Caveat emptor: buyer beware

It is in the nature of trade that suppliers want to take as big a margin from any deal as they can manage, while purchasers want...

It is in the nature of trade that suppliers want to take as big a margin from any deal as they can manage, while purchasers want to get the best product for their purpose for the minimum outlay. How can IT users best manage their half of the equation? We asked two experienced IT directors how they would go about it. Julia Vowler reports 

Option 1: Manage the expectations of your users - do not give in to demands

Making every pound spent do the work of two has to be the task for every IT director in these hard times. But how?

This month's Computer Weekly 500 Club seminar focused on finding some answers to the tough challenge of "getting more for less from IT". Suppliers are an obvious first target to address - and the systems and services they provide.

At Power Protection company, Chloride Group, IT manager Peter Mansbridge has four "more-for-less" principles:
  • Make sustainable decisions - do not be a short-term hero who becomes a long-term villain

  • Never rely on a single individual

  • Always try to go to a one-stop shop - minimise the number of suppliers

  • Never paint yourself into a corner.

Key to making sustainable decisions, Mansbridge says, is avoiding costly variety. Although Chloride Group has a multiple international operation running local copies of the business system, Mansbridge insisted that the Y2K enterprise resource planning package be completely standard.

"I was not going to change a line of code," he says. "Any tailoring would be done by configuration to our needs at operational level. We are not a 'rocket science' user, so where is the benefit of code modifications to us?"

The wisdom of this decision was brought home when Chloride bought another company which was using a substantially modified version of another enterprise resource planning package. Modifications were seen as a way of motivating staff - but were they worth it in terms of business benefit?

"They had requests for modifications at the rate of five a week, and were doing three a week," he says.

Not only is making the modifications not cheap - especially if expensive consultants are involved - but, warns Mansbridge, a modified package cannot be upgraded in a simple maintenance release.

"I want to drop maintenance releases in without them touching the sides," he says, to get maximum benefit from the integrated developments provided by the supplier.

Otherwise you end up having to rewrite your modifications to the original package to suit the new release, which costs four times as much as writing them in the first place.

However much IT might like to employ gifted individuals, it must never become critically dependent on any one of them, especially if documentation is not their strong point.

When they leave - "and they always do," warns Mansbridge - the system they supported will probably fall over, costing money to resurrect.

"You do not want to dampen enthusiasm, but you must manage the risk and not get into a fool's paradise," he says.

For Mansbridge, best-of-breed IT is an expensive option compared with one-stop shopping. Not only will application integration cost more than you want to pay, but, he warns, "the maintenance releases (of all the systems) will never be in sync".

Unless a best-of-breed system confers unique competitive advantage for business - and the business agrees both the benefits and the extra cost - from an IT point of view it is never worth it, Mansbridge says.

On the flip side of one-stop shopping, however, remains the thorny issue of over-reliance on one supplier who can then paint you into a corner and mug you for your IT budget. "You can not control the world, it is always changing," says Mansbridge, "But you do have to try not to be wrong-footed when it does."

Or, inevitably, it will cost you money. 

Make the best of purchases
  • Use standard packages. Avoid customising code - tailor through configuration only. Customising code costs money and makes upgrades slow and expensive

  • Avoid best-of-breed unless it confers real competitive advantage. Application integration will cost, and upgrades will get out of sync

  • Lack of documentation will cost you dearly when local gurus leave

  • Try to remain flexible with escape options lined up. 

Option 2: Get the best deals from suppliers - say no to extras

Owen Williams is the partner responsible for IT at property firm Knight Frank. "I inherited a set of outsourced service contracts which were not performing," he says. "Sorting them out was a key goal."

"By investing in technology to implement helpdesk and change control systems I reduced those costs by 59%, and contract values by 71%," he says.

Williams also tackled other areas of technology delivery, bringing network monitoring and management in-house, reducing costs by 60% and contract value by 76%.

Similar levels of saving are being achieved by changing the systems supporting business processes in other parts of the firm.

The key for Williams has been to focus on choosing technology that best fits the business processes of the company - and not getting bogged down in too much unnecessarily fine-grained comparative detail between offerings.

"One criticism levelled at me by suppliers was that I was not comparing apples with apples - and they were right," says Williams.

"But actually I only wanted to buy fruit."

He also insists that any new system should solve more than one problem.

"We have a portal project which will deliver benefits to clients, international users and remote workers - a single solution solving many business problems," says Williams.

But, he warns, "My difficulty is that none of the business users themselves perceive the elegance of the solution because of none of them sees the complete variety of the problems.

"In IT, the question you should always ask yourself is, 'Can I pay less?'" says Williams. You must achieve in this area to be seen as credible by the business you are part of. You must also know when to stop. Too tight a grip on costs can increase risks.

"Do not go too far on a service level agreement," he warns. "For example, in a previous company we had a hardware maintenance contract where the performance criteria allowed for a financial penalty per quarter.

"I thought it was quite good because the supplier could perform well against the contract by fixing the easy things fast, but this was apparently too subtle and at the end of the quarter they sometimes owed us money. They went out of business."

Never forget that time is money - "35% of my costs are staff costs," says Williams - and that management time is even more money. Keeping supplier management lean can mean not opting for multiple suppliers on a project.

"It is appallingly difficult to get suppliers to work well together," warns Williams. "Suppliers and consultants love to widen a rift and rake in the loot."

Even with only one supplier, remember that the contract will have a management overhead to be paid for out of IT budgets. Williams' advice is, "accept nothing less than exceptional value from a service contract" and pay for the management overheads out of the savings you make.

Time must be accounted for, not just within the IT department, but outside it as well.

"Add time to project costs [billed] to sponsoring business units," and add the proper proportion of all IT's indirect costs, Williams advises.

Business needs to understand the true and total costs of the IT it asks for.

As should accountants. "Make sure the cost of a system is depreciated over the lifetime of the solution," or you may not correctly compare lifetime costs with service costs. Errors in this area may cause your organisation to accept a higher service cost than it should, he says.

"We calculate depreciation for hardware over three years and return on investment for software over two," Williams says.

Whatever the costs are, it is then up to the sponsoring business unit - not IT - to judge whether the benefits outweigh them, and it is essential that you are measured on the total IT expenditure of your organisation and not the costs that you allocate.

This allows you to reduce allocated costs by more accurately identifying direct costs and ensures that the company accountants agree to any cost displacements you may want to move out of IT on to other shoulders, says Williams.

The result of his across-the-board efforts to get more IT for less money so far is that "allocated costs this year are budgeted 8% higher than last year and overall expenditure on IT is down 23% on last year in the UK. Next year I plan to show our allocated costs as lower than this year."

His next target is to discover how much Knight Frank spends on IT globally. "When I find out I am sure I will be able to deliver more for less," says Williams. "The money I am saving is going on other projects." 

Don't buy functionality you don't need

  • Healthcheck existing or inherited contracts to ensure value. Change to cheaper platforms where possible, and be prepared to terminate non-performing contracts

  • Do not compare the virtues of buying apples against bananas if all you need is fruit

  • Do not drive suppliers out of business with punitive contracts, or do business with financially unsound companies. Include supplier failure as a disaster scenario in business continuity plans

  • Solve more than one problem with any solution - but ensure business sees that big picture

  • Time is money - manage it and allocate the cost of time

  • Define service level agreements closely to ensure value. Use contract savings to fund your supplier management costs

  • Minimise multi-supplier projects - managing multiple suppliers costs are high

  • Ensure the accounts department buys in to your lifecycle costs, and you agree depreciation times

  • Ensure the business understands the total cost of its IT - make it responsible for cost-benefit analysis of what you deliver.

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