Solvay uses per-user pricing to provide predictability

Solvay sought an innovative approach to managing its enterprise resource planning (ERP) applications, which would improve efficiency and allow it to better predict IT costs. This required a variable approach to pricing based on user demand for application usage, rather than on infrastructure costs alone. To meet different user needs, the approach needed to have the ability to opt for different service levels for different systems and usages.

Solvay is active in pharmaceutical, chemical, plastic and processing industries and leader in several areas of those sectors. It had long found that outsourcing its mainframe IT support provided efficiencies and cost savings. But for its ERP solutions, it needed more predictability of its costs. Solvay understood its business needs -- it knew how many users it needed to support, and it knew that its user base had different needs based on their responsibilities. So it decided to look for a partner to outsource its SAP R/3 ERP system based on business needs, rather than pricing based on the cost of infrastructure support. It needed an outsourcing partner that understood its business and its pricing needs and that would be flexible enough to provide separate service level agreements (SLAs) for its variable business needs.

IBM designed a business model-based approach for outsourcing the SAP R/3 application and infrastructure outsourcing using an innovative “price per measured user” approach. Solvay provides the applications and its own customisation of the application, and gets specific service levels and different price points from IBM based on the type of usage. Higher service levels -- and higher per-user pricing -- apply to regular usage of SAP R/3 functions. Lower service levels -- and lower per-user pricing -- apply to users performing application development, testing or those working on pilot applications. These well-defined, visible and predictable costs allow Solvay to improve operating expense controls, while easing budget planning and cost allocation.

The technology service agreement (TSA) contains a fixed fee-per-user for five years and covers both changes to the infrastructure supporting its environments, as well as to the product itself, ensuring that the company is resilient to changing demands. The company can accommodate any changes in its environments, whether through a SAP upgrade (included in the agreement) or through “sun-setting” existing environments. In addition, the company can adapt its user forecasts per SAP instance with minimum disruption, allowing the enterprise to respond with flexibility and speed to any change in customer demand, new market opportunity or external threat.

Cost now becomes a function of the organisation's business planning process; development of new applications is factored into future cost estimates for the overall business. Fixed price per user allows better anticipation of the impact of changes and overall management of costs.

Solvay focuses on core competencies by outsourcing the ERP infrastructure. Separate SLAs for different types of usage (regular use, application development, testing, pilots) give the company flexibility and predictability in growth of its SAP usage.

The approach has facilitated the company's transformation to a fully integrated on demand business across its key partners, suppliers and customers, while increasing the company's resilience to changing customer demands, market opportunities and external threats.