Is your business confusing IT procurement savings with poor in-life contract and service management?
If you’ve been regularly involved in contract and pricing reviews or RFP’s for IT services (for instance with a mobile telecoms review) then you’ll know that it’s common for these reviews to result in large procurement savings of 20-30% or even more.
Whilst at face value, such procurement activities are clearly valuable to the business, it’s rare in my experience for IT, Finance and Procurement teams to stand back and evaluate why it was possible that they were able to secure such large savings in the first instance. Most simply see it as a job well done, and set about looking at the next contract.
Fast forward two to three years and the exercise gets repeated, another 20-30% saving gets booked and the cycle starts again. I see this as a ‘procurement first’ approach to IT cost management.
The reality for most businesses is that a combination of events really occurred over the preceding contract term, that resulted in significant and hidden overspending. For telecoms services these commonly include paying for unused services, not optimising tariffs, not invoking benchmarking clauses, exceptional and uncontrolled usage, lack of visibility of spend, poor inventory management, incorrect or inefficient deployment of technology, poor or limited training – the list is extensive.
The procurement exercise was like a short term fasting diet, it quickly allowed the business to shed some weight, but as the business didn’t make any “lifestyle” or in this case management changes, the pounds quickly pile back on.
For CIO’s and IT leaders that ask the ‘how was it possible’ question, then a new opportunity to save money and importantly avoid costs comes to light.
How much excess and hidden cost is your business carrying?
In my experience, many businesses overspend by 10-20% or more on mobile and telecoms services; and most of the time these savings could have been released long before it was time to renew contracts. And so, of the 20-30% savings that might be achieved from negotiating a great new deal, the reality is that at least half (and probably more) was wastage and hidden cost anyway. The carrier simply adjusted their pricing to mask these issues and make it look like the price was the main issue.
In telecoms and possibly with other IT and business services, I believe there are many ways to save money, however they are often based on proactive management or a ‘management first’ principle. And in most cases there’s nothing stopping your business from exploring and implementing them today, no matter when your network contract is due for renewal.
Some of the most effective approaches include:
1. Manage and measure what you use – removing wastage, tracking usage and spend, managing excessive usage and maintaining accurate inventory will keep costs optimised throughout the contract term. These likely account for 10-20% of your current mobile costs, and 5-10% of your fixed line costs.
2. Change or deploy technology and commercials for each ‘use case’ – all too often (especially with mobile telecoms) businesses deploy the same tariffs and technology to all users and ‘use cases’ regardless of their usage profiles. Identifying the 1-2% of outliers that can often account for 20% or more of usage and costs and tailoring services and commercials to their needs can dramatically reduce costs and improve productivity.
3. Look at the operating and support model for telecoms – consider how effectively your business is really supporting and deploying services? For example, is your IT help desk really the right team and are the empowered with the right tools and resources to build, deploy and manage mobile phones and tablets for your users? All too often IT support processes are poorly defined or IT teams don’t have the right tools and systems to manage telecoms services. As a result, it’s common for both network and resource costs to increase, for errors to get made in provisioning that lead to future costs (e.g. wrong tariffs applied) and for security risks to increase.
4. Identify hidden IT and Telecoms budgets – with the increase in BYOD and cloud services, it’s become more common for IT spend to be generated (unchallenged and un-managed) in other departments’ budgets and even in employee expenses. Often these areas hide substantial IT spend but also create un-managed security risks. BYOD expense claims for example can often exceed the cost of corporate services that they were supposed to remove or reduce in the first instance.
5. Procure better terms – procurement is critically important, however it should be invoked from an optimised position where the business has at least already identified the hidden costs and wastage. Saving 30% on a £10 line rental for a service which is actually unused is still overpaying by £7. Procurement should also be able to work with IT to identify how the use of services are likely to change over the contract term and where costs are likely to rise, so flexible and appropriate terms can be negotiated as well great pricing to ensure the business can easily adapt to change in the future.
Taking the approach of ‘management first’ won’t work for all businesses. Some will be happy to continue with a procurement first cycle. I believe however, that in the process they risk not only overspending over the lifetime of each contract, but those businesses will also often fail to identify material support issues, wastage and potential security risks that can easily be prevented if they stop to ask the ‘how was it possible’ question the next time they deliver a big procurement saving.
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Our specialist independent team works with corporate IT teams across a wide range of industries and sectors; taking care of mobile and telecoms network administration, managing mobile costs & usage, negotiating market leading contracts; and supporting business users with their mobile devices.
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