Out with the old - BT Expedite manages WHSmith systems

Just a year ago, high-street retail chain WHSmith was weighed down by an ageing technology infrastructure, and struggling to maintain competitiveness.

Outdated store systems made accurate reporting on sales difficult, while supporting multiple incompatible back-office applications was increasingly time-consuming and expensive.

Adding to the company’s problems was the effort of trying to work effectively with dozens of different suppliers, each with their own sales and support teams.

But today the retailer is reaping the rewards of a £38m, seven-year contract with BT Expedite to manage all of the company’s IT systems.

Rather than having multiple suppliers, IT director Peter Swann now deals only with BT; if WHSmith needs specialist technology, BT will source a subcontractor and manage the relationship on its behalf.

‘Dealing with just BT makes us more efficient, and we can deliver better service to the customer,’ he says.

Chief information officers (CIOs) are dealing with more suppliers than ever before, says Jon Fuller, operations director with consulting firm Centrix.

‘Imagine someone starts out buying a mainframe, then some servers, then a few bits of software, some utilities, security, some more network capacity – and at the same time, people all over the company are doing the same thing,’ says Fuller.

Matters are then made more complex when organisations merge or are acquired. ‘Basically, their people have been doing the same as yours, and before you know it you are the CIO and you have 10,000 supplier relationships with hundreds of different suppliers.’

This situation is alarmingly common because many organisations simply have not paid attention to effective supplier management, says Andy Kyte, a research fellow with analyst Gartner.

Too many IT leaders have focused too much on internal issues, such as staffing and innovation, at the expense of being sure exactly who is providing the necessary hardware, software and services.

‘In absolute and relative terms we are spending more than ever on technology – but we are not paying attention to where that money goes,’ says Kyte. ‘You are spending maybe half your money on suppliers, but they only get 10 per cent of your management time. It is crazy.’

The net result is that many IT departments are dealing with suppliers that

do not offer the best value for money – perhaps because the application is no longer needed, or because alternative suppliers could provide better value.

Furthermore, dealing with too many suppliers can lead to a whole host of unnecessary expenses, from administering the creation of contracts and service level agreements to multiple maintenance contracts and annual price hikes.

According to Forrester Research, managing a vendor relationship can cost from three to six per cent of a total engagement, with the cost related directly to the number of vendors.

The Co-operative Group has learned firsthand that reducing IT suppliers can create substantial savings for an organisation.

‘It isn’t easy, by any means,’ says Gerry Pennell, CIO of the Co-operative Group. ‘But cutting the number of suppliers has saved us up to 20 per cent in some areas, and it is something many IT directors could do.’

Over the past couple of years, the company has consolidated the IT systems that support its four business divisions – retail, banking, food and specialist – which has allowed it to reduce duplication and standardise many core business systems.

‘We then sent the IT executives to meet a reduced number of proposed suppliers to negotiate better deals,’ says Pennell.

‘By consolidating, we have cut maintenance and support costs dramatically, and we can exploit the greater economies of scale.’

It is a similar story at Scottish Water, where the decision to consolidate servers and storage onto a single platform allowed the utility to eliminate contracts with dozens of database, hardware and application providers.

‘When Scottish Water was formed in 2002, one of our most pressing mandates was to cut operating costs by 40 per cent,’ says CIO David Hamilton.

‘Moving from 80 applications and three databases to just one pair of Solaris servers, one database and 15 applications is huge in that respect. It is a big factor in our ability to meet the mandate.’

But this does not mean IT department should rush to take the axe to their supplier list.

It is vital to begin by conducting a thorough audit of the organisation’s IT needs and suppliers, identifying what applications and platforms are actually being used – and what value those suppliers are generating.

‘You mustn’t just start killing projects or cutting people,’ says Bradshaw. ‘Take the time to conduct a thorough audit to identify potential duplications or redundant systems, and check carefully to see how many suppliers you actually have.’

For each supplier you identify as potentially expendable, Gartner’s Kyte recommends considering what value they bring to the organisation.

‘You might find that a supplier may not be the cheapest in the market, but they offer great integration into other systems, or they have a wealth of knowledge about your business that enables them to provide strategic advice,’ he says. ‘This is about value, not just cost.’

Forrester Research analyst Mark Cecere advises IT directors to review and classify vendors in groups – looking at overall spend per vendor, impact on the business, and contribution to competitive advantage.

‘Vendors that provide commodity services can be eliminated or managed through a simplified procurement process in which they compete primarily on price,’ he says.

‘Your strategic vendors can then be managed individually.’

IT directors should also consider how many suppliers it is appropriate to have – and be aware that the answer might vary across a single organisation.

‘If it is an area where there is a lot of innovation and a fast pace of tec hnology change, it is generally smarter to have more suppliers,’ says Kyte. ‘But if it is an area where technology has been commoditised, you may be better off having just two or three suppliers.’

Kyte also cautions against removing your options when cutting suppliers – reducing any supplier base to just one could mean you end up stuck with a single supplier that does not offer best value.

‘You need to be very sure that, in saving cash in the short term, you are not losing out on flexibility,’ he says.

If a supplier passes this first hurdle, it still might be worth keeping them on board. It is easy for IT directors to underestimate the cost and hassle involved in ditching a supplier, says David Bradshaw, principal analyst with Ovum.

‘Remember that you will have to get out of a contract, then go through the hassle of migrating to a new system,’ he says.

Bradshaw cites the example of a company that wanted to consolidate its multiple customer relationship management systems to exploit a better relationship with one vendor.

But this involved transferring massive amounts of customer data from one set of servers to another. Hundreds of staff needed to be trained in the new technology, and helpdesk systems put in place to support the migration. IT staff needed to be retrained or redeployed, which created additional expense.

‘In this case, they were able to massively consolidate hardware and lose a data centre, so it was still cheaper – but it wasn’t the saving they might have hoped for,’ says Bradshaw.

Perhaps the biggest mistake IT directors can make when approaching supplier management is to think it is a job that can be completed.

‘You’ll never finish this,’ says Bradshaw. ‘By the time you have completed your lovely audit, someone in marketing will have bought a new business system, and someone else will have signed a great contract with a new data centre.

‘It is a lifelong process.’

Further reading:

Case study: law firm Lewis Silkin outsources IT

Firms shorten IT deals