I had an interview recently with Yann L’Huillier. He is global CIO at Tradition, an inter-dealer broker.
Amongst other things he was telling me that part of his cost cutting has involved getting the companies IT suppliers to drop their prices.
“We are going to a lot of our vendors and saying ‘Look the world is changing and we all need to be in business’ so we want the same service at a lower cost,” he said.
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He said most of the company’s vendors react positively to this and some are willing to reduce costs for a longer term relationship.
It does seem counterproductive if suppliers keep their prices up when business is down. I mean if you are a supplier and a major customers goes bust, then you could be next.
This is also one of the benefits of cloud computing with pay as you go models meaning businesses will pay less when business is down. It is also a big thumbs up for outcome based agreements.
I interviewed Phaneesh Murthy, CEO of IT services firm iGate, last week. The company was originally set up doing the processes related to mortgage completions in the US. It charged customers per mortgage completed. Obviously when the credit crunch hit and the US mortgage market collapsed it had to change a bit. The company decided to buy Indian IT services firm Patni, which was much bigger, and give its outcome based charging model more scale and target other markets.
But suppliers that do not charge in outcomes have to help their customers bring costs down.
Robert Morgan, director at sourcing consultancy Burnt-Oak Partners, says businesses are always trying to get suppliers to lower their prices, but they have more of a case today.
He said it is not unusual for discounts of 15% to be offered.
But he says it is not the case that the suppliers are losing out because many of the discounts are requested a few years into a deal when the supplier margins are high.
He said there are lots of ways businesses can cut IT costs if they properly understand their estate. “I know big businesses that make thousands of people redundant to save money and don’t realize they can sometimes save millions just by ending software licenses they don’t use.”
This seems a good argument for consultants.