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Which IT Sourcing Best Practices Will Deliver the Most Value to Your Organization?

This sponsored Viewpoint article has been provided by NPI
The content below does not express the views or opinions of Spend Matters.
Visit http://www.npifinancial.com/ to learn more.
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For those of us that live and breathe IT sourcing, we understand that it’s no longer just about cutting costs – it’s about getting the most value from every purchase and renewal, reducing risk and contributing to strategic business imperatives like digital transformation.

In a recent webinar, Spend Matters’ Pierre Mitchell and I discussed the challenges and the expectations of the rapidly changing IT sourcing landscape, and eight best practices that can help us tackle them.  All of these best practices are critical for keeping up with the pace of business. But when asked which deliver the most immediate and measurable impact on IT sourcing effectiveness, there are two that come to mind:

  1. Price benchmark analysis. It’s imperative that enterprises conduct price benchmark analysis on purchase quotes to see how they compare to market. More than 65% of the time, there is a gap that needs to be closed. Benchmarking will quantify the gap and provide a specific target that IT buyers can negotiate towards. If you’re not doing price benchmark analysis, you’re leaving money on the table.
  2. Service/Licensing optimization. This involves making sure the service packages and the licensing types you select and use exactly match your requirements. Examples include identifying unused licenses, migrating to new licensing and subscription programs to better match your usage characteristics, and account consolidation (making sure you are leveraging your full footprint so you can receive the appropriate discounts and concessions).

Register here for a replay of the full webinar, “IT Sourcing Best Practices: Price Benchmarking, License Optimization and More!”

So, what does it take to perform these best practices? More importantly, what does it take to perform them well? How are some enterprises able to cut IT vendor pricing by 20, 30 or 50 percent when others fail? One difference is access to intel – specifically, four types:

Historical pricing and consumption intel. This is a consolidated record of what the enterprise has purchased from a vendor, and what’s being used/not used. Internally sourced, this intel helps the organization leverage the overall footprint of its business with a particular vendor. It’s also key in helping identify “shelfware” that needs to be eliminated or unused assets available for redeployment.

Benchmark pricing intel. This information is critical to help businesses eliminate the issue of pricing disparity. It’s used to analyze whether vendor pricing is in line with fair market value in two ways: (1) By comparing the vendor’s price to pricing offered by that vendor to other customers and (2) By comparing the vendor’s price to pricing offered by other vendors for comparable products and services. Unlike historical pricing, this data is typically not found within the enterprise’s internal sourcing and IT knowledge base. Companies rarely have access to what their peers are paying for similar IT buys or competitive pricing outside of data collected during the short-listing process. Benchmark pricing intel is usually acquired through third-party pricing experts that have access to real-time street pricing.

Licensing and subscription intel. To prevent overspending and overbuying, companies need to understand the different licensing and subscription options that a vendor offers and the various permutations available to them. This intel is dual-faceted in that it’s not just about understanding the options available, but also about analyzing them in context. What are the user requirements today versus three to five years from now? How can user profiles be utilized to best advantage? Will demand for the solution expand or contract due to seasonal demand, M&A or other factors? Do architectural considerations impact licensing choices (such as virtualization and indirect use)? Does the business plan to move this piece of the IT ecosystem to the cloud in the long or short term?

Once again, vendor-specific license optimization insight is not typically found in-house; rather it’s sourced externally from licensing “Ph.D.s” that have deep understanding of a vendor’s licensing and/or subscription programs, understand how to cost-effectively map them to the buyer’s unique situation and requirements, and have the ability to coach stakeholders through the decision-making process.

Vendor behavior intel. To negotiate effectively, companies need to understand three aspects of vendor behavior:

  • What’s motivating the salesperson at the negotiation table? Buyers need to understand the vendor’s overall business strategy and sales objectives, as well as more nuanced factors like sales incentive programs and deal approval mechanics.
  • Where does this particular vendor exhibit flexibility with other customers? For example, if you commit to X number of cloud seats/subscriptions, are they willing to increase discounts on other on-premise solutions?
  • What is the best way to communicate with the vendor to achieve the best outcome? What’s the ideal way to frame “asks,” what is the anticipated vendor response, and what is the planned countermeasure? This is a chess game, and anticipating how the vendor will play can really improve the outcome.

There is no shortage of tools, services and methodologies to help IT buying teams increase their effectiveness. That’s good news for IT sourcing pros, who are eager to take on the challenges and expectations before them. One fast path to IT sourcing excellence is by addressing critical knowledge gaps. Equipped with the right intel, companies can optimize pricing, licensing/service and business terms – all of which deliver an immediate impact on sourcing’s ability to meet cost, performance and business objectives.

NPI is an IT sourcing consulting company that delivers transaction-level price benchmark analysis, license and service optimization advice, and vendor-specific negotiation intel that enables IT buying teams to drive measurable savings. For more information, visit www.npifinancial.com.

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