What are the differences between effective and ineffective IT procurement processes?
As the CIO role becomes more about vendor management rather than ‘building things’, it is relevant to consider what things make for an effective IT procurement process. To be honest, there are lessons here for CIOs, other IT leaders, and even the vendors that service each of them. As with many #CIOChats, this one was chock full of ideas and back and forth discussion.
What should be the starting for IT procurement?
I asked the CIOs first what should be the starting point for an IT procurement process. CIOs, in general, said, it should be the creation of business requirements. CIOs felt this portion of the process should output requirements, potential value, the future to be created, and the problems to be solved.
Perspectives differed, however, about the timing of generating a return on investment. Some CIOs said that they no longer place a heavy emphasis on ROI. Their focus is instead upon calculating the total cost of ownership for a project or initiative. These CIOs suggest that too many IT leaders place too much emphasis on the return and not enough on the innovation they need to get out of technology.
Other CIOs felt ROI matters but felt project initiation was too early in the process to fixate on ROI. Others yet countered by saying that they like at the beginning to evaluate the return or the added value to the strategic plan of a project. ROI calculation for them is a shared function with the CFO office. These CIOs stressed that collaboration is needed on the concept of delivered return. Is it revenue only? Does it employ concepts like discounted cash flow? How should it consider soft costs or soft returns? How should total return be valued? Market analyst Jack Gold, said, however, “in surveys his organization has done, 75%-80% of companies never measure ROI (sometimes they just guess)”.
When should procurement become involved?
CIOs, in general, feel that it was good to get procurement involved early especially when that procurement group thinks strategically. CIOs want to gain their trust on the notion that most technology decisions shouldn’t just be based on the lowest bid. They argue for a collaborative process involving procurement (as a close partner) as well as legal and other departments. CIOs say too many IT organizations get bogged down in the procurement process. To fix things, they want to tackle procurement like most interdepartmental dependencies. This means getting with the heads of procurement and figuring out how to help each other deliver.
Some CIOs made a point of stressing that the procurement process should be a tool, not an endpoint. These CIOs said too many organizations empower procurement with almost absolute power. One CIO complained here that saving a dollar by spending $10 after the fact in support or operations is not a good procurement practice. CIOs want a procurement organization that understand the nuances of software services, platforms, and the rate of change in the space. They say just because procurement may have purchased furniture or construction supplies does not qualify them to procure things for IT. And CIOs felt that everything should start–as portended in ITIL Version 3–with a ‘get-technology’ request from the service catalog.
Rules of engagement with potential vendors regarding requirements and ROI
CIOs said that ideally, there should be one point of contact with potential vendors. At the same time, it is essential there is internal alignment across the company as to what is needed before beginning vendor discussions. In terms of rules of engagement, CIOs said as a goal there should be transparent goals for both sides as well as timelines that are communicated and met.
In terms of ROI, CIOs said that expectations should vary depending on what is being purchased. If a sale includes an ROI assumption from the vendor then that should be defined and tested post sale. Some CIOs were skeptical about a vendor supplied ROIs. They said if you expect potential vendors to give you realistic ROIs for your requirements, then you have already lost. They felt it is important to lead vendors to what is needed, rather than to rely on them to provide justifications.
Other CIOs, however, stressed that it is important to make sure vendor case studies match up to you. Just because someone else got a huge return using a vendor’s product doesn’t mean you will. You must invest as much as they did to accomplish this typically. CIOs said too many expect software to fix everything even when they cut corners on implementation.
CIOs said that it is, also, important that new requirements include business SLAs and KPIs. Some CIOs said that they want in writing a performance clause in procurement contracts. If a vendor doesn’t meet the promised ROI, based on mutual agreement, then they pay them less. CIOs were willing as well to allow vendors to earn more if they over achieve. This makes the relationship more like that of fixed fee financial advisor.
CIOs want any potential vendor to come to the table with an understanding of their business. Gone are the days of meetings, they say, to discuss technical issues/requirements. Technical issues are a thing of the past. CIOs, at the same time, say that they expect technology to just work. What they want today is a strategic partner that can help them drive business revenue at scale. CIOs stress, for this reason, there is a big difference between a vendor and a business partner.
What do you want to hear from vendors during an evaluation but frequently miss?
CIOs say they do not consistently hear many things from their potential business partners.
Post-sales support and escalation paths
One CIO exclaimed regarding this topic that I know how they will treat us pre-sale, but how about afterwards. CIOs felt that this should include how and where they will be during the entire process. CIOs want to know how vendors stand behind their products/services.
Have they a solution to our specific use/industry case?
CIOs say that they want to be shown how a vendor’s product or service makes their organization better, faster, and more efficient. A predecessor to this discussion is to spend as much time internally, with business groups, to ensure the problem is clearly spelled out. CIOs said they want to hear vendors “talk story” about how the product will work to help solve their problems. CIOs said that they make vendors skip any part of the slides or demo with “feeds and speeds.” They want instead a business partner that will deliver to business recommendations based on their industry vertical. We want them to let us know what they’ve seen work or not work with other customers to ensure they gain or retain competitive advantage while driving explicit core competencies.
Help us solve our problems so we gain competitive advantage
At the same time, they say vendors need to realize that we can’t be better than our competitors by doing the same thing that they have done, which includes buying the same stuff from the same vendors. CIOs stressed for this reason that they want to buy solutions, not just customer references.
Provide subject matter expertise
CIOs say that too many vendors don’t provide subject matter expertise when providing solutions. CIOs want to know that vendors understand not only their technology, but also the business challenges of their industry. That’s what gives CIOs confidence that they can succeed.