David or Goliath — Who Offers the Best Value in IT?

Does reducing the number of IT vendors reduce cost? Perhaps so in some instances, but broad assertions in the affirmative might well pave a slippery slope that is not visible from the altitude at which CIO's decide to reduce and contain their budgets. Might this be an opportunity for procurement to step in? You bet. Consider why. "Among companies with 1,000 or more employees, 34% are looking to reduce their number of IT suppliers in an effort to contain costs, according to a survey released recently by Enterprise Strategy Group [ESG], a research and consulting firm" a feature in today's WSJ notes (the story hasn't hit the search engines so you can find it on page B5D or by subscription). The column also claims that "a similar study by Forrester Research found that nearly 40% were reducing the number of suppliers".

This may not be not good news for boutique IT vendors whose niche products often provide huge value that is difficult -- if not impossible -- to transfer to their client's balance sheets. ESG's founder, Steve Duplessie, is quoted from his blog saying "It's a good sign for the big suppliers, but bad for little ones ... and it could accelerate the pace of acquisitions by larger companies." (See Jason's recent series: Are you Ready? It's Time For M&A Activity to Heat Up This Fall, Part 1, Part 2, Part 3, Part 4, Part 5, Part 6 and Part 7)

Craig Cular, information chief at Cushman & Wakefield, "a privately held real-estate services firm" quoted in the WSJ article claims that "In the recession's wake, relationships with larger suppliers offer better opportunities for cost cutting. It's harder to cut costs when dealing with a slate of smaller vendors." While dealing with fewer vendors may provide a kind of inverted economy of scale under certain circumstances, it could also prove to be 'penny wise and pound foolish' -- especially (and ironically) when it comes to world-class procurement performance. After all, we don't buy all of our professional services or manufactured parts from the same suppliers. Nor should we when it comes to IT.

William Busch

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