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The next place CIOs should look to cut costs Print E-mail
Tuesday, 30 March 2010

(CIOZone) By Tom Hoffman

Since the recession kicked in last year – and, truth be told, almost consistently since 9-11 – CIOs have been under intense pressure to cut costs. No real news flash here. But after IT leaders quickly dispensed with the oft-mentioned "low-hanging fruit," it became increasingly difficult to find new ways to pare operational costs.

A few years ago, other cost-saving opportunities began presenting themselves, most notably server, storage and desktop virtualization efforts.

Even though IT budgets are beginning to tick up for some companies, CIOs aren't exactly going on wild spending sprees. Cost pressures remain. Sadly, relatively few IT leaders have taken advantage of prime opportunities to lower IT operating costs by renegotiating existing vendor contracts, consolidating the number of contracts in place and by managing and tracking their current contracts more closely. There's certainly been more activity in this space but there are also a lot unexplored options out there. Research conducted by the CIO Executive Board reveals that 54% of organizations report challenges with managing IT vendors effectively.

While attending the 14th Annual North American Shared Services & Outsourcing Week conference near Orlando this past week, I decided to conduct a bit of an experiment which admittedly is neither scientific nor statistically valid. I met with sales and marketing reps from about a half dozen vendors that provide contract management services. I should pre-qualify this by mentioning that roughly 80% of the 850 registered attendees at this conference were HR and finance directors as well as procurement and shared services managers. IT managers represented just 20% of the audience and most of the vendor reps I met with say that IT leaders typically aren't part of their target audience.

Just the same, I asked each of the vendor reps a series of questions aimed at determining the level of interest expressed by IT managers in utilizing contract management services in recent months. Little, if any, according to the vendor reps I met with.

I found this a bit distressing. IT organizations historically have a poor track record of managing and tracking their vendor contracts and licensing agreements. One of the biggest problems with this detached approach to contract management is that when CIOs or IT procurement managers are notified by a vendor that their licenses are coming up for renewal, customer organizations typically have a lot trouble locating their contracts, thus putting them in an unfavorable position when it comes time to negotiate a new deal. They find themselves pressured to respond to a deadline and a deal that boxes them into a corner.

Some companies have done a terrific job of managing vendor contracts, identifying unutilized or under-utilized assets and negotiating more cost-effective deals in recent years. For instance, after searching through its vendor agreements for potential cost-savings opportunities, IT leaders at Sony Pictures Home Entertainment discovered a $125,000 maintenance bill for a workflow management system that was no longer in use but otherwise would have been paid had it not been detected. The company also saved millions of dollars in overhead after renegotiating several licensing agreements to more closely match its actual software usage.

But for many organizations, opportunities to rework vendor agreements and manage contracts more efficiently remain an unplucked fruit.

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