Is rationalising your IT service suppliers a sound business move, or is putting all your eggs in one basket too great a risk? Sam Barratt weighs up the evidence.
Technology has transformed the business world, enhancing everything from back office administration to customer service. But, with businesses reliant on so many different IT services, managing relationships with multiple suppliers can become a logistics nightmare.
With multiple suppliers there can be issues with differing service levels, making troubleshooting more challenging and potentially compromising your own customer service. It can also cause a real headache as technology evolves, according to Edward Truch, professor in management science at Lancaster University and a spokesman for BCS, the Chartered Institute of IT. "If you have multiple IT suppliers it can be difficult for an in-house team to identify the optimal combination of solutions and who should supply them if technology is evolving rapidly. This can make it more expensive and more complex to upgrade systems," he explains.
Using multiple suppliers also means more administration. As well as having to deal with bills for each service that may fall due at different times, contract lengths and renewal dates may vary too. By working with a smaller number of trusted suppliers, it is easier to manage the relationships and work more strategically to take the business in the direction that it needs to go.
But, while there are benefits to consolidating IT suppliers, there can also be resistance. There is a perception that using a smaller number of suppliers is a more expensive option than shopping around for the most competitive deals. However, Truch says this isn't always the case. Being a larger customer may help you secure better deals as well as saving you time when it comes to researching the best deals and looking after multiple contracts.
In addition to concerns about uncompetitive pricing, businesses can also be reluctant to place so much reliance on one or two suppliers. There could be issues with their financial strength, which might hamper their ability to deliver and develop their technology. Even where a supplier has financial strength, they might not have the service levels you and your customers expect. The key is to find a trusted provider with a robust balance sheet who can offer both the breadth of experience and the range of services to support your business through changing market conditions.
How consolidation worked for one business
Since joining Hillarys Blinds, Head of ICT Julian Bond has worked to consolidate the number of IT service suppliers, selecting BT as the provider of a range of services including hardware, software, internet connectivity, telephony and mobile.
"My aim was to strengthen our strategic capability, so that the business could adapt to market changes and opportunities more quickly," he explains. "I also saw consolidation as a way of enabling more effective and timely communication with the aim of enhancing collaborative working, both within our organisation and with partners in wider business networks."
Bond's first step was to undertake a strategic review of existing supplier relationships. "I was interested not only in how they were currently performing on price, delivery and service, but also their capability in areas beyond what they were already supplying," he explains. When it came to selling the concept of supplier consolidation to the board of Hillarys Blinds, the most successful approach has been to demonstrate the benefits by trialling a supplier for a limited period, rather than relying on the comparison of Total Cost of Acquisition (TCA), which can be notoriously difficult to reliably evaluate.
The risk of uncompetitive pricing wasn't found to be a barrier to consolidation, either, says Bond and found that it offered significant economies of scale. "Allowing a partner to extend the reach of solutions they provide delivered commercial rewards which we both can share," he adds. His advice to other businesses considering rationalising their IT suppliers is not to overlook the human dimension. "If all the metrics recommend a supplier, and your heart usually sinks when you phone them, don't put additional business their way. There's no point in gaining some commercial benefit from great pricing, only to lose it through the overhead of managing a poor supplier."
"We have developed a good relationship with our account director. He can see where our business is heading and recommend appropriate solutions where they exist in BT's portfolio," Bond says. "This partnership gives us a strong base for realistically exploring new opportunities and technologies without investing significant time in getting a new supplier up to speed with our business. It allows us to deliver business benefits that 'punch above the weight' of our organisation's size."
With a trusted strategic partner, consolidation can deliver not only cost efficiencies and greater productivity, but can also enable greater business agility with the capability to respond more swiftly to the challenges and opportunities of the marketplace.