How to buy IT

The us-and-them mindset is alive and kicking in IT purchasing: techies want the latest shiny toy, and executive unconcern often lets them get it. Both sides should engage in a rational, collaborative decision-taking process, says Ron Condon.

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Last Updated: 09 Oct 2013

No-one would deny that business depends increasingly on computers, networks and enterprise systems to operate effectively these days, but how can bosses be sure they are getting best value for their IT investment?

For many senior managers, computing is still seen as a dark art best left to the geeks and techies in their Black Sabbath T-shirts and open-toed sandals. The closest such managers get to an IT supplier is when they play golf with the chairman or attend a sponsored corporate event at Wimbledon or Glyndebourne.

But keeping IT at arm's length like this is a dangerous game, because it means entrusting the technologists with the task of buying the technology. And while the IT team may be extremely clever when it comes to designing a database or a communications network, they don't understand the business imperatives like you do, and they may struggle with the contractual intricacies of dealing with suppliers.

The obvious answer is to make the IT department work more closely with the procurement or purchasing department. But according to Bill O'Reilly, a partner at KPMG in charge of procurement advisory services, such a move tends to meet strong resistance from the IT professionals.

'It's sad, because it shows a lack of awareness of where procurement can add value,' he says. 'There is a fundamental disengagement between the IT specialists who understand the technical requirements, and the procurement specialists. Procurement can bring to bear a robust and efficient sourcing process to assure that the organisation gets the right commercial deal for the right quality and depth of technical support.' That's better value for money to you and me.

He adds that even where the procurement department is asked to intervene, it is usually at a late stage in order to 'beat the supplier up on price', but too late to influence any other parts of the deal.

'Businesses are leaving lots of value on the table and potentially making fundamentally the wrong decisions around their service providers,' says O'Reilly. 'Or they might have the right service provider, but on the wrong commercial terms, because they did not pull in the procurement guys early enough.'

A lesson in how to do it properly comes from Mike Fogg, a consultant with global consultancy PMMS, who spends much of his time at the Institute of Purchasing and Supply teaching IT people how to buy.

He emphasises the need to make a business case for any new system before anything else can happen. That will involve pulling in people from the procurement department, plus those parts of the business that are likely to be affected by the proposed new systems.

That may sound blindingly obvious, but in Fogg's experience, senior management can often be convinced that they need 'the latest go-faster stripes' without really stopping to calculate the cost or the benefit. He cites the example of one company that was persuaded to buy the latest cordless mice for all its PC users - even though nobody wanted, or needed, to work 6ft away from their desk.

He also cautions that big technology companies have been known to deliberately target commercially naive techies, attempting to get a deal - advantageous to themselves, natch - sealed before the sharp-eyed boys and girls from purchasing can start sniffing around.

He says technical people can be a soft touch because they like new inventions and features, and they will also sympathise with suppliers when they hit problems. 'The business needs to stop IT from buying things it doesn't need,' says Fogg.

That may be easier said than done, though. Vendors are constantly bringing out new versions of their products and cutting off support for the older versions, thereby forcing customers to upgrade.

That is felt most acutely at the PC level, where each new version of Microsoft Windows requires every machine to be upgraded, and (as with the recent release of Windows Vista) new hardware to be added. If you have thousands of PCs on the network, that can be a labour-intensive and expensive task with little or no business benefit, other than the knowledge that you are keeping up to date.

Peter Critchley, strategic director with the Morse consultancy, suggests that rather than blindly going ahead with these regular updates, companies should take the opportunity to review the IT infrastructure. 'The decision to deploy desktop PCs may go back 10 years in many companies,' he says. 'Since then, the PCs will have been regularly upgraded, without people really questioning whether they were still needed. A budget for PC refreshment has been allocated, and so they spend it,' he says.

But technology and the business move on, and some people might now need laptop computers, or handheld devices, to fit in with new working patterns. Others might be better served with thin-client devices - simpler terminals that are cheaper than PCs and much easier to manage, because most of the data and processing power are retained on a central server. 'We are already starting to see that in schools, where thin clients are much easier to manage and support,' says Critchley.

Products are only part of the picture, however. The growth in outsourcing has brought even greater challenges for the IT department.

Handing over all or part of your data-processing to an outside company is a lot more complex than buying a few PCs, and will go way beyond mere considerations of getting the best price.

'In hardware, price is nearly everything, but with outsourcing it's more about the quality of the service,' says David Roberts, managing director of the Corporate IT Forum, a membership body representing about 150 large UK companies with a combined annual IT expenditure of £35bn.

