The Hidden 80/20 of IT Spend: Where to Mine for Savings

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This Wednesday I'm participating in a webinar titled “The Paradox of IT Spend: How to Influence the Biggest Cost Reduction Opportunity and Claim Savings.” The gist of the event is that there are significant savings in tackling what some may consider “sacred cow” categories within IT spend that are not so sacred at all.

But what are the best opportunities, and how much in potential savings is on the line? The answer to the first question is more nuanced, as it centers on targeting budgets (and suppliers) based on the cost of maintaining systems. The answer to the second question, however, is simple: lots.

I decided to participate in this webinar along with Rimini Street, which is hosting the event, so we could highlight a paradox of IT spending that most organizations aren’t aware of: the amount spent to maintain existing systems versus expenditure on new initiatives. Most procurement organizations have no idea that the biggest opportunity for savings is likely not the one they’re thinking about.

If you’re curious about the topic, join me Wednesday as we tackle the procurement-IT opportunity, starting with “the big problem” as we see it when it comes to targeting IT savings.

I’ll be discussing strategies for partnering with IT, and IT category experts will join to share specific strategies for negotiating with mega vendors, as well as ways to driving savings when it comes to low-hanging category fruit.

Backdrop

Procurement’s relationship with IT historically has been about more than just cost, yet in many organizations, it has not necessarily been a close partnership. Often procurement has had a limited ability to contribute to IT value, and the two functions sometimes view each other antagonistically. As one recent example, procurement has used SaaS and cloud deployments, in many ways, to get around IT constraints, rather than jointly managing technology in the spirit of partnership.

Yet procurement and IT alignment matter. In fact, based on survey research Spend Matters conducted in 2016 with ISM, we found that aligning procurement and IT to help each other (and other stakeholders) was the top procurement technology priority, ranking above such areas as cloud contracting and building business cases to support technology investment.

To help IT drive increased value to the business — including hard dollar savings — procurement should position IT as the highest ROI function in the business, which it is. But doing this requires going deep from a category support and management perspective.

How Well Does Procurement Support IT on the Category Level Today?

Unfortunately, not enough procurement organizations “go deep” enough to support IT. But some do.

The same study we did last year found that less than 20% of procurement organizations have either “moderate-to-high influence” or “high spend influence” at the category level with IT organizations. And over 30% have “no influence” or “low influence” overall.

3 Steps To Drive IT Category Savings

On the webinar, I’ll be sharing quite a bit more on the topic of how best to drive IT category savings, as well as picking the brains of category experts who have much deeper knowledge than I do. But for now, I’ll tease you with a few ideas below on the category savings side. (Hint: Driving IT category savings starts with the same strategies and techniques that you would apply to other areas from a strategic sourcing and category management perspective.)

The first step in the process starts with — you guessed it — analytics. It is essential to go below the SKU level and drill into what is driving cost for IT categories and subcategories outside of rolled up invoice data. Basic spend analysis alone won’t be enough.

The second step in the process is to go deep on category research. Understand internally what has driven decisions in the past. Figure out how much of this is just status quo behavior and how much comes with more strategic intent. Chances are you’ll find that the default “no change” option is driving most spending today in which there are significant savings opportunities. In addition, spend the time to benchmark cost and savings opportunities based on external information sources.

Finally, develop your sourcing strategy. Treat the RFI phase as a chance to gather information based on the creativity of the supply market rather than constraining suppliers to bid in a certain way. As part of this, let your data and research drive rational discussions about “sacred cow” categories.

Learn More on How to Do It 

Based on the category experts who are leading much of the discussion, I’ll be learning as much about this topic during the event as I’ll be contributing to it.

So whether targeting IT category spend strategically is something brand new to explore or old hat in your procurement organization, if the topic is of interest, join me Wednesday (or, if you’re busy, register to watch the replay and get the slides).

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First Voice

  1. Craig:

    Completely agree that the default “no change” option will be driving unnecessary spend. This always presents significant savings opportunities. Outsourcing will allow a fresh set of eyes and ideas when it comes to benchmarking cost and savings opportunities.

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