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Technology Contracting is a Job for IT

Aug 13, 2010
By

Lisa Erickson-Harris






Who’s making the deal for the business? And how does that impact IT? Historically, corporate finance and procurement have held the reins for vendor and contract management; not surprising given its responsibility for the corporate bottom line. While this seems reasonable on the surface, the results for IT have been mixed.

Financial management teams typically do not have visibility into the impact of purchasing decisions on daily IT operations. Moreover, once the purchase is made, financial management executives rarely hear about day-to-day vendor performance unless a crisis occurs. In essence, this approach frequently misses the mark for achieving the best terms and support levels from IT service and solution providers.

Enterprises typically have a stringent process for procuring assets based on asset type or class in association with its purchase amount. This process is detailed and follows a flow that generally involves the following steps: the asset is requested, authorization and approval occur, order is processed, asset is received and accepted and finally the invoice is paid.


IT’s job begins at this stage, with deployment of hardware, software or service rollout. Deployment may be a smooth or bumpy road. There is no way to tell how it will unfold in advance. In all cases, the work to be done involves planning, impact assessment, vendor relations, support, technical issues and new processes -- rollout details that reside in the domain of IT.

IT’s perceived ability to influence purchasing decisions has a direct impact on its ability to resolve issues with suppliers. Continuous involvement in the vendor selection and purchasing process by IT offers enterprises increased leverage for ensuring a solution is running smoothly and meeting business needs. Communication between IT and finance can be difficult simply due to differences in each respective group’s lingo. IT has tendency to talk in technology terms while finance speaks in terms of ROI.

Primary responsibility for vendor performance management post-contract logically fits in IT’s domain. IT, in fact, is the only group that can testify to the level of service delivered and how it has impacted business services. The CIO and his or her team can answer questions such as:

  • Does the technology perform as expected?
  • Have there been service outages that impact internal business services?
  • How responsive is the vendor when addressing a critical technical problem?
  • Did the professional services staff of the vendor have the skills to meet the requirements in the statement of work?

Prior to finalