How Procurement Steps Up Cost Optimization for Digital Business
Five best practices to help sourcing, procurement and vendor managers create value in a digital business economy.
Contributor: Jo Bennett
A key component of cost optimization is communication. This might sound like a basic rule of thumb — until you’re in a predicament like that of the defense contractor that went way over budget when it built a fleet of data-generating vehicles and failed to ask IT procurement to purchase more data-processing software licenses.
“There’s often a disconnect between strategic planners and those responsible for executing their strategic spending decisions,” said Stewart Buchanan, research vice president at Gartner. As technological innovation and demand for agility chip away at traditional business processes and models, only organizations that connect strategy with execution will succeed.
Support and inspire business change
Cost optimization initiatives are about getting the best value for spending, but big changes in cost structure require big change. Procurement’s role is often seen as being limited to negotiating the best pricing and terms for your IT purchases. But in a digital business economy, sourcing, procurement and vendor management teams need to take it further.
“They must support and inspire strategic business change with ongoing market intelligence about providers and the markets in which they compete,” advised Mr. Buchanan.
Each year, IT organizations spend billions of dollars for hardware, software, IT services and telecommunications services. Imagine how businesses will change by 2020, when over 20 billion Internet of Things (IOT) “things” are expected to be integrated with business systems. From a cost optimization perspective, the road ahead requires even greater collaboration and agility.
Five best practices
Five best practices will help ensure that sourcing, procurement and vendor management decisions create maximum value for your organization.
- Create a core cost optimization team. Sourcing, procurement and vendor management functions should be represented on a cross-functional team that includes operational and business leaders. Encourage the exchange of skills and knowledge.
- Become trusted advisors on the marketplace. Research and monitor markets to provide stakeholders with market intelligence on any developments, such as new service delivery options, disruptive competitors or emerging business opportunities.
- Work within (not against) organizational silos. As in the defense contractor example, sourcing decisions are becoming increasingly IT-related or IT-like. Expand policies with guidance for the sourcing of digital marketing, operational technologies and IoT components.
- Develop an adaptive sourcing approach. For example, contract negotiations for an enterprisewide system that’s expected to remain in place for 10 years will be different than those for a cloud testing tool that might only be in place for six months.
- Share credit where it’s due. Recognize business or IT leaders who make a sustainable reduction in budgeted spending as a result of your team’s sourcing insights and market intelligence. Early successes and lessons gleaned from best practices promote change.
Read relevant complimentary research on how to maximize cost optimization initiatives for digital business.
Digital business creates both challenges and opportunities in optimizing costs, said Mr. Buchanan. “Sourcing, procurement and vendor managers who are commercially aware will always prioritize the creation of value and protect business revenue to win the confidence of finance, business and IT leaders.”
Visit Gartner’s Cost Optimization hub for complimentary webinars and research reports.
Gartner clients can learn more by reading Cost Optimization Secrets: Strategic Sourcing and Vendor Management Realign Costs and Protect Revenues and IT Procurement Transformation Must Start Now to Make You Successful in 2020.
Cost optimization strategies will be further discussed at the Gartner IT Operations Strategies & Solutions Summit 2016 taking place May 10-12 in National Harbor, Maryland and at the Gartner IT Infrastructure & Operations Management Summit 2016, June 14-15 in Berlin. Follow news and updates from these events on Twitter using #GartnerIOM.
For more visit Smarter With Gartner website.