The 3 R’s of the Transformative IT Purchase

Spend Matters welcomes another guest post from NPI, a spend management consultancy, focused on delivering savings in the areas of IT, telecom, transportation and energy.

I recently spoke with Insurance & Technology magazine about mistakes companies make when purchasing transformative technology. By "transformative," I mean those major, once-in-a-decade IT purchases that make it possible to shift the way companies do business.

The single, largest mistake that companies make with these purchases is not giving equal time, diligence and expertise to every phase of the purchasing process -- from selecting the right solution and technology to negotiating the final contract.

For example, a healthcare IT department selects a compliance solution without physician buy-in. Sure, it covers all the compliance concerns -- but it's not easy for the physicians and administration staff to use. Will it succeed? Probably not. Another example is mobile banking. A bank may spend a year building a business case and selecting the right vendor for a mobile banking platform, but ruin their ROI potential in the negotiating process.

At NPI, we tell clients to be thorough with the Three R's. Here is an excerpt from Anthony O'Donnell's blog on Insurance & Technology that explains more. It's applicable to any IT or purchasing leader pondering a major IT investment:

  • Right Solution: Selecting the right solution requires a cross-functional team of business and IT leaders who will clearly define the strategic goals, mediate the legitimate disagreements that will occur about how best to meet those goals, and hold the team and company accountable for executing on the plan.
  • Right Technology: Many insurers are running on legacy client/server computing architectures and need to modernize their IT infrastructure to keep pace with customer and business demands. Like it or not, the cloud is here to stay -- and whether you build or host your new cloud-based infrastructure, the basic architecture and requirements are clear. Pre-built solutions like Cisco, vmWare and EMC's vBlock architecture make it easy to take advantage of the new standards in server and data virtualization technologies as well as the management tools to help build truly flexible, on-demand infrastructure. This goes a long way in reducing risk as environments can change quickly and management costs are dramatically reduced.
  • Right Price (ROI): Once the solution and technology are clear, people often try to rush the purchase process. Often, this is due to timing or the assumption they will go with a trusted incumbent. However, this can be an expensive luxury, often costing companies as much as 30 percent more than a well-managed sourcing effort. Organizations need to create a level playing field for their top three bidders and they need to carefully benchmark and analyze each of their bids (software, hardware and services). Each of these areas is rife for overspending due to overbuying, bundling, poor discounting, and inadequate scoping. A thorough purchasing process backed by vendor insight and pricing information can reduce both contractual and cost risks significantly.

-- Jeff Muscarella, EVP of IT, NPI

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