5 Ways Procurement Can Materially Reduce IT Costs

Increasingly large IT budgets coupled with ambitious digital transformation initiatives and vendor pricing inconsistencies have made it easier than ever for enterprises to overpay and overbuy when making tech and telecom purchases.  

NPI analyzed over $11 billion in IT spend over the past year, and more than 80 percent of the deals submitted by our clients were overpriced as compared to market – that’s eight out of every ten purchases! 

The disruption that defined the last 18 months shows no signs of abating – it’s simply taking a more positive form now that we are transitioning from reactive digitization to proactive digitization. Many parts of the world are opening back up. Surges in demand have created industry booms, and with that comes new challenges that affect IT spend. Effective and efficient IT procurement is more important than ever, and there are practical ways to drive excess cost out of current spend so that IT budgets stretch further.

Perform IT price benchmark analysis on all renewals and new IT purchases – software, hardware, cloud, infrastructure. 

There is no “Kelley Blue Book” for IT. A vendor can charge two companies with similar requirements two very different prices and that’s even more true if the vendor senses the customer has a tight deadline. Performing IT price benchmark analysis for renewals and new purchases will validate you’re getting a fair deal from your vendor and ensure you pay a price that’s at or better than market. NPI recommends assessing all purchases that are $50K or more.

Optimize telecom carrier agreements. 

One of the easiest targets for fast, material savings is telecom. NPI finds more than two-thirds of companies overspend on telecom by an average of 30 percent. One of the most painless actions you can take is to optimize your carrier agreements – it can yield telecom savings from 25 to 50 percent with zero disruption to operations. If you haven’t optimized your carrier agreements in the last 18 months, there’s a good chance you’re paying too much. More detail can be found here.

If a software renewal is approaching (on-premise or SaaS), align your actual usage with best-fit license and subscription options. 

In normal business conditions, software usage requirements change. Usage validation and the deactivation of underutilized licenses are exercises that should be performed routinely. That’s even more true today alongside new work-from-home requirements and changing business demand. If you have a renewal approaching, “rightsizing” your license and subscription choices to current actual usage requirements (vs. renewing what you already bought on auto-pilot) can save a lot – particularly for large software estates with vendors like Microsoft, Salesforce, SuccessFactors, Workday, ServiceNow and Adobe.  Across 100 percent of the License Optimization Assessments NPI performed for clients over the last year, material cost reduction was identified (ranging from 10 to 40 percent). 

Inspect mainframe software spend for savings opportunities. 

Many large enterprises still rely on mainframe computing. And, for legacy vendors (e.g. IBM, CA/Broadcom, Software AG, ASG), mainframe is still highly profitable. One reason is customers’ complacency in managing monthly costs. Monthly license charges tend to go on auto-pilot and notoriously lack granularity. Furthermore, as the internal mainframe expertise within enterprises ages out of the workforce, a growing number of customers are finding they lack the knowledge to adequately manage mainframe spend. As a result, many companies overpay significantly – typically 10 to 20+ percent and as much as 50 percent. Inspect your mainframe spend for accuracy (monthly license charge errors are common as is paying for unsupported products) and analyze costs at the line-item level to ensure licensing matches current usage needs. Most importantly, benchmark line-item pricing to ensure you’re paying fair market value – it’s a good bet that you are overspending.

Explore third-party support options on major software estates. 

Third-party support options are becoming more mainstream as providers often offer support at levels that match or exceed those offered directly by the vendor. Options range from hybrid offerings that combine support from vendors and their certified partners to independent parties that compete directly with software publishers. The benefits are numerous with the most obvious being significant cost savings – often half the cost of standard vendor direct support. Third-party support providers can also give enterprises the ability to maintain fully functional technology assets that may no longer be supported by vendors, as well as the ability to avoid unwanted upgrades.

Check out more detailed insights on this topic here.