5 Key Lessons Given and Learned: How Procurement and IT Can Work Together to Transform the Business

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Before taking part in a webinar with Rimini Street on how procurement and IT can more effectively work together to shift focus from maintaining existing systems to investing in innovation, our intrepid founder Jason Busch wrote, “I’ll be learning as much about this topic during the event as I’ll be contributing to it.”

Hopefully I’m not alone in wondering what Jason’s lessons learned indeed were during the ensuing discussion.

Banking on that, we caught up with Jason on his takeaways from the event.

On his way into the discipline:

“I'm not an expert in IT category management or IT sourcing by any stretch. The closest I've come to it was earlier in my career, when I actually got to bid out hardware for a big IT company from a sourcing perspective. But that was more applying a generic, seven-step sourcing process to a category. I certainly was not a demand expert.”

On some key industry stats:

“What's interesting is since that time, you might have thought that a lot of IT spending was going to innovation, but if you look at some of the data which the group shared on the webinar, just to cite a 2017 Gartner report and a separate 2016 IT enterprise summary report, in terms of IT spending categories, roughly 90% goes to ongoing operations and enhancements, and just over 10% goes to business transformation initiatives. A lot of that spend is not going to driving digital disruption — it's actually just going into maintenance, and that was a real lesson learned for me.

During the webinar, I shared some specific statistics around data we have from Spend Matters’ research with ISM, in terms of procurement’s ability to influence IT spend. What we found is in roughly 80% of cases, procurement organizations have got an opportunity to influence IT spend more strategically. That's based on a pretty good sample size. Just as IT needs to help procurement to make better decisions on cloud applications to enable procurement, procurement's got a real opportunity to influence IT as well.”

On going below the SKU surface with analytics:

“There's a number of ways to go about that two-way street I just described. One thing we talked about quite a bit on the webinar was we really need to go below the SKU surface with analytics. It's not just a question of a line item, it's really dissecting what that line item is about. Then, obviously that goes for other categories of spend too. It's important, especially as we get into what used to be sacred categories within IT, that we have that data to make better decisions about the art of the possible.”

On IT spend viewed through the Kraljic lens:

“I spoke on the webinar about applying the Kraljic matrix, which anyone who's done sourcing in the past will certainly be familiar with. Peter Kraljic was really kind of the godfather of procurement consulting, if you will, and pioneered this notion of a 2x2, where on the Y-axis we look at the financial impact of a given category, and on the X-axis we look at risk impact. You actually want to be in the upper left ideally, in terms of what the greatest opportunity is, because you've got a low-risk impact on that category, and you've got a high financial impact.

Within IT spend, we talked about how there are some “sacred cows” in that upper left, such as maintenance and support for older systems. They really aren't so sacred once you begin to dissect them, and they can actually be low-hanging fruit, and very, very large impact overall. In contrast, the risk impact and financial impact of going after sourcing core cloud business applications is very high. That should be neither a cost decision nor a leverage decision — it's really a partner decision.

Obviously, the financial impact and the risk impact of individual purchases for smartphones, devices and desktop hardware is fairly low. There, we really want to focus on automation, such as going through an SAP platform, a Coupa platform, an Oracle platform for transactional buying. Again, it's that upper left where strategic sourcing really applies, where we can have a high financial impact and lower risk impact.”

On the human relationship between procurement and IT:

“I talked about engaging and building the relationship with IT and how to do it. There are really five steps.

  • Manage the IT category effectively. That means treating it end to end, and really investigating and doing the homework around benchmarking as to what's possible and what things should cost, not just what they are costing. That requires not just doing apples-to-apples comparisons, but figuring out alternative supply markets as well.
  • Always treat IT as your customer. We are serving them, not the other way around. The better procurement organizations get that stakeholder management aspect already.
  • Put data analytics and benchmarking from a price perspective at the core of all new activities. Then, setting expectations internally and externally effectively.
  • Apply your own technology bag of tricks to IT spend across the entire lifecycle of engagements. We're not just talking about a vendor management office or a supplier performance management approach to engagement. Rather, you need to bring everything we do from spend analytics, strategic sourcing, contracting, total cost management and benchmarking perspectives, to managing IT spend and working with IT organizations.
  • Know how to dance with the bear. How do you dance with “the bear,” meaning big suppliers? You've got to bring the right tools (which are really about technology and process), and you've got to speak their language. Really, it's all about data. There's no emotion in this. You've also got to know the most opportune way to get in the ring and to get out. How do we engage and how do we know when to get out? We also need to know when to back off instead of pushing harder.

What are some things that procurement can do differently tomorrow? Getting alignment, asking IT about priorities and challenges. That's about regular meetings with IT or embedding procurement, and vice versa within IT. It's about training procurement personnel to minimize the IT workload. It's about hiring procurement talent from IT as well.”

On learning from his co-presenter:

“Craig Guarente, CEO of Palisade Compliance, also spoke on the webinar and had some great things to share about how technology providers optimize agreements for their benefit versus really the benefit of their customers.

One is combining multiple contracts into one agreement. That can reduce flexibility, he pointed out, and it increases vendor lock-in. Being able to separate out different elements of the relationship, whether it’s implementation, data migration, software licensing or cloud licensing, and then the ongoing maintenance, support, enhancements and integrations into separate SOWs.

The other thing to remember is that the price sheet is quite high-level, and to this point, Craig suggested discount percentage under price is the most important KPI to indicate cost savings. In his words, ‘technology vendors will give in on discounts to lock in clients, especially true with cloud agreements, which can increase the TCO, so procurement organizations have got to look beyond price.’

All of these things are really important as we consider how to save money. He also suggested that technology vendors link their products and pricing together to try and avoid a loss in their annuities. Using less can actually mean paying more.”

For the complete presentation and insights, listen to Jason and Craig’s full webinar: The Paradox of IT Spend: How to Influence the Biggest Cost Reduction Opportunity and Claim Savings.”

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