the client.
Under the fixed price pricing model, the client and provider have dissimilar goals with respect to the business solution. In particular, the client has a goal of improving some aspect of its business (e.g., the reward), but has no direct financial interest in the efficiency with which the business solution is provided (e.g., the risk). In contrast, the provider has a risk-based goal of providing the business solution efficiently, but has no direct financial interest in the reward-based improvement to the client's business. Under the venturing pricing model, both the client and provider have a direct financial interest in both the risk-based efficiency with which the business solution is provided and the reward-based improvement to some aspect of the business.
Frequently, a client and provider seek to more closely align their goals by sharing some of the risks/rewards for a particular business solution. However, due to the resulting shared ownership, a venturing pricing model often is not desired by one or both parties. In these cases, the parties may seek to manage a business engagement using a pricing model that incorporates some aspects of both the fixed price pricing model and the venturing pricing model. To date, such a pricing model is negotiated by the parties for each business solution entered into by the parties.
In view of the foregoing, there exists a need in the art to overcome one or more of the deficiencies indicated herein.
The invention provides a solution for managing a business engagement between a provider and a client. The business engagement includes one or more business solutions for which a client risk preference level is obtained. One of a plurality of engagement types is also obtained for the business solution based on a business goal for the business solution. A pricing model for the business solution is then selected based on the engagement type and the client risk preference level. Further, the pricing model can be selected based on additional factors, such as a provider risk preference level, a business value for the business solution, and/or the like. The pricing model can comprise a risk/gain sharing pricing model having a fixed price and/or variable price pricing structure. Performance data for the business solution can be obtained and used as feedback for future business engagements and/or to implement the risk/gain sharing pricing model. In this manner, the invention provides an improved solution for managing a business engagement throughout its lifecycle.
A first aspect of the invention provides a method of managing a business engagement between a provider and a client, the method comprising: obtaining a business solution included in the business engagement; obtaining a client risk preference level for the business solution; obtaining one of a plurality of engagement types for the business solution based on a business goal for the business solution; and selecting one of a plurality of pricing models for the business solution based on the engagement type and the client risk preference level.
A second aspect of the invention provides a system for managing a business engagement between a provider and a client, the system comprising: a system for obtaining a business solution included in the business engagement; a system for obtaining a client risk preference level for the business solution; a system for obtaining one of a plurality of engagement types for the business solution based on a business goal for the business solution; and a system for selecting one of a plurality of pricing models for the business solution based on the engagement type and the client risk preference level.
A third aspect of the invention provides a program product stored on a computer-readable medium, which when executed, enables a computer infrastructure to manage a business engagement between a provider and a client, the program product comprising computer program code for enabling the computer infrastructure to: obtain a business solution included in the business engagement; obtain a client risk preference level for the business solution; obtain one of a plurality of engagement types for the business solution based on a business goal for the business solution; and select one of a plurality of pricing models for the business solution based on the engagement type and the client risk preference level.
A fourth aspect of the invention provides a method of generating a system for managing a business engagement between a provider and a client, the method comprising: providing a computer infrastructure operable to: obtain a business solution included in the business engagement; obtain a client risk preference level for the business solution; obtain one of a plurality of engagement types for the business solution based on a business goal for the business solution; and select one of a plurality of pricing models for the business solution based on the engagement type and the client risk preference level.
A fifth aspect of the invention provides a business method for managing a business engagement between a provider and a client, the business method comprising managing a computer infrastructure that performs the process described herein; and receiving payment based on the managing.
The illustrative aspects of the present invention are designed to solve one or more of the problems herein described and/or one or more other problems not discussed.
These and other features of the invention will be more readily understood from the following detailed description of the various aspects of the invention taken in conjunction with the accompanying drawings that depict various embodiments of the invention, in which:
It is noted that the drawings are not to scale. The drawings are intended to depict only typical aspects of the invention, and therefore should not be considered as limiting the scope of the invention. In the drawings, like numbering represents like elements between the drawings.
As indicated above, the invention provides a solution for managing a business engagement between a provider and a client. The business engagement includes one or more business solutions for which a client risk preference level is obtained. One of a plurality of engagement types is also obtained for the business solution based on a business goal for the business solution. A pricing model for the business solution is then selected based on the engagement type and the client risk preference level. Further, the pricing model can be selected based on additional factors, such as a provider risk preference level, a business value for the business solution, and/or the like. The pricing model can comprise a risk/gain sharing pricing model having a fixed price and/or variable price pricing structure. Performance data for the business solution can be obtained and used as feedback for future business engagements and/or to implement the risk/gain sharing pricing model. In this manner, the invention provides an improved solution for managing a business engagement throughout its lifecycle. As used herein, unless otherwise noted, the term “set” means one or more (i.e., at least one).
Turning to the drawings,
Computing device 14 is shown including a processor 20, a memory 22A, an input/output (I/O) interface 24, and a bus 26. Further, computing device 14 is shown in communication with an external I/O device/resource 28 and a storage system 22B. As is known in the art, in general, processor 20 executes computer program code, such as engagement system 30, which is stored in memory 22A and/or storage system 22B. While executing computer program code, processor 20 can read and/or write data, such as business solution 52, to/from memory 22A, storage system 22B, and/or I/O interface 24. Bus 26 provides a communications link between each of the components in computing device 14. I/O device 28 can comprise any device that enables an individual to interact with computing device 14 or any device that enables computing device 14 to communicate with one or more other computing devices using any type of communications link.
In any event, computing device 14 can comprise any general purpose computing article of manufacture capable of executing computer program code installed thereon (e.g., a personal computer, server, handheld device, etc.). However, it is understood that computing device 14 and engagement system 30 are only representative of various possible equivalent computing devices that may perform the process described herein. To this extent, in other embodiments, the functionality provided by computing device 14 and engagement system 30 can be implemented by a computing article of manufacture that includes any combination of general and/or specific purpose hardware and/or computer program code. In each embodiment, the program code and hardware can be created using standard programming and engineering techniques, respectively.
Similarly, computer infrastructure 12 is only illustrative of various types of computer infrastructures for implementing the invention. For example, in one embodiment, computer infrastructure 12 comprises two or more computing devices (e.g., a server cluster) that communicate over any type of communications link, such as a network, a shared memory, or the like, to perform the process described herein. Further, while performing the process described herein, one or more computing devices in computer infrastructure 12 can communicate with one or more other computing devices external to computer infrastructure 12 using any type of communications link. In either case, the communications link can comprise any combination of various types of wired and/or wireless links; comprise any combination of one or more types of networks (e.g., the Internet, a wide area network, a local area network, a virtual private network, etc.); and/or utilize any combination of various types of transmission techniques and protocols.
As discussed herein, engagement system 30 enables computer infrastructure 12 to manage a business engagement 50. To this extent, engagement system 30 is shown including an solution system 32, a type selection system 34, a pricing model system 36, and a performance system 38. Operation of each of these systems is discussed further herein. However, it is understood that some of the various systems shown in
Regardless, the invention provides a solution for managing business engagement 50 between provider 16 and client 18. In general, business engagement 50 includes a set of business solutions 52, each of which will be provided by provider 16 (or a related entity) to client 18 as part of business engagement 50. Each business solution 52 can comprise goods (e.g., a new product purchase), services (e.g., information technology management), or some combination thereof.
Engagement system 30 can manage business engagement 50 throughout the evaluation, proposal, contractual, delivery, and performance lifecycles of business engagement 50. To this extent, it is understood that business engagement 50 may be at any of the various stages in the lifecycle, and business engagement 50 may or may not result in a contractual agreement and performance by provider 16. Further, business engagement 50 can include additional data, such as an identification of provider 16 and/or client 18, a status of the engagement, and/or the like. Still further, it is understood that engagement system 30 can be utilized by provider 16, client 18, and/or a third party user to manage business engagement 50.
In one embodiment, solution system 32 comprises a similar system as that disclosed in the co-owned and co-pending U.S. patent application Ser. No. 11/295,828, filed on Dec. 7, 2005, and entitled “Business Solution Management”, which was previously incorporated herein by reference. In this case, solution system 32 can obtain business solution(s) 52 by obtaining a set of business pain points and/or a set of resource constraint(s) for client 18 and obtain a set of business components based on the set of business pain points. To this extent, solution system 32 can use a component business map for client 18.
Solution system 32 (
To this extent, solution system 32 (
Returning to
Each engagement type can reflect the relative importance of one or more attributes of business solution 52 based on the business goal(s) for client 18. To this extent, type selection system 34 could obtain at least one business goal from client 18 for each business solution 52 and map the business goal(s) to a corresponding engagement type. An illustrative set of engagement types can include, for example: a consistency engagement type, which indicates that client 18 desires a consistent quality for business solution 52 (e.g., a consistent delivery of services); an enhancement engagement type, which indicates that client 18 desires business solution 52 to enhance one or more attributes (e.g., productivity) of its business; and a transformation engagement type, which indicates that client 18 desires business solution 52 to implement a new business area.
In step S3, pricing model system 36 can obtain a client risk preference level for each business solution 52 in business engagement 50. A user, such as client 18, can provide an individual client risk preference level for each business solution 52, provide a single client risk preference level for business engagement 50, and/or provide a client risk preference level for a set of related business solutions 52. In any event, the client risk preference level can be based on any of numerous considerations for client 18. For example, client 18 may have a limited budget in which to implement business solution(s) 52. In this case, client 18 may desire to take on an increased risk in order to lower initial payments to provider 16.
In step S4, pricing model system 36 can select one of a plurality of pricing models 54 (
In any event, each pricing model 54 can have a corresponding pricing structure. Within group 72C, some business solutions 52 have a fixed price pricing structure, while some business solutions 52 have a variable price pricing structure. In a fixed price pricing structure, an amount paid by client 18 is generally fixed in advance and the payment is provided to provider 16 when provider 16 meets certain goals, e.g., performance deliverables, benefits delivered, and/or the like. A fixed price pricing structure also may include a performance bonus, share of benefits, and/or the like based on the results of business solution 52.
In a variable price pricing structure, the cost of business solution 52 and/or payments by client 18 can be partially or entirely based on a delivery schedule for business solution 52, a benefit provided by business solution 52, an amount that client 18 uses business solution 52, and/or the like. To this extent,
Returning to
In addition to the engagement type and the client risk preference level, pricing model system 36 can use one or more additional considerations in selecting an appropriate pricing model 54. To this extent, as shown in step S3, pricing model system 36 also can obtain a provider risk preference level for each business solution 52 in business engagement 50. A user, such as provider 16, can provide an individual provider risk preference level for each business solution 52, provide a single provider risk preference level for business engagement 50, and/or provide a provider risk preference level for a set of related business solutions 52. In any event, the provider risk preference level can be based on any of numerous considerations for provider 16. For example, provider 16 may desire a predictable payment for implementing business solution(s) 52. In this case, provider 16 may not desire to share risk with client 18 in exchange for lower initial payments.
Further, in step S5, pricing model system 36 can obtain a business value for each business solution(s) 52. In this case, pricing model system 36 also can consider the corresponding business value when selecting an appropriate pricing model 54 in step S4. In one embodiment, business value of a business solution 52 is determined using the invention described in the co-owned and co-pending U.S. patent application Ser. No. 11/200,847, filed on Aug. 10, 2005, and entitled “Business Solution Evaluation” and co-owned and co-pending U.S. patent application Ser. No. 11/200,727, filed on Aug. 10, 2005, and entitled “Value Model”, both of which were previously incorporated herein by reference. To this extent, pricing model system 36 and/or another system can obtain a solution risk for business solution 52, which corresponds to a probability that the corresponding business solution 52 will be successfully implemented, and a value model for business solution 52, which calculates the business value for business solution 52 using the value model and the solution risk.
For example,
In value model 90, an enterprise function node in one enterprise level, such as enterprise level 92A, is connected to another enterprise function node in another enterprise level, such as enterprise level 92B, when the business activity represented by the first enterprise function node (e.g., RFQ) is affected by a change in/implementation of the business activity represented by the second enterprise function node (e.g., e-procurement). Similarly, a driver metric node in one driver level, such as driver level 94L, is connected to another driver metric node in another driver level, such as driver level 94A, when the performance/financial metric represented by the first driver metric node (e.g., shareholder value) is affected by a change in the performance metric represented by the second driver metric node (e.g., account cost). Further, a driver metric node is connected to an enterprise function node when the performance/financial metric represented by the driver metric node (e.g., account cost) is affected by a change in/implementation of the business activity represented by enterprise function node (e.g., RFQ).
In addition to defining an expected effect that a change in one node will have on another node, the relationship information in value model 90 can comprise the solution risk. The solution risk can define an uncertainty range, thereby providing a more flexible measurement of the modification. Further, the value model can include aggregate relationship data, which can be used to account for any dependencies (e.g., synergistic, cannibalistic, statistical) that may be present among different relationships. In this manner, an accurate business value, which accounts for dependencies between functions and which can be expressed as a range, a worst case, a best case, and/or the like, can be obtained using value model 90.
Returning to
For a fixed price pricing structure, let X denote the net business value (expressed in dollars) provided to client 18 by business solution 52. It is understood that since X comprises the net business value, any costs for business solution 52 to provider 16 (e.g., for research and development) and/or client (e.g., for implementation) have been removed from X. Further, assume X˜N(μ, σ2), that is, X follows a normal distribution with a mean of μ and a variance of σ2, which can be obtained, for example, from value model 90 (
Under the fixed price pricing structure, provider 16 will charge the following price:
πf=cf+θfμ,
where cf is the cost to provider 16 and θfε[0,1] is a parameter, e.g., θf is the portion of the expected net value created for client 18, which is charged along with the cost as part of the fixed price. While the provider's net profit is deterministic, e.g., θfμ, the net profit for client 18 is stochastic. In particular, the net profit for client 18 is equal to X−θfμ, which follows the normal distribution N((1−θf)μ, σ2). As a result, the client's net profit (NP) can be specified in a probabilistic equation:
P[NP≧(1−θf)μ−zασ]=α,
where zα is the value such that P(Z≦zα)=α, for any αε[0,1], with Z˜N(0,1) being the standard normal variable. For example, zα=2.33 when α=99%, zα=1.65 when α=95%, etc.
Using an illustrative example, suppose the net value X is projected to be $10 million, with a standard deviation of 2; the development cost to provider 16 is $200,000; and θf=10%. In this case, provider 16 will charge a price:
πf=0.2+(0.1)10=$1.2 million.
Further, the client's net profit has a mean of 10−1=$9 million, with a standard deviation of 2 (the cost of $200,000 is assumed to be netted out of X). As a result, there is a 99% chance that client 18 will have a net profit of 9−2.33(2)=$4.34 million.
For a variable price pricing structure, client 18 may pay an upfront amount π0, plus a future amount payable at t time units after business solution 52 is implemented. The future amount can be a portion, θv, of the net value that is above a certain level K. Here, both θv and K are parameters that can be varied (e.g., subject to negotiation). Therefore, the total expected price charged by provider 16, discounted to the present, is:
π0+e−rtθvE(X−K)+
where r is the discount factor, such as the interest rate. For provider 16 to be willing to accept the variable price pricing structure (as opposed to the fixed price pricing structure discussed herein), then:
π0+e−rtθvE(X−K)+−cv≧πf,
where cv is the cost to provider 16 that is beyond cf, e.g., additional expenses to implement the variable price pricing structure, such as monitoring the performance of business solution 52 after implementation.
Assuming that the upfront payment will at least cover the provider's costs, e.g., π0>cf+cv, then the net profit for provider 16 has a deterministic component: π0−cf−cv, and a stochastic component: the profit-sharing amount payable at t. The stochastic component can be denoted as Π:=θv(X−K)+ and will follow a normal distribution N(θv(μ−K), (θvσ)2), truncated at zero. Specifically,
where Φ(x) denotes the distribution function of the standard normal variable, and Φ(x):=1−Φ(x). Consequently,
P[Π≧θv(μ−K−zασ)]=α,
for any a such that μ−K−zασ≧0. The client's net profit can be characterized by modifying the formula for the client's net profit in the fixed fee pricing schedule to:
P[NP≧μ−π0−zασ]=α.
Using a variable price pricing structure with the illustrative example discussed above, suppose: the additional cost to provider 16, cv=$100,000, so that the total cost for provider 16 is 50% higher than the cost under the fixed scheme; the upfront charge, π0=$800,000, K=$5 million; θv=50%; t=1 year, e.g., the variable portion will be based on performance improvements in one year and paid at that point; and r=8%. In this case, client 18 keeps all of the net value created up to $5 million, but agrees to share equally with provider 16 any value above $5 million. Then, the total expected profit for provider 16, discounted to the present value, is:
π0+e−rtθvE(X−K)+=0.5+0.923(0.5)(2)(2.502)=$2.81 million,
where,
The $2.81 million profit is much higher than the profit of $1 million under the fixed scheme, thereby clearly satisfying the necessary inequality. In fact, if α=95%, then
P[Π≧0.5(10−5−1.65(s)]=P[Π≧1.35]=95%.
That is, in addition to the upfront pay of $800,000, there is a 95% probability that provider 16 will receive a performance-based fee of at least $1.35 million.
Additionally, client's net return also appears to improve. In particular, client 18 will continue to have a 99% chance to obtain a net profit of at least
10−0.8−2.33(2)=$4.54 million,
which is $300,000 higher than under the fixed price pricing scheme. Further, client 18 is entitled to keep up to 5−0.8=$4.2 million of the net profit before profit-sharing any additional profit with provider 16. As a result, the variable price pricing structure results in a “win-win” situation for both provider 16 and client 18.
In any event, under a risk/gain sharing pricing model, client 18 will generally be expected to make a series of payments to provider 16 in return for the business solution 52. To this extent, in step S6, pricing model system 36 can determine a set of payments for client 18 using the selected pricing model 54. For example, for a fixed price pricing structure, pricing model system 36 can spread out the payments over a number of periods (e.g., years) during which business solution 52 is expected to be implemented. Alternatively, each payment and amount can be scheduled based on provider 16 meeting certain interim goals while implementing business solution 52. It is understood that these are only illustrative examples, and any solution can be used for determining the set of payments.
When the selected pricing model 54 comprises a variable price pricing structure, pricing model system 36 can determine an estimated set of payments for client 18 based on, for example, the anticipated time frame for implementing business solution 52 and/or the anticipated benefits client 18 will receive from business solution 52. When pricing model 54 includes both fixed fee and variable fee pricing, as shown in
While business solution 52 is being implemented by provider 16, in step S7, performance system 38 (
Performance data 56 can be used to update pricing model 54, component business map 62 (
While shown and described herein as a method and system for managing a business engagement, it is understood that the invention further provides various alternative embodiments. For example, in one embodiment, the invention provides a program product stored on a computer-readable medium, which when executed, enables a computer infrastructure to manage a business engagement. To this extent, the computer-readable medium includes program code, such as engagement system 30 (
In another embodiment, the invention provides a method of generating a system for managing a business engagement. In this case, a computer infrastructure, such as computer infrastructure 12 (
In still another embodiment, the invention provides a business method that performs the process described herein on a subscription, advertising, and/or fee basis. That is, a service provider, such as a Solutions Integrator, could offer to manage a business engagement as described herein. In this case, the service provider can manage (e.g., create, maintain, support, etc.) a computer infrastructure, such as computer infrastructure 12 (
As used herein, it is understood that the terms “program code” and “computer program code” are synonymous and mean any expression, in any language, code or notation, of a set of instructions that cause a computing device having an information processing capability to perform a particular function either directly or after any combination of the following: (a) conversion to another language, code or notation; (b) reproduction in a different material form; and/or (c) decompression. To this extent, program code can be embodied as one or more types of program products, such as an application/software program, component software/a library of functions, an operating system, a basic I/O system/driver for a particular computing and/or I/O device, and the like.
The foregoing description of various aspects of the invention has been presented for purposes of illustration and description. It is not intended to be exhaustive or to limit the invention to the precise form disclosed, and obviously, many modifications and variations are possible. Such modifications and variations that may be apparent to an individual in the art are included within the scope of the invention as defined by the accompanying claims.
The current application is related to co-owned and co-pending U.S. patent application Ser. No. 11/200,847, filed on Aug. 10, 2005, and entitled “Business Solution Evaluation”, co-owned and co-pending U.S. patent application Ser. No. 11/200,727, filed on Aug. 10, 2005, and entitled “Value Model” and co-owned and co-pending U.S. patent application Ser. No. 11/295,828, filed on Dec. 7, 2005, and entitled “Business Solution Management”, each of which is hereby incorporated herein by reference.
