An optimized IT services portfolio helps companies maximize cost efficiency and manage risks so they can instead focus on strategically aligning sourcing to the goals of the core business. There are several steps you can take to maximize the return on your IT Services portfolio investments. Detailed below are five clear opportunities to assess and improve the strength of your IT Services portfolio to optimize your third-party IT Services spend.
1. Transformation Program Initiatives
Transformational programs represent some of the largest investments companies make with their IT services providers, often altering the balance of spend across an IT services portfolio. You can create leverage for your transformational programs by assessing the competitive strength of your relationships compared to the revised spend profiles of your strategic services providers.
Material increases in IT service spend generate leverage for companies to revisit rate cards, introduce or improve volume discount commitments across all provider spend, as well as secure additional concessions or improvements to commercial terms.
2. Managed Services Mid-Term Benchmarking
Managed services agreements and their term lengths present multiple opportunities to optimize your IT services portfolio. One opportunity presents itself at the midway point of a managed services term. With managed services agreements having an average term commitment of five years, the halfway point of these multi-year agreements represents the first post-execution leverage opportunity to optimize your managed services relationship.
Competition, technological advances, and new or improved tools are continuously pushing service providers to drive efficiencies through improved processes, automation, and AI. This halfway point is an excellent time to validate the current competitiveness of your existing agreement to market standards and gives you the opportunity to course-correct for any identified gaps to market.
3. Managed Services Term Extension and Renewal
Whether you initiated a mid-term benchmark of your managed services provider or elected not to, your next best leverage point presents itself when your current agreement approaches the final 18-24 months of its current term. The approach you take depends largely on the health and satisfaction you have with your incumbent’s performance.
In the event your provider is delivering exceptional service to you, this presents an excellent opportunity to solicit an early renewal proposal from your incumbent. Proactively engaging in early renewal discussions with your provider at this point presents an opportunity for your provider to demonstrate to you how much they value your business, offers a sole-source window of opportunity to the provider, and an opportunity to secure additional years of committed revenue.
However, if your managed services provider is not consistently meeting your expectations and you are looking to replace your incumbent, you will need time to prepare, go to market via RFP for this scope of service, negotiate with your chosen provider, and begin a knowledge transfer to the new provider.
If you begin this process with 18-24 months remaining on your current support term, you will have afforded yourself the time it will take to navigate this process, select and on-board a new provider, and fully transition before your current term ends.
4. Company Cost Reduction Targets or Mandates
A corporate mandate for cost reductions can be a powerful tool to approach your IT services providers for concessions to help you meet your cost savings targets. While IT service providers continuously look for ways to gain increments of business, they will always look to preserve their existing revenue base. Be proactive in approaching your strategic services providers.
Prior to approaching your IT service providers for concessions, companies need to critically assess the performance of their providers within and across services spend categories. This assessment will help identify where opportunities exist to shift market share away from underperforming providers. It will also create an opportunity to assess the impacts of potential sourcing re-allocations to determine what leverage can be applied to “trade” increased revenue opportunities for concessions to current pricing in the form of rate reductions or increased discounts. Maximizing cost reductions often requires companies to tackle multiple opportunities together to quantify targeted cost reductions. See Illustration below:
5. Periodic Benchmarking
Sometimes it takes stepping back from the day-to-day sourcing to fully appreciate the aggregate impact it has on your IT services portfolio. This includes the balance and distribution of spend across your IT provider base. The longer an organization goes without validating in aggregate their spend profile with its vendors, the higher the risk your IT services portfolio becomes sub-optimized.
As annual spend increases, the competitiveness of existing commercial terms begins to wane. In organizations with a de-centralized sourcing approach, this gap to market can get out of hand in a much shorter timeframe. In all cases, companies should perform a market assessment on the entirety of their relationship with each strategic IT services provider at least once every three years.
The Bottom Line
Optimizing your IT services portfolio isn’t a one and done event, but rather a disciplined commitment to periodically assess the strength of your provider capabilities to meet your current and forecasted needs while obtaining market insights into what providers are offering in the marketplace.
Be proactive in maintaining views of your current spend allocations across your provider base, and be aware of the demand for future service needs while closely monitoring incumbent provider performance. Empowered with these insights, companies are best positioned to take advantage of these optimization opportunities.