In 33 years of watching organizations buy technology, it’s been the exception to see them wisely leverage their spend. The exceptions were made by either shrewd small-business owners or very large enterprise organizations with seasoned buyers, either within a technology silo or in a sourcing group. These buyers were doing their organizations several huge favors, and arguably, the vendor space benefited as well.
What do we mean by “leveraged spend?”
In short, it’s a path to reducing costs in multiple areas, improving service levels and reducing operational risk to your organization.
These and others are addressed in a bit more detail below, but first, let’s be candid about the challenges.
The concepts here are quite simple. The execution is hampered by several factors, including the time and expertise needed to accurately assess internal needs, which may entail assessing needs across silos or spans of control. Compounding this is the level of contact within the organization capable of both spanning the organization and the ability to influence. The executive often spurs a “time sink” into “vendor management” issues, and to keep it interesting, another challenge often encountered is overcoming current vendor biases and relationships.
Needs Assessment Challenges
Let’s not underestimate factors in assessing the internal needs. Here are some factors to consider:
Duration of agreement. Can you extend it for long enough to get vendor concessions in return?
Is the product/service at hand potentially an enabler to competitive differentiation for your company in the marketplace?
Is the level of criticality of the product/service at hand great enough to warrant vendor redundancy?
How important is having the contractual option of a business downturn clause, enabling substantial reduction of financial commitment if needed?
Is the product/service one where having internal expertise would be helpful, but cost prohibitive? (The option of having loaned FTEs as part of the agreement is behind this question.)
Is there criteria to be considered, such as third-party vendor certifications, management team location, ownership, etc.?
If technology based, how important is it to have the flexibility to change or upgrade on a rapid schedule? This goes to what protections you build into the contract, which is governed to some degree by the vendor’s marketplace clout.
Vendor Assessment Challenges
Next is accurately assessing the vendors which can potentially meet the defined needs. (We say potentially because there are times when you can take a vendor beyond their currently stated capacities with a high degree of execution with minimal cost increase, as part of a leveraged agreement.) This is the time to look for areas of overlap. Earlier we mentioned being watchful for areas of interdependence. If vendor A can also do what vendor B does — even if not as well, but it eliminates an interdependence exposure– it is worth exploring. By virtue of scale of business and negotiations, you may be able to end up with a stronger solution overall.
A note on reducing vendor footprint in the IT space. For years, those responsible for IT infrastructure have used a single vendor for assured interoperability, etc. Given advances in the space, some are exploring the old-school benefits of bringing in more vendors, such as price shopping, best-of-breed, etc. A reference point article can be found at InformationWeek by Andrew Froelich.
Another area of interdependency is the degree to which the vendor must rely on your inputs and expertise. This not only includes their ability to interface directly with your organization, but can also impact their ability to interface with other vendors in your environment. For example, if vendor A fails because vendor B’s information was faulty, you likely suffer more than either vendor. Your ability to manage these interdependencies can be significantly enhanced by virtue of broadening the scope of a vendor to replace one or more other vendors.
This also is one way to gain greater commitments from the vendor in the area of Service Level Agreements as they now see their success is less dependent on third parties. This approach also can have a positive impact on life-cycle management, not to mention initial cost and post-cutover support, as the vendor is engineering and supporting from a single pane.
It helps you leverage your total spend. Let’s face it, there’s a difference in vendor responsiveness and client prioritization based on the client’s spend. This leverage can be used for reduced cost, as well as many other points of value to you.
Reduced financial risk on multiple levels.
Potential for gained competitiveness in your marketplace.
Reduced contract administration cost.
Potentially reduced costs associated with organization downtime.
Potentially reduced HR cost by virtue of cross training and/or reduced FTE requirements.
By having a single provider responsible for the entire solution, the design, implementation, support and life-cycle management is done with a view of the entire system, and the piece-part interactions vs. in silos provides better design, efficiencies and costs.
By reducing vendors in areas of interdependency, there is a reduced likelihood of vendor finger-pointing.
Let’s change the exception and ensure you’re leveraging your vendor spend. Contact us to develop a strategic path to maximize a ROI and create strong vendor relationships.