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How to reduce the cost of managing multi-supplier IT


felix fernandez.jpgBy Félix Fernández


Félix Fernández is a CTO with HP Software Professional Services covering ITSM, PPM and SIAM.


How would you structure your IT department if you had to create one from scratch? How much would you center in-house, and how much would you allocate to external suppliers? I was talking to a CIO recently who’s in this very situation. He’s at a brand new company with a lot of investment. Now, not many people are faced with this problem. But the solution tells you a lot about where enterprise IT is headed. It should be no surprise that this CIO is looking to various IT suppliers for what he needs. He’s going to keep his core, competitive-advantage IT in house and look externally for the rest.


My CIO friend told me, “I don’t want to have a cost center. I know there are suppliers who can do x, y, z much better than I can.” Maintaining all these various functions in-house is like having your own energy or power plant. Nobody does that.


Of course you wouldn’t maintain your own power plant to deliver electricity to your business. That wouldn’t be very cost effective. But this analogy breaks down a bit when you consider that there’s a management cost associated with bringing in and integrating multiple suppliers. (Frost & Sullivan just came out with an illuminating report on this issue.) IT is not yet as simple as flipping an electrical switch! And often, if you’re not careful, you can miss significant cost savings because of management complexity. Here’s what I tell customers about how they can achieve additional cost savings by using a service integration and management (SIAM) solution to manage multiple suppliers.  


How IT costs break down in multi-supplier IT

Say you’re an IT organization where everything is done internally. (You’re making your own electricity.) When you move to outsourcing, you might expect a cost reduction of 25%. This is a big savings—however most organizations have already done this, and to stay competitive you need to go further. How do you find even greater savings? Perhaps now you go to a multi-supplier model. Your cost reduction will not be as great at this stage, but you might still expect to reduce costs by, say, an additional 15%. After all, now that you’re making suppliers compete, you should be able to keep lowering costs.


A strange thing happens at this stage, however. The cost of managing multiple suppliers wipes out most of that projected savings. So instead of achieving that desired 15% reduction, you might achieve only 5%, and the rest is eaten up in management. But there is a way—we’ve proven it with our customers—to chip away another 5% or so of costs.


Service Integration and Management and the last 5% in cost savings

Managing a number of suppliers is much more expensive than simply managing one. Where do these costs come from? Two main areas are governance and integration.


  • With each supplier you’re managing a relationship. And even though you’ve signed a contract and specified everything, organizations are constantly moving and evolving. The relationship needs to be monitored, and you need a strong governance layer.
  • You also need to manage SLAs and know who’s accountable when something happens. We often see customers spend a great deal of time simply figuring out who is accountable when there’s an incident. So process integration is really critical.


Applying SIAM reduces the management burden, so you can achieve the last mile in cost savings. When you apply SIAM you have a model that simplifies integration. You now have automated processes across suppliers, and you’re able to measure them according to their specific performance. You can quickly and easily identify and solve conflicts. And because SIAM has such a strong governance layer, you’re able to govern the whole ecosystem and move all those suppliers in the direction the company needs you to.


From our point of view in HP Software Professional Services, excellence in multiple-supplier management is one key way central IT is going to survive and thrive in the future. Learn more in this Frost & Sullivan report on managing multiple vendors.


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