What separates the world’s elite IT buyers from their peers? How are some enterprises able to cut IT vendor pricing by 20, 30 or 50 percent when others fail? One difference is intel. Enterprises need access to four types of information to optimize their IT vendor negotiations to their highest potential.
Enterprise IT buying used to happen behind closed doors. It wasn’t a boardroom discussion and it wasn’t under the purview of procurement. Every aspect of IT – including how it was sourced – belonged exclusively to the IT team.
Over the last decade, much has changed in the way enterprise IT is purchased and negotiated. IT spend has gotten so big – and so mission critical – that it has attracted the attention of the executive team. Multiple stakeholders representing various parts of the business are involved in IT purchase and renewal events. And, most notably, IT sourcing has emerged as a strategic discipline – one that demands skilled procurement expertise, functional knowledge of IT, and new resources and capabilities.
Now that IT sourcing is part of the boardroom discussion, the pressure is on. IT buyers have an important role to play in increasing the flexibility and adaptability of the IT ecosystem.
As the pace of change accelerates, IT and sourcing professionals are adapting. But, what’s driving this evolution?
How much you’ve paid a vendor in the past has little bearing on determining if their current pricing is fair.
The evolution of IT buying is changing the requirements for what it takes to negotiate a fair price and optimized terms with an IT vendor. It’s no longer enough to rely upon the enterprise’s limited experience with a specific vendor or IT subcategory to inform negotiation strategy and tactics. The rate of change happening both within a company’s IT environment and across the IT marketplace has uncovered the need for more information to support each IT purchase or renewal.
Today’s buyers need to be equipped with four types of intel in order to secure best-inclass pricing and terms:
1. Historical pricing and consumption intel. This is a record of what the enterprise has paid a vendor for specific products and services. 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. While this information creates leverage and steers purchasers away from overbuying, it has little bearing on determining if vendor pricing is fair. In fact, as vendors become entrenched in an account, the price tends to go up over time because of lock-in.
2. 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:
Unlike historical pricing, this data is typically not found within the enterprise’s through third-party pricing experts that have access to real-time street pricing. Today’s elite IT buyers are relentless in their pursuit of buying-to-market, not buying-to-budget (which has been the primary IT buyer “benchmark” until now). As such, benchmark data is a valuable asset.
Today’s elite IT buyers are relentless in their pursuit of buying-to-market, not buying-to-budget (which has been the primary IT buyer “benchmark” until now). As such, benchmark data is a valuable asset.
3. Licensing and subscription intel. To prevent overspending and overbuying, companies need to understand the different licensing and subscription offerings 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 usage profiles be utilized to best advantage? Will demand for the solution expand or contract due to seasonal demand, M&A or other factors? 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 extensive understanding of a vendor’s licensing and/or subscription programs, and understand how to best map them to the buyer’s unique situation and requirements.
4. Vendor behavior intel. To negotiate effectively, companies need to understand three aspects of vendor behavior:
Most IT sourcing organizations don’t have visibility into vendor behavior beyond their own interactions. They may only buy or renew with a vendor once every three years. To truly understand what drives vendor behavior during negotiations – and how to leverage that intel – they need access to real-time insight gleaned from hundreds of IT purchases.
Did you know there are over 2,000 online monthly SKUs from Microsoft? It’s no wonder it’s easy for companies mis-license and overpay for IT.
As IT Spend rises to peer level with other large spend categories within the enterprise and becomes more complex to navigate, IT sourcing has emerged as its own discipline. Companies that want to increase sourcing effectiveness in this category of spend need to first address the critical knowledge gaps that exist.
A historical view of the vendor relationship (and the related purchase/consumption data) is not enough to ensure a fair, competitive purchase. Many IT buyers are turning to outside licensing and pricing specialists
for vendor-specific intelligence that helps them drive even better outcomes. These specialists are a powerful and easy way to secure best-in-class pricing and discounts, optimal terms and faster IT purchase cycles that make stakeholders happy.