Information technology procurement is a sizeable cost for most businesses. Acquiring the hardware, software and services to run a business requires managers to deal with the complexities of pricing, vendor warranties, relationship management, product lifecycle management and recycling.
IT costs can be a particular minefield. The initial purchase of IT equipment such as storage systems may only represent 20 per cent of the overall cost, with the remainder taken up by power, cooling, data-centre floor space, labour and similar costs.
So how do businesses reduce the cost of procuring IT while continuing to improve service levels? The answer is to understand the options they have to lower procurement costs and how taking advantage of these will affect the way they do business.
For example, one cost-reduction option may limit their ability to innovate and respond to new opportunities. For businesses operating in a competitive environment, this trade-off may not be acceptable. However, businesses in industries where cost is the key focus may take a different view.
Cloud and virtualisation present cost-reduction opportunities
What options do businesses have to reduce their IT procurement costs? The emergence of virtualisation allowed businesses to consolidate their server fleets and consequently reduce their management costs and data-centre floor space, power and cooling requirements. The later advent of public cloud providers enabled businesses to minimise their data-centre investments and switch from capital expenditure-based IT acquisition models to more budget-friendly operating expenditure models.
Vendors are also making accounting systems and other software available over the cloud, giving small businesses in particular the ability to send data to an environment that is typically more secure, and backed up more regularly, than their own servers.
By monitoring and regularly testing the market for cloud services, or more traditional outsourcing, leasing or hosting services, businesses can identify opportunities to reduce or better manage their IT procurement costs.
Review procurement processes
Procurement processes are another area that businesses can review to reduce their IT costs. By streamlining and automating these processes where possible, businesses can lower administration and management costs, improve employee satisfaction and acquire much-needed equipment faster.
A streamlined process needs to be complemented with effective negotiation strategies at the start of the IT procurement process and when renewals are due. A key part of the procurement process is reviewing IT contracts to ensure that both parties are clear about what is included in the agreement and what constitutes an ‘extra’ that may be billed accordingly. For sizeable contracts in particular, assistance from senior managers from the procurement function – or who have procurement experience – is essential.
Finally, selecting a vendor that is culturally compatible and prepared to act as a genuine partner is crucial to effective IT procurement. Not only can the right vendor help reduce IT procurement costs, they can also help businesses identify the right IT to drive innovation and create new opportunities.
IT procurement is becoming increasingly important to businesses as new IT models emerge and digital technologies impact on every team and function. By getting the IT procurement process right, businesses can minimise their costs while becoming more competitive and better positioned to thrive in an increasingly mobile, digital marketplace.
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