The discussion about procurement in IT needs to change. Modern disruptive technologies are increasingly having a direct impact on the nature of procurement, but supply and purchasing leaders have an opportunity to become a pillar of support to the wider business once they master the core principles of IT procurement in the cloud era.
- Know your assets. Business growth and merger and acquisition activity can mean past investments in technology hardware and software need to be integrated, or end up overlooked, forgotten or even surplus to requirements. This can be a source of substantial additional cost, or lead to overcapacity and waste. Procurement leaders will need to understand their existing technology environment and ensure it is fit for purpose to drive future growth and innovation, and that redundant costs are removed.
- Shift the incentive paradigm. You can only achieve minor benefits from IT if your core premise for procurement negotiations lies in achieving incremental life cycle savings from contract to contract. At some stage, transformation must take place to deliver more substantial savings longer term. 80 per cent of IT costs are typically trapped in ‘keeping the lights on’ and maintaining infrastructure rather than driving innovation and delivering transformative benefits. It’s down to the savvy procurement leader to challenge the business to deliver proposals for transformative investment that deliver greater returns.
- Drive the contract management discussion. In many contract negotiations, performance incentives will be a core part of the procurement leader’s arsenal. But, in many cases, no measurement frameworks are in place to assess if service level agreements are being met and if your company is entitled to the rebates you painstakingly worked into contracts. If you manage to successfully negotiate for rebates on condition that certain technical levers are met, it is vital metrics are set and the vendor’s performance is measured.
- Understand the new models for IT purchasing. In a surprisingly short span of time, IT purchasing itself has changed dramatically. We’ve moved from up front, capital expenditure-heavy purchase models to an enterprise IT environment rich with choice. Vendor financing supporting three-year refresh cycles, cloud business models predicated on per-user subscription and service instead of outright ownership, the growth of site-wide licensing options – these will all factor in negotiations and must be well-understood by procurement leaders supporting IT investment.
Leaders in the supply and procurement process can play a significant role in partnering with the wider business leaders to understand their company’s strategy for growth and innovation and balancing this appropriately with the required focus on cost efficiency. By embracing these principles, they can drive a dynamic to deliver dramatic long-term impact from IT purchases to an order of magnitude greater than the 10 per cent year on year cost reductions target often set.
☛ Steve O’Neill is CFO at EMC