Spend Matters welcomes another guest post from Jon Winsett of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom and shipping.
Throughout the years, I’ve sat at the negotiating table as an IT vendor, as a buyer and as an advisor, and I have seen that when IT and procurement come together, friction can arise. I’ve spoken with multiple CXOs who, despite their best efforts, have been unsuccessful at mitigating these contentious situations. In fact, as IT purchasing grows more complex and decentralized, the tension is only getting worse.
The scenario typically goes like this: The IT department believes itself to be the only one that can understand the complexity of a technology purchase and the sophisticated sales channels that come along with it. It wants to own the entire lifecycle of the IT investment – from the vendor selection and negotiation to the implementation and renewals.
Procurement, on the other hand, demands tighter control of the purchasing process. Its priorities are to manage expenses and reduce risk using a process-driven approach to sourcing and contracting. In the mind of most procurement executives, IT’s approach to purchasing seems undisciplined. When the CFO is pressing for greater cost control across the organization, this lack of rigor is intolerable, especially as it reflects poorly on the overall procurement capabilities of the business.
The truth is that both groups are right and both groups are wrong. It is no easier for the average procurement executive to understand the complexities of IT vendor contract terms and conditions than it is for the average IT executive to understand the process and rigor that must be applied to the purchasing process. Too often, IT departments give vendors leverage in the negotiation process by down-selecting too soon or failing to benchmark pricing. Just as frequently, purchasing departments treat the IT purchasing process just as they would treat purchasing in other spend categories. This disconnect inevitably translates into overspending.
If today’s enterprises want to source IT effectively, they must bridge the gap between IT and procurement. For most companies, this means embedding a sourcing executive within the IT department. In this way procurement can achieve a greater knowledge of the intricacies of IT vendor and contract management while enforcing best practices and processes for sourcing. Some businesses are taking an even more focused approach to IT purchasing by creating a vendor management office, where IT and sourcing resources are dedicated to monitoring vendor relationships, enforcing contract compliancy and mitigating vendor risk.
In either case, the goal is clear. Collaboration and knowledge-sharing between IT and procurement will be the ultimate drivers in IT cost control and reduction. With most organizations witnessing an increase in IT spending each year, it’s not just a matter of improving internal relationships; it’s an imperative.