Businesses across all sectors, including information technology, are grappling with both domestic and global economic uncertainties.

As projected by analysts from Gartner Inc., the economy will continue affecting both the technology industry and end users.  Each is looking for ways to protect their interests. For end users who have historically avoided a single-vendor approach to their companies’ IT systems and services, many are now embracing the concept of vendor consolidation. For IT product and service providers, vendor consolidation also has benefits. Understanding the reasons why so many organizations are gravitating toward vendor consolidation and how to make this business model work is important not just for the large corporations, but for small and midsized businesses, as well.

The term “vendor consolidation” conjures up many myths and misconceptions. Some regard vendor consolidation as the equivalent of vendor lock-in. It is not. Vendor lock-in implies that vendors of certain products establish somewhat of a proprietary IT environment which makes it difficult for other vendors to introduce other technologies into the environment and/or to service various systems in that environment. Some vendors have, in fact, employed this monopolistic approach with respect to their products and getting support, forcing them to rely on their companies’ or lose this support. Vendor consolidation is not a formula for this type of negative control.

Others hold that their IT systems are far too complex for just a few vendors to manage. While every vendor cannot support every system, a selection of the right vendors with complementary skill sets can provide essential coverage of even the most complex IT environment.

There’s also the fallacy that with vendor consolidation will come a decline in service quality and response times. Traditionally, IT managers have held that they need many vendors to gain leverage over all of them and keep them on their toes. The vendors, however, are just as concerned about maintaining a strong reputation as they are about retaining a customer’s business. They aren’t going to jeopardize their reputations or a significant contract by lowering their standards of service simply because they are among the fewer chosen vendors.

Additionally, astute vendors chosen to participate in the consolidation model understand that their relationship has been elevated to that of business partner and as such, a consistently high-quality service level, flexible terms and value-added offerings are expected.  Ironically, many believe that consolidation results in the exact opposite: lower standards of service, less contract flexibility and the elimination of a pricing/bidding advantage. When structured properly, however, vendor consolidation leads to none of these disadvantages, but rather many advantages.
For end users, the advantages include:

  • Streamlined business processes and related costs. Fewer contracts to administrate, vendors to manage, invoices to pay, and resources associated with all of these items.
  • Improved accountability among fewer vendors and reduced finger-pointing between what was too many vendors.
  • Better system security achieved by reducing the number of individuals with access to a company’s systems and data, and confining access to a select group of cross-trained technicians. These focused technicians also have a better understanding of a company’s particular IT environment, along with its staff, policies and procedures. This, in turn, helps streamline service calls and the overall performance of both the vendor and the client.
  • Overall lower total cost of ownership, especially within the mainframe environment, but also within midrange and distributed environments.
  • Heightened emphasis on cost reductions across other areas of the organization beyond IT, from marketing to professional services.
  • Added benefits derived as a “preferred customer” such as the vendors’ greater role in IT planning, negotiations with other “outside” vendors, value-added training programs and logistical support.

For IT providers, particularly independent third-party providers, there is the opportunity to demonstrate that they are more than capable of effectively meeting end-user needs. Further, owing to their size and reduced bureaucracy, they may be able to demonstrate more nimble, flexible and often more cost-effective services over larger OEMs.

Making Vendor Consolidation Work

This is not to say that vendor consolidation is not without challenges. To begin with, the process of consolidation is not a simple one. An organization must be willing to make an investment in time and energy to make it work. The process involves evaluating vendors against various criteria, including performance metrics, logistical resources and cost factors. Then there is perhaps the even more difficult challenge of getting buy-in from internal staff.  Different IT staff members may have allegiance to different vendors based on their responsibility for a particular system or component of the IT environment.  

Vendor biases may also prevail among members of an organization with a large stake in the IT system’s performance (e.g., chief financial officer, human resource executive, marketing or sales executives, etc.). There are also the viewpoints of those in procurement or contract management who may resist the idea entirely out of fear that it may diminish their importance or role within the organization. Using the right approach, these obstacles and related idiosyncrasies can be addressed.

To be successful, an organization must determine what goals it wants to achieve from vendor consolidation. The goals should be divided into two categories: IT-related objectives and business objectives. Covered under the IT section should be goals relating to: access to qualified technicians and field service engineers with expertise on specific platforms and in specific areas of IT (e.g., security, cloud computing, etc.); preventive maintenance requirements; adherence to best practices; service call reporting and documentation of repairs; and performance metrics relating to response times/service levels, IT system reliability, deployment of new applications, security, user satisfaction, etc.

Among the business goals that should be identified for the vendor consolidation program are: streamlining vendor contract management, monitoring and procurement processes; reducing costs associated with technology purchases, integration, maintenance and logistics; and gaining “preferred customer” value-added services (e.g., IT planning support, training, advice regarding future IT requirements and negotiations with other vendors, etc.).

When establishing these goals, it is important to be as specific as possible. This information can then be used as a benchmarking tool for both the initial comparison and selection of vendors and, going forward, to continually monitor the performance of the selected vendors. When issuing future RFPs, these same metrics can be used to ensure that current vendors are still capable of meeting both current and future parameters set forth by the customer.

Vendor Consolidation and Best Practices

In addition to establishing clear IT and business goals, organizations should approach vendor consolidation from a best practices standpoint. A vendor consolidation program should rely on the following practices:

  1. Centralization of manufacturers’ contracts to manage warranties, licenses, maintenance schedules and support information.
  2. Advance notification from hardware and software manufacturers as to when service and/or support will end based on their contracts of warranty or license terms.
  3. Forecasts of projected annual costs relating to service, support and training.
  4. Identification of all internal IT personnel and external vendors and areas of responsibility.
  5. Development of a disaster recovery/business continuity plan indicating the roles of both internal staff and external IT vendors.
  6. Determination of the length of contract for each vendor participating in the vendor consolidation program.
  7. Establishment of regular intervals for assessing each vendor’s performance against contract terms, IT and business objectives, and overall subjective feedback from both internal IT staff and system users.

Just as it is important to establish goals, it is also important to manage expectations for the vendor consolidation program. It should not be viewed as a means to strong-arm vendors to secure below-market pricing and/or excessive “freebies.” What should be expected is that the vendors participating in the program will be fully attentive to the organization’s needs, provide flexible, customized service, competitive pricing and value-added services. They should be respected as partners, but also expected to serve in the capacity of a true business partner.
This means the vendor should be willing to share in the risks of the organization’s IT system performance, accommodate the customer during challenging periods, maintain open and ongoing communications, and provide expertise and guidance that contribute to the customer’s overall productivity and profitability.

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