In many enterprises, IT folks decide what they want to buy and who they want to buy it from, but Procurement negotiates the contract, manages the relationship, and has significant influence on renewals. Right now, especially, purchasing folks have a lot of influence, because they’re often now the ones who go out and shop for alternatives that might be cheaper, forcing IT into the position of having to consider competitive bids.
A significant percentage of enterprise seatholders who use industry advisory firms have inquiry access for their Procurement group, so I routinely talk to people who work in purchasing. Even the ones who are dedicated to an IT procurement function tend not to have more than a minimal understanding of technology. Moreover, when it comes to renewals, they often have no thorough understanding of what exactly it is that the business is actually trying to buy.
Increasingly, though, procurement is self-educating via the Internet. I’ve been seeing this a bit in relationship to the cloud (although there, the big waves are being made by business leadership, especially the CEO and CFO, reading about cloud in the press and online, more so than Purchasing), and a whole lot in the CDN market, where things like Dan Rayburn’s blog posts on CDN pricing provide some open guidance on market pricing. Bereft of context, and armed with just enough knowledge to be dangerous, purchasing folks looking across a market for the cheapest place to source something, can arrive at incorrect conclusions about what IT is really trying to source, and misjudge how much negotiating leverage they’ll really have with a vendor.
The larger the organization gets, the greater the disconnect between IT decision-makers and the actual sourcing folks. In markets where commoditization is extant or in process, vendors have to keep that in mind, and IT buyers need to make sure that the actual procurement staff has enough information to make good negotiation decisions, especially if there are any non-commodity aspects that are important to the buyer.
3 responses so far ↓
1 Dan McElherne // Jun 29, 2009 at 9:24 pm
Lydia:
You are right on target when you noted that most IT Strategic Sourcing/Procurement folks do not have all the right skill sets with assisting IT and IT needs to ensure they have all the information they need to always be successful. No doubt the Strategic IT Sourcing/Procurement forlks are experts in their own right when it comes to company process and procedure in the acquisition and renewal effors of IT products and services, just as their non-IT counterparts. This is tremendous guardianship, however, the ultimate accountability of the solution rests with IT and that’s why we are starting to see some other acquisition and renewal models with resources such as IT Vendor Managers on the IT payroll who is the torchbearer for those IT Directors and VP’s and interfaces with the IT Strategic Sourcing and Procurement folks to ensure the solution is the best solution at the right price with the right value adds not only for the business unit, but also for the enterprise. Most successful IT Vendor Managers are ex-delivery Managers and Directors from the hard-core IT side of the house and have the needed needed solutioning context as well as scars on their chest to prove their worth. From my perspective, this new IT Vendor Management model with its utlimate built-it IT accountability and quarterbacking-like cross-functional value (one or two reports from the CIO office) is gaining more popularity as a viable cost-and-value-enterprise-solution (CAVES) approach to treat IT as a business enterprise. One final note, I would like to dispell a common myth among some strategic sourcing folks which is, that IT services are not commodities and if you try to commoditize services you will most likely get a sub-standard solution.
2 scott doniger // Jul 17, 2009 at 3:15 pm
lydia, curious to hear your thoughts on how you define the “enterprise” segment in this note, particularly as it relates to CDN vendor customers. any insight would be helpful…thanks.
3 Lydia Leong // Jul 19, 2009 at 11:55 pm
Usually, the larger and more conservative the company, the more influence Procurement has, and/or the more formal the sourcing process becomes. Big traditional media companies are often like this, for instance, but new media companies usually aren’t.
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