Inflation, economic volatility, and rising technology expenses are driving up IT expenses, along with the high cost of talent acquisition and fragile supply chains. These interconnected challenges require novel approaches to balance efficiency and growth.
While artificial intelligence is a game-changing technology for cost optimization, it can provide specific cost savings in IT managed services contracts, even those already in place and under execution.
The AI Impact on IT Services
Since the advent of IT outsourcing contracts, managed services pricing has been on a downward trend year over year. Outsourcing buyers have traditionally seen lower prices when customers are negotiating or renewing an existing contract, but recently, IT managed services costs have been increasing across the board, from labor rates to software licenses. One kind of agreement that has been hit especially hard with cost increases is time-and-material rate cards. In fact, as of just a few months ago, it seemed the IT services pricing increases were going to continue.
Artificial intelligence for IT operations, or AIOps, is a fast-growing field that leverages AI to enhance and automate IT operations. It’s revolutionizing IT service delivery by enhancing and improving existing automation, increasing observability, and overall operational efficiency.
The key areas of improvement include:
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Complexity management: Modern IT environments are increasingly complex due to multi-cloud, hybrid-cloud, microservices, containers and continuous integration and continuous delivery (CI/CD) pipelines. AIOps helps manage this complexity by correlating vast amounts of observability data that exceed human capacity.
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Improved reliability and uptime: By identifying and resolving issues before they impact users, AIOps contributes to improved uptime and system resilience and reduced incident volumes.
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Cross-functional integration: AIOps supports DevOps, site reliability engineering (SRE) and platform engineering teams by providing unified visibility and automation across disparate IT landscapes.
For IT managed services providers, AIOps offers many advantages, including predictive maintenance and automated remediation, reducing downtime and providing faster incident response. Given these benefits, IT service providers are rapidly implementing AIOps across the client environments they manage, then passing up to 15-30 savings on to clients in newly priced or renewed contracts, reversing the recent price increase trend.
IT Benchmarking Best Practices
While IT benchmarking has been around since the advent of IT outsourcing, it’s rarely used in the lifecycle of a managed services agreement. In fact, only a very small percentage of sourcing buyers execute the benchmark clause in their IT services contracts.
Price benchmarking is a tool that can ensure not only a competitive agreement but also a healthy overall IT services partnership. Contract price benchmarking can often save on costs, and given the recent pricing impact from AIOps, can be used as a lever to quickly and efficiently implement those savings in your current contract.
Most benchmark clauses require approximately 90 days to implement the results. This timeline is significantly less than what it takes to renegotiate or competitively rebid your current contract.
Some IT price benchmarks now include the impact of AIOps in contracts for market peers. The results of a contract benchmark require market aligned pricing; thus enterprises can expect to see 15-30% savings due to the market impact of AIOps. This price impact affects infrastructure, application maintenance services (AMS) and business process outsourcing (BPO) agreements.
Benchmarking for Greater AIOps Impact
AIOps is already delivering measurable price reductions in IT managed service contracts, even in those currently in effect. New data shows that cost savings vary by service area, with the greatest reductions seen in functions most impacted by automation. For example, service desk pricing has dropped by as much as 50% while network, workplace, AMS and security services show reductions around 25-30%. Data center pricing has declined modestly, at around 15%, while BPO contracts have achieved savings closer to 40%. These results reflect how AIOps is reshaping pricing models and enabling providers to pass operational efficiencies directly to clients. Organizations with benchmarking clauses in place may be particularly well positioned to take advantage of these shifts, without the need for a full contract renegotiation.
