Chris Wolf

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Chris Wolf
Research VP
6 years at Gartner
19 years IT industry

Chris Wolf is a Research Vice President for the Gartner for Technical Professionals research team. He covers server and client virtualization and private cloud computing. Read Full Bio

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The 90s Called: They Want Their Procurement Team Back

by Chris Wolf  |  February 4, 2013  |  4 Comments

Today I talked to a client about their private cloud architecture and pending investments. The talk hit on a lot of areas, ranging from software licensing, to vendor support, to orchestration, and finally to standardization. When we got to the topic of standardization and procurement, they couldn’t contain themselves. One member of the organization said:

We can’t even say we’re a Microsoft Exchange shop. As far as procurement is concerned, we can’t even have a standard for email.

If that sounds odd to you, then consider your investments for private cloud. Providers achieve tremendous economies of scale through high degrees of standardization, yet that approach is nearly impossible for many enterprises. The reason for many are the folks in the procurement group whose job it is to save the company on capex costs. These folks have long prided themselves on getting a 15% discount in selecting one vendor product over another.

Once the discounted solution is procured, then it’s the job of IT Ops to run it. If that decision results in a 30% premium on opex, then so be it. At that point the procurement group is already focused on the next purchase.

It’s a story I hear a lot and in my opinion is an extremely shortsighted approach. Until procurement is retooled to place the emphasis on TCO instead of capex, I will continue to work with clients on stringing together a hodgepodge of point solutions at a ridiculously high cost.

Granted, not every vertical faces this issue to the same degree, but it is especially painful in the public sector. The finger often gets pointed at IT Ops for being too costly, but the real source is ironically a group that prides themselves on saving money – the procurement group. Procurement is trying to save money in the best interest of the business, but an approach purely focused on capex often hurts the business.

Cloud computing is forcing one of the greatest collective IT modernization efforts in our history. It’s time that procurement processes join us in the 21st century as well.

Update: This morning (February 5th) I discussed this particular issue with a client. In their case, standardization was a mandate set at the VP level and impacts all business units. The mandate changed the role of procurement to one of standardization enforcement with the expectation of getting better volume discounts by working with fewer vendors. In addition, he mentioned the other added benefits around opex costs. The procurement team no longer looks for the best deal in terms of upfront cost. They look to check to see if a product already exists within the approved vendor set and requires the business units to work off the approved list. It’s a significant shift that he said will take multiple years to complete, but they expect considerable benefits in terms of lower costs and better SLAs. Currently they are working with individual units to determine the standard for other infrastructure components such as networking and storage.

4 Comments »

Category: Cloud Virtualization     Tags:

4 responses so far ↓

  • 1 Andi Mann   February 5, 2013 at 1:11 am

    Chris, this is spot on. And let me add, having seen this myself as a buyer in ops, as an analyst, and as a vendor – it annoys everyone!! Well, everyone except procurement, I guess. :)

    Vendors get squeezed on price and lose deals to inferior but cheaper competitors; analysts are frustrated that they cannot help a client that will not help themselves; and the ops buyers end up with a higher OpEx from a less suitable solution.

    I would take you up on the assertion that TCO is the key measure, even for utility software purchasing. It is much better than CapEx, for sure, but still does not tell the full story. ROI is better still, but even then may not be aligned (e.g. with a high-growth loss-leading business strategy).

    In conversations I am having more and more, key measures are project and business-specific, and increasingly include business metrics like revenue, share of wallet, or reach, as well as financial measures like return on assets or earnings per share.

    Of course buyers should negotiate with vendors to get the best possible pricing. And cheaper *might* be better. But final decisions should be driven by business value, not purchase price.

    Andi Mann
    CA Technologies.

  • 2 Steve Kaplan (@ROIdude)   February 5, 2013 at 1:23 am

    We are starting to see some purchasing, at least in the private sector, driven solely by business units. In these cases, it is much easier to pitch a cohesive architecture as instrumental to achieving business objectives.

    Steve Kaplan
    Presidio

  • 3 Chris Wolf   February 5, 2013 at 8:41 am

    Great points on ROI, Andi. I completely agree. Well said.

    Good insights on being able to sell the cohesive architecture, Steve. Thanks for weighing in!

  • 4 David Barclay (@davidbarclay99)   February 5, 2013 at 9:43 am

    Whilst I agree with the original article and Andi’s comments, more recently I’ve seen examples of procurement teams in our region (commercial and public in Australia) taking a broader view on ROI.

    Of course they are the exception, not the norm, but the sands are shifting and many organisations are realising they can’t continue to apply their archaic processes to complex business solutions.

    Seemingly overnight, the power has shifted from IT to business units. I look forward to the pressures they exert on procurement process for optimal outcomes.

    David Barclay
    Data#3