Spend Matters welcomes another guest post from Jon Winsett of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom, and shipping.
As I discussed last week, this time of year is a slippery slope for retail IT and sourcing professionals. They don’t have as much time as they’d like to get ahead of the IT and budget challenges that will greet them as soon as the holiday retail season is over. But rest assured – those challenges will be waiting for them in Q1 2015, including finding the funds for new IT projects that will increase margins and competitive differentiation.
Here are four more areas where IT overspending is occurring within most retail organizations (see the first five here). By taking a hard look at these areas, retail IT and sourcing professionals can turn overspending into funding – often millions of dollars that can be repurposed for IT innovation.
Revisit licensing for all major software deployments.
When it comes to software licensing, one size does not fit all. Retailers need to segment users based how the software is used (“power” user vs. “lite” user) and align licensing accordingly. In many cases, retailers can downgrade certain users to a license type that offers less functionality for less cost.
This is also an excellent time for retailers to conduct an internal audit to ensure contractual and licensing compliance. Enterprise IT vendors are on the prowl for noncompliance penalties – either through formal audits or unofficial “software asset management” engagements.
Put pressure on incumbent broadband providers.
SMAC (social, mobile, analytics and cloud), content-delivery networks, and higher online traffic are driving retailers’ broadband costs upwards. Meanwhile, industry consolidation is rampant, new players are entering the market, and other players like Level(3) and Time Warner are gaining the ability to serve the enterprise customer on a national footprint.
New and/or smaller providers see areas like pricing, discounts, and contract flexibility as battlefields for capturing more market share – and they’re willing to accept the risks of change to slowly chip away at the market dominance of their larger competitors. Retailers need to take advantage of the current market competitiveness by taking another look at their broadband provider options and either pressuring incumbents to offer more competitive deals or rewarding the new players with a piece of their business.
Demand pricing transparency from resellers.
Buying through a reseller has its advantages, but it also adds another layer of complexity to the process. Most resellers are motivated by special OEM discounts that increase margin. It’s up to the reseller to pass those discounts on to customers. By demanding resellers reveal the incentives and discounts they’re receiving from OEMs, retailers can increase negotiation leverage to secure more favorable pricing, discounts and terms.
Eliminate rogue purchasing.
Experts estimate that stealth technology purchases can account for as much as 20 percent of a business’s IT spend, and retail is no exception. As technology budgets shift from IT to marketing, IT sourcing as a function has become decentralized and disorganized. Marketing, as well as other departmental users, frustrated by the quality and speed of traditional IT sourcing processes, are taking matters into their own hands – but often at the expense of vendor management and negotiation leverage.
Retailers need to address this growing disconnect and require a cross-functional approach where procurement, IT, and the business stakeholders collaborate throughout the buying process – each bringing their expertise to the table so the company achieves the best possible outcome: right product, right price, quickly.
What else can you do to drive more budget to new IT projects and less to overspending? Stay tuned for next week’s post, where I’ll share a final few tactics that retailers can use to fund IT innovation in 2015.