As part of Amalgam Insights’ coverage of the Technology Expense Management market, we provide the following guidance to sourcing, procurement, and operations professionals seeking to better understand how to manage technology expenses.
In immature or monopoly markets where one dominant vendor provides technology services, vendor management challenges are limited. Although buyers can potentially purchase services outside of the corporate umbrella, enterprises can typically work both with the vendor and with corporate compliance efforts to consolidate spend. However, vendor management becomes increasingly challenging in a world where multiple vendors provide similar but not equivalent technology services. To effectively optimize services across multiple vendors, organizations must be able to manage all relevant spend in a single location.
In Telecom Expense Management, this practice has been a standard for over a decade as companies manage AT&T, Vodafone, Verizon, and many other telecom carriers with a single solution. For Software-as-a-Service, a number of solutions are starting to emerge that solve this challenge. And with Infrastructure-as-a-Service, this challenge is only starting to emerge in earnest as Microsoft Azure and Google Cloud Platform rise up as credible competitors to Amazon Web Services.
To effectively manage sourcing and vendor management in complex technology categories, Amalgam suggests starting with the following contractual steps:
Align vendor and internal Service Level Agreements. There is no reason that any vendor should provide a lower level of service than the IT department has committed to the enterprise and other commercial partners.
Define bulk and tiered discounts for all major subcategories of spend within a vendor contract. Vendors are typically willing to discount for any usage category where a business buys in bulk, but there is no reason for them to simply hand over discounts without being asked. This step sounds simple, but typically requires a basic understanding of service and usage categories to identify relevant categories.
Avoid “optional” fees. For instance, on telecom bills, there are a number of carrier fees that are included in the taxes, surcharges, and fees part of the bill. These charges are negotiable and will vary from vendor to vendor. Ensure that the enterprise is negotiating all fees that are carrier-based, rather than assuming that these fees are all mandatory government taxes or surcharges which can’t be avoided.
Renegotiate contracts as necessary, not just based on your “scheduled” contract dates. There is no need to constantly renegotiate contracts just for the sake of getting every last dime, but companies should seek to renegotiate if significantly increasing the size of their purchase or significantly changing the shape of their technology portfolio. For instance, an Amazon contract may not be well-suited for a significant usage increase of a service due to business demand.
Embed contract agreements and terms into service order invoice processing and service management areas. It is not uncommon to see elegant contract negotiations go to waste because the terms are not enforced during operational, financial, or service management. Structure the business relationship to support the contract, then place relevant contract terms within other processes and management solutions so that these terms are readily available to all stakeholders, not just the procurement team.
Effective vendor and contract management is an important starting point to support each subsequent element of the technology lifecycle to enforce effective management at scale. In future blogs, we will cover best practices for inventory, invoice, service order, and lifecycle management across telecom, mobility, network, SaaS, and IaaS spend.