40% of CIOs Say their IT Contracts Are Preventing Cost Savings – What is Your CIO Saying?

1963. What does that year mean to you?

The Space Race, MLK Jr’s “I Have a Dream”, JFK’s assassination, Betty Friedan’s “The Feminine Mystique”, or the first NHL draft may leap to mind — unless, of course, your memory has been totally overrun by images of Mad Men’s Don Draper and Joan Holloway.

1963 was colorfully unique in countless ways, but a strong parallel exists between then and now. The fact is that 1963 was the last time in history that nonfinancial companies stockpiled cash in the same quantity in which companies are hoarding an astounding $2.05 trillion today.

The situations surrounding this amassing of cash, however, are vastly different. The 1960s were fed by the aerospace and housing sectors, with momentum growing around this newfangled invention called the computer. It was a decade of affluence where the economy expanded for the longest, uninterrupted period in history.

Today, businesses are squirrelling away cash and liquid assets, generally not because of unprecedented successes, but rather in preparation for more trouble with the economy. While it is responsible for companies to protect themselves against another recessionary drop, it is important that they do not neglect to make essential investments.

If infrastructure is left to decay in the short term, companies will likely suffer in the long term. It is especially important that companies do not cut corners regarding their IT investments and the corresponding contracts supporting those investments. As Computing’s Chris Middleton points out, more than 40% of CIOs surveyed stated that their “existing contract terms” with their IT vendors were to blame for preventing them from achieving cost savings. An astonishing 85% say their contracts are less than ideal.

The pace at which technological and business process is evolving is amazing, and given the current economic climate, it is absolutely unacceptable for a vendor contract to be a handicap to your organization. When significant savings can be achieved by reducing inefficiency and redundancy within one’s IT environment, dramatic staffing, budget, and program cuts can be avoided altogether.

Special care needs to be taken consistently, in good times as well as bad, to ensure that one’s organization does not settle for a poor IT vendor contract. The price of a lackadaisical approach to negotiating and building a vendor relationship is simply too high. Unfortunately several organizations are learning this the hard way right now, as they engage with their incumbent suppliers and are reminded that their current contract does not support what is requested.

Companies desiring the ability to rapidly achieve cost savings through new technologies and services need to think beyond the current quarter and wisely invest the time and resources to ensure their most strategic IT relationships are built for scale, agility, innovation, and flexibility. This starts by putting in place the right contracts. Ensuring your contracts are consistently constructed with these principles in mind should be an all-the-time focus – not just a focus when times are tough.

Given the pace of innovation today, companies simply cannot afford to press snooze on their  IT contracts and relationships. Doing so will ultimately lump your company with the 85% who labeled their contracts as “less than ideal”. Traditional deal constructs and license models have not kept pace with the newer technologies and services available today. The 15% of companies who continue to take particular care in safeguarding these core principles of scalability, flexibility, agility, and innovation will emerge with sustainable IT relationships that enable them to proactively and rapidly deliver benefits back to the business.

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