The best way to consolidate IT service contracts

Enterprises consolidating their IT contracts to save money may be surprised to discover they’re paying to maintain equipment that’s no longer in use, experts told a Webinar hosted by IT World Canada on Wednesday.

Along with reorganizing project portfolios, cutting discretionary spending and laying off staff, contract consolidation may represent the only “high gain, no pain” option for companies dealing with the economic downturn, said Andy Woyzbun, lead analyst with London, Ont.-based Info-Tech Research Group. That doesn’t mean, however, organizations should think of better vendor management as an immediate cure-all for their financial woes.

“The savings are not instant,” Woyzbun warned. “Negotiating new agreements takes time – it’s probably slower than any of the other three approaches.”

On the other hand, contract consolidation may not come with the negative side-effects of cutting staff or pulling back on training activities, Woyzbun said. Quality of service tends to go up once a single service provider has been selected, because vendors care more about clients where the relationship is of a certain size.

“Organizations can also leverage the deep relationships by value of being a good reference account, or by the process engineering improvements they pass on to the vendor through the course of the contract,” he added.

Darryl Wilson, area practice manager for Dimension Data Canada, said contract consolidation can free up time for the people who are currently dedicated to managing myriad vendor relationships with multiple suppliers. It can also help close gaps in their support coverage, he said.

“There are companies who are continuing maintenance on products that are no longer in production or that have been returned to the vendor,” he said, adding that these mix-ups tend to happen through the contract renewal phase.

Wilson discussed an unnamed Dimension Data client – which he described as “one of the world’s largest manufacturer of agricultural equipment” – which was suffocating under 157 different service contracts, a lack of standardization and visibility into their network. Dimension Data eventually winnowed that down to eight service contracts and replaced an aging PBX system with 75,000 Cisco IP phones.

Woyzbun said IT managers could begin tackling contract consolidation by combining areas in the company with similar requirements but who have purchased products or services separately. A good example would be cell phone contracts which are negotiated at the departmental level with different carriers, he said. Another example would be purchasing PCs from several different OEMs or resellers. He also made reference to buying groups that are typical within the public sector.

“There is nothing to stop related (private sector) firms, or even unrelated firms, from forming a buying group to get better pricing,” he said.

Wilson said companies need to think carefully about the vendor partner they choose. They need to be nimble, global in outreach and financially stable, among other areas.

The Webinar will be available for on-demand viewing on Thursday.

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