One-stop IT suppliers will bring vast benefits and risks, says Ovum

The emergence of suppliers capable of acting as a one-stop shop for all the IT needs of organisations will transform the way businesses buy IT services, claims analyst Ovum.

The emergence of suppliers capable of acting as a one-stop shop for all the IT needs of organisations will transform the way businesses buy IT services, claims analyst Ovum.

Major IT suppliers are reaching a size that will allow them to operate as the sole IT supplier for big businesses, creating huge benefits of scale and new risks for IT departments, says Carter Lusher, chief analyst for the Enterprise Applications Ecosystem at Ovum.

IT departments will need to respond by building much deeper relationships with their suppliers and developing new ways to manage the relationship. "They are also going to need a lot of good lawyers," he said.

IT suppliers - with IBM, Oracle and HP in the lead - are making strategic acquisitions that will position their organisations as suppliers capable of meeting all the needs of an IT department, says Lusher. They are reshaping their sales forces to act as single points of contact for large companies.

"We could definitely see within a year or two, and IBM, Oracle, or even HP being able to deliver on this concept," said Lusher.

Mega-vendors could offer IT departments savings of 10 or 15% on their IT costs through economies of scale. IT departments will make further savings by only having to manage a single supplier.

The first IT suppliers to sign single sourcing deals with emerging mega-vendors stand to gain a significant competitive advantage, says Lusher. He draws a parallel with the airline industry.

"The only airline that has been profitable in the US is South West Airlines. That's because they only fly one type of plane, the Boeing 747, nothing else. They have a cost advantage over other airlines that fly multiple Boeing and Airbus models."

But there are huge risks in signing IT deals with a single supplier.  That will mean IT departments will have to adapt the way they work, says Lusher.

"When one vendor provides more and more of your infrastructure, it becomes more and more difficult to change vendors if you are dissatisfied, or if a vendor starts raising its prices for maintenance fees." 

"After two years, when it's painful to move, they can turn around and say, 'I have raised maintenance fees by 8%, live with it'," he said. "Or they get another CEO and they want to change direction. If you are committed to their hardware and software, the hurdles can be very high."

To meet these challenges, IT departments will have to radically change the way they work with suppliers, says Lusher. This will mean forming closer relationships with the supplier and monitoring them more closely.

"It will no longer be the case of picking up the FT or the Wall Street Journal, and saying this is what IBM is up to. CIOs now have to invest staff time in observing what vendors are doing.

"A smart organisation will employ multiple internal analysts, who will synthesise what they read from analysts, Computer Weekly and other publications, and blogs."

IT departments will also need to employ good lawyers with the ability to go through contracts with a fine-tooth comb, says Lusher. They will need to work out what the implication of a particular contractual term could be in the future.

"Some CIOs say I want nothing to do with mega-vendors. Others say there is a risk, but it sure would be nice to have a simpler environment, so I can concentrate on technology rather than business," he said."There are some companies that love risk because they on the leading edge. Others are in markets that demand a very conservative approach to IT."

Carter Lusher is speaking at The Ovum Industry Congress.

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