He emphasises the need for the two parties in an outsourcing agreement to get to know each other before committing fully. 'You have to get past the sales and marketing people and get to the support people, and distinguish between pre- and post-sales support. That requires quite a lot of time to take into account how the relationship will work as part of the business. You have to get under the skin of the individuals.'

He strongly recommends taking up references from the supplier's existing customers, and says groups such as his own are useful for getting unbiased information about the performance of suppliers. A small pilot project - for example, upgrading some PCs or deploying a small office system - can also be useful, he adds, to test how well the supplier will work with in-house staff.

The personal relationship can be developed in a number of ways. According to Richard Hackworth, until recently head of information security at HSBC and now a consultant with KPMG: 'The successful deals I've been involved in have had a flavour of partnership about them. We got together in a room with a tray of coffee and biscuits and a white board, and explored what we could do. The painful deals happen where there are standoffs, and intransigence on one side or the other. You need to be imaginative.'

The pre-contract discussion also needs to focus on how the success of the deal is going to be judged. Key performance measures will need to be established, along with agreed service levels, so that both sides can see if value is being delivered by the project.

Pre-nuptial planning is also desirable, to consider the possibility of a divorce somewhere down the line.

Given that many outsourcing deals finally fall apart - sometimes bitterly - the contract needs to ensure that the outsourcing company will provide all help and support required in the event of a contract being transferred back in-house or to another outsourcer.

The contract also has to cope with unforeseen circumstances - the last thing you want is the outsourcer refusing to do something because it was not in the specification. Says Hackworth: 'Sometimes at the contractual stage, it can be hard to define how to resolve problems or handle incidents. It goes into a level of detail that just doesn't fit well in a contract.'

His solution is to put into the top-level contract the simple requirement that both partners in the deal will establish a low-level working group with the responsibility to sort out problems, comprising people from both organisations. 'The group is equally responsible to both organisations, and charged with the job of monitoring operational issues, deciding what action to take, and taking action. Without having to make reference back up the line all the time, their job is to resolve the issues. They are close to the ground and have the technology to fix the problems.

'Once or twice a year, they produce a brief report - about a side of A4 paper,' he continues. 'In the case of a problem, they have the authority to escalate up both lines if they hit obstacles to making it work.

'All the technical terms of reference for that joint group - the way they work, who they appoint to be their chairman etc - are left entirely to them. So the working-level people are given open space to work together and collaborate, which is exactly what people like to do. You empower them to do the job.'

The formula works well, he says, not only in resolving technical issues on the ground, but helping to cement the relationship between the organisations, and creating a cross-fertilisation of ideas.

But for every outsourcing deal that is successful, another one goes awry. Several companies in the past couple of years - including the likes of re-invigorated superstore group J Sainsbury - have pulled their IT back in-house, and UK public-sector contracts continue to be notoriously problematic.

In some cases, it is just a question of changing circumstances forcing changes in arrangements. In others, it is the fault of the two parties involved, with one side offering more than it can deliver and the other not being open about its requirements.

All the more reason to hammer out as many of the details beforehand, and plan carefully for the unexpected.

As KPMG's O'Reilly says, despite the huge sums involved and the importance of IT investments to company strategy, much of the procurement is still done by 'well-meaning IT specialists who dabble in sourcing because they understand the technical requirements, and underestimate the sourcing process'.

BEFORE YOU HEAD FOR THE CHECKOUT ...

- Build a business plan for any new IT expenditure.

- Involve all affected business departments.

- Get the procurement department on board right from the start.

- Talk to existing customers (not just the ones the supplier puts forward).

- For outsourcing, set key performance indicators.

- Try a small pilot project first.

- Build in a smooth exit process for your company before signing the contract.

- Ask to see the supplier's technology roadmap. When buying products, don't settle for last year's model, and if the next version is a big improvement, be prepared to wait.

- Check for commercial relationships. Make sure you know whether any consultants you use have one with the companies they recommend (they are not obliged to reveal this unless it is specified in their contract).

FIVE KEY STEPS TO SUCCESSFUL PROCUREMENT

1. Develop a specification of needs, now and in the future. Don't narrow the field to a usual set of suppliers at this stage.

2. Do a supplier market review. This may reveal new suppliers or services, and will force incumbent suppliers to fight harder for the business.

3. Issue a Request for Quotation. A procurement professional will know how to sell this to the market, taking into account whether the company is growing (and thus a useful client for any supplier), and whether it has a strong brand in the market (another attractive characteristic).

4. Evaluate the bids. This needs to be done on both a technical and commercial level. The procurement department will be able to explore the full implications of any hidden costs, and to come up with a formula that best suits the organisation.

5. Negotiate. If the first four stages have been done properly, negotiations can focus not just on price but on agreeing the key performance indicators and any penalty clauses.

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