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Reducing IT costs with smart contract management

felix_fernandez

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One of the most significant challenges, as enterprise IT departments evolve from almost pure in-house technology providers to service brokers, is managing the many contracts around SaaS, cloud, and outsourced services.  A competency in contract management is of vital importance, because poor contract management threatens the cost savings and service reliability that are meant to be at the heart of the service broker transformation.

In my work with global clients, I've seen the cost of managing contracts rise as high as 10 percent of the actual contract value. That’s waste that really hurts the bottom line. We aim to lower that to 3 percent to 4 percent of the contract value. That level of overhead usually represents significant efficiencies and cost savings over creating and running the service in-house. (To learn more about reducing the cost and complexity of managing multiple service providers, check out our white paper, The New IT: Managing and Delivering Services in a Multi-Vendor Environment.)

Even as IT departments look to control costs, they face heightened complexity. Individual contracts are not stand-alone concerns—many in-house and outsourced IT services are integrated, and that means that the contracts governing them have external dependencies as well. What's the implication when Service A's maintenance window also affects the functionality of Service B? When something goes wrong, the question of who is really responsible for what, and in what time frame, is all a matter of what's in which contract.

 

The service broker approach to contract management

Within HPE Software Service Broker Consulting Services, our typical starting point is to understand the strategy behind a client's evolution to service broker. Are they trying to cut down cost, speed delivery, or reduce complexity?  Usually it’s all three, of course, but each may have different levels of importance. Our recommended approach is three-fold:

  1. Assessment. Appraising the client's organization and architecture is a frequent challenge, but it's important.  In some cases, a client will have outsourced all IT management systems, and need to insource them again. Our customers are bringing their IT management tools in-house again because that’s the only way they can really control suppliers.
  2. Quick wins. Having analyzed the client’s current architecture and needs, we then try to focus on simple things, starting with a small set of KPIs, which vary depending on the contracts. For instance, most cloud suppliers offer uptime as their only default SLA—there’s no warranty on performance or support. But we start with that and focus on the existing KPIs, and then start to work on aligning them, so that eventually we have the same KPIs for the same type of services.
  3. Meaningful optimization. Next, we pursue a more sophisticated integration with suppliers so that we can automate many of the tasks, such as incident response, and start adding KPIs, effectively optimizing our contracts. At the same time, we're also improving the understanding of each service and the obligations of vendors, which helps us understand who's performing well and where to look when there are problems or failures.

 

Contract management in the Model Office

To help customers see how a fully functioning service broker works in the real world, Software Services has created the Model Office. This virtual environment shows clients a holistic view of our best practices around all aspects of running successful, business-focused, modern IT. A core element of our Model Office is the Master Contract Concept. This encompasses different types or templates of contract, which can be highly specialized. We organize multiple templates for SaaS contracts, support contracts, etc. For example, under Workplace Management, we have the hardware assets on one hand, and the associated support on the other.

This kind of systematic approach to the factors that matter across all your organization's contracts and services is where we take clients. As IT is faced with greater levels of complexity, a contract-by-contract approach simply won't work.

 

To learn more, visit our Service Broker Consulting Services page, or download the white paper: The New IT: Managing and Delivering Services in a Multi-Vendor Environment.

 

Félix Fernández is CTO, Strategy & Solutions, with HPE Software Services. Follow him on Twitter at @ffromero.

 

Related links:

HPE Software Services

HPE Software Service Broker Consulting Services

Blog post: Rise of the cloud service broker

Blog post: Moving to service brokerage (it’s not the same as SIAM)

Blog post: A service broker story that’s no fairy tale

White paper: The New IT: Managing and Delivering Services in a Multi-Vendor Environment

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About the Author

felix_fernandez

CTO, WW Strategy and Solutions, Software Services at Hewlett Packard Enterprise

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