Is IT Procurement Ready for What Comes Next?

May 03, 2024

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The demands being placed on IT procurement teams have reached a fever pitch. The volume of transactions that must be managed at any given time has exploded. The speed at which those transactions have to be executed in order to meet the demands of the business is accelerating. And the amount of category spend on the line is growing. Gartner’s updated forecast estimates worldwide IT spending will grow by 8% to $5.06 trillion in 2024.

Meanwhile, an overstaffed IT sourcing department simply does not exist. There are limited resources and time to achieve best-in-class outcomes. The constant churn of new vendors, new technology, and new sales tactics is an insurmountable challenge for most IT procurement teams. Keeping up with an avalanche of IT renewals is difficult enough. Throw in new IT initiatives (we’re looking at you, AI) and the burden on IT procurement teams has reached dangerous proportions.

Here are some observations to illustrate these points more clearly:

  • NPI’s clients purchased from over 600 new vendors in the past 12 months – the highest number we’ve seen in the last 20 years.
  • Our data indicates that enterprises overpay for more than 85% of their IT purchases and renewals compared to fair market value pricing.
  • The challenges of managing AI spend in the cloud era are revealing themselves. Consider this: Microsoft captured one-quarter of the global cloud market for the first time in Q1. Part of that reason is AI demand.
  • Over-deployments and suboptimal licensing continue to cost companies millions of dollars every year. For one client, we uncovered annual savings of nearly $3M on their O365 estate – even though they had recently installed a leading SaaS management and optimization platform.

Navigating the Next Wave: Questions to Ask

The IT industry is in the midst of an historic innovation cycle that’s on par with the introduction of home internet access and the smartphone. Those cycles opened the door to companies and applications that fundamentally changed business models. Generative AI is doing something very similar, and the implications are redefining enterprise demand, spend, and resource requirements. Organizations will integrate AI-powered capabilities at various speeds over the next few years, but the writing is on the wall. Things are changing, and they’re changing rapidly.

Which bring us to the main point. IT procurement teams must ask themselves: Are we ready? Do we have the right tools, resources, and processes?

For many, the answer is “not yet” – which is not a criticism in any way. It’s the nature of the scope of the shift we’re all a part of. However, IT sourcing leaders must actively start re-engineering the IT procurement toolkit to meet changing and growing demands. Here are some considerations to help organizations move along in this process:

  • Where are my IT cost blind spots? Examples include software license over-deployment and underutilization.
  • Where are my most critical skill and knowledge gaps?
  • What tools do I need to manage a growing number of IT renewals?
  • Given the volume of new purchases and renewals, how can I streamline and strengthen preparation for vendor negotiation?
  • How do I stay on top of vendors’ licensing, pricing, and business changes – particularly those that impact our spend?
  • How do I ensure world-class negotiation outcomes with new vendors where my team has little/no experience?
  • How do I ensure we pay the lowest price and negotiate the most favorable contractual business terms?
  • When, where, and how will GenAI improve our organization’s IT procurement process?

Adapting IT Procurement: Staying Ahead in a Rapidly Evolving Technological Landscape

As we navigate the current IT innovation cycle, the role of IT procurement is becoming more pivotal than ever. The pressures of escalating IT spending, coupled with the relentless pace of technological change, demand a proactive and adaptive approach from procurement teams. The data and trends outlined in this post underscore a critical message: readiness and adaptability are not just beneficial but essential for survival and success in this new landscape.

Organizations that take the initiative to evolve their procurement strategies, sharpen their negotiating acumen, and adopt innovative tools, especially for managing AI-driven demands, will not only withstand the pressures of change but also thrive in capitalizing on the opportunities it presents.

Are you attending Procurement Foundry’s Forge Tech Sourcing event in Boston on May 14th? NPI CEO Jon Winsett will be discussing the modern IT procurement toolkit at Procurement Foundry’s Forge Tech Sourcing event in Boston on May 14th. To learn what must-have skills and tools will help IT procurement negotiate world-class deal outcomes in the next 1 to 3 years, don’t miss this session!