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Can You Deal with IT?

Can You Deal with IT?

With organisations putting the “big squeeze” on IT spending, many CIOs are in turn putting the screws on vendors when negotiating contracts

But a deal that's too good to be true may be just that. Whether it's business or personal, no relationship survives in the long term when one side's the clear winner and the other the loser.

Measuring the return on a significant IT investment remains extremely difficult, according to John Roberts, vice president and chief of research, Gartner - a sentiment no doubt shared by many CIOs. The principal reason, says Roberts, is that while most organisations today put together some form of business case for why they're investing in a particular solution, it is usually based on an estimation of the savings that will be obtained. Once the project has then been implemented, though, he says that you end up with a new base case, and the old way of doing things has disappeared.

That aside, it still helps, of course, to get the best deal from your supplier in the first place, whether it be in the provision of hardware, software or services.

However, according to Lynn Kincade, general manager of information technology, WorkCover Queensland, there are a lot of theories that may sound great but are totally impractical. One in particular she singles out is the notion of shared net benefits: the more benefit the customer gets, the more the vendor gets.

"From what I've ever seen, it's a pipedream and is never going to happen," she says. "First, because it's difficult to measure. And second, once you do measure it, how do you allocate that out? Because odds are it's not hard dollars that are saved."

Rather, Kincade advocates total honesty in customer-supplier relationships, with both sides laying their cards on the table and acknowledging that ultimately the supplier has to make a profit and the customer has to have reasonable value for service provided. "I know this is not standard negotiating, you don't lay your cards on the table," she admits, "but if everybody quit playing all the negotiation games, I think it would save a lot of hassle on both sides of the fence."

Kincade also thinks that, while it perhaps shouldn't, much comes down to personal relationships and trust in securing a good deal. As happened to her in one software deal, trust was not built when it was needed, and consequently everyone went back to holding their cards close to their chest. On the services side too, Kincade believes that if you find somebody willing to understand your business first and foremost and deal with you on a professional and trusting basis, then the services end up being very well provided. And if not, no contract is going to help.

Indeed, there have been many cases in the past of suppliers offering more than they can actually deliver, particularly among smaller players in areas such as outsourcing and managed service provision. According to Kincade, experience helps a lot in sensing if a deal is too good to be true. "If you're looking at an extraordinarily low price, something has to be wrong. Either they [the suppliers] have mis-scoped it, or they've allocated their services such that they make that up doing something else in the same area, leaving you at risk," she says.

Instead, Kincade believes that all prices for provision of IT services should fall within a certain ballpark and she does not subscribe to trying to screw vendors down too much. As a government agency, WorkCover Queensland has to go out to tender, but price is only one factor in what is a rigorous selection process, she says.

"You have to go for the best value. If your business case says I need this service or product and here's what I'm willing to pay for it because this is the value it provides to my business, then if it falls within that value [range], why waste the time to screw another 10 per cent out [of the price]? Maybe I'm just a soft touch, but it's going to get the vendor offside and you won't get that much out of it at the end of the day if you've already justified the purchase and the associated costs. Otherwise you tell the vendor: 'Sorry, it's outside my budget'," Kincade says.

The City of Whitehorse (greater Melbourne) has to tender for any expenditure over $10,000. According to chief financial officer Danny Wain, the council, like WorkCover Queensland, is not bound to go for the cheapest solution. Nor is cheapest always the best, and other criteria, such as reference checks and product demonstrations, must have proper weighting in the selection process, Wain says.

When looking for a new or replacement system, Wain says he would typically establish the selection criteria, go to open tender and shortlist two to three products. He admits it can often be a limited field for the council's needs, but on the other hand, the products available tend to be widely used elsewhere in local government. So the council can reference check and see them in use early in the process.

"A tender will tie you to a price for the software [itself] but you can still negotiate maintenance fees and implementation costs," Wain says. "One key thing to ensure is that the vendor has a good support network. Dial-in facilities are essential, as is over-the-phone technical support and a good account manager relationship."

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