The relationship between IT vendors and CIOs is complex. Today’s vendors play an integral and active role in the way that companies innovate, compete and forge ahead. As such, most CIOs want their vendors to be healthy, profitable and successful. Within reason.
The problem is that some vendors cross the line between what’s reasonable and what’s not – and CIOs are growing increasingly vocal about the issue. Pricing and licensing models change frequently. Annual rate increases are often unjustified. Contract terms are difficult to understand, and hidden fees are rampant. Unlike healthcare or banking, IT is a uniquely non-transparent marketplace. What one company pays for software or hardware can be twice as much as the next company.
As a result, even the savviest CIOs and IT sourcing teams pay above fair market value for their purchases and renewals. To avoid overspending, they must navigate around pricing and contracting pitfalls, as well as improve their internal purchasing process. Those CIOs looking to jumpstart their efforts to reduce IT overspending should avoid the most common IT purchasing mistakes, including:
Lack of internal alignment
Take an ERP purchase, for example. If the buying team, which could be a procurement person, a project manager or the CIO, aren’t following the same playbook, one person may unwittingly reveal that a certain vendor is top in the running. Or, the leak may come from an employee not officially on the buying team, such as a tech support representative. The rule of thumb is this: communication with suppliers needs to be restricted to one or two key contacts & those in the know must sing out of the same hymnbook IT vendors run some of the most sophisticated sales organizations in the world. They are well equipped, well trained and highly motivated to do everything they can to extract revenue from clients. Most vendors have weekly sales (read: negotiating) meetings where they assemble their best and brightest to analyse client opportunities, challenges and objections.
Does your buying team dedicate this amount of time? In most cases, the answer is no. As a buyer, it’s tough to match that level of preparation when you’re also managing IT projects, budgets and other day-to-day operations. However, those companies that don’t treat IT purchasing with the same rigor and preparation as vendors will inevitably pay the price.
Understanding the Vendor Machine
Yes, vendors will even sniff out secondary IT roles to get a read on their standing in a selection process. If the vendor realizes they are winning the business, it may remove any incentive to lower their price or improve their terms in the negotiation phase. This seemingly minor misstep can cost a company millions.
IT purchases are complex and involve multiple stakeholders, and vendors are trained to extract information from any and all of them for their own benefit.
Agreeing to unjustified maintenance and support costs
Vendors, especially software vendors, rely heavily on maintenance and support revenues. They enforce draconian policies that allow them to raise rates without justification, while penalizing any client that wishes to break the agreement. But, that doesn’t mean you have to agree to these terms. Vendors must justify maintenance increases and confirm in writing. Furthermore, make sure you’re signing up for the right level of support. Unless you truly need premium support, explore other options – including third-party support providers that can provide the same level of service for a fraction of the cost.
Failure to audit wireless usage
Wireless usage in the enterprise has changed drastically. The rise of data usage, the disappearance of unlimited data plans, increased prevalence of BYOD, and error-prone carrier billing practices has made telecom one of the most difficult spend categories to manage. Companies need to execute month-to-month optimization of usage, users and rate plans, as well as audit carrier invoices for billing errors. These tactics have been proven to reduce wireless costs by 20 to 40%.
Poor understanding of new licensing models
If IT buyers don’t understand licensing options as well as their vendor, they will overspend. It’s not question of if but rather, how much. The challenge is that trends in cloud and mobile computing have forced vendors to change and create new licensing models, with which few buyers are familiar. This lack of knowledge is a grave risk in the purchasing process, and one that should be mitigated before any purchase or renewal is made.Levelling the playing field between buyers and sellers to bring transparency to IT spending falls on the shoulders of CIOs and the teams with which they work. It requires rigor and diligence throughout the IT purchasing and vendor management process, but the effort is well worth the investment in time and resources. For many CIOs, it’s the difference between saving or overpaying millions.
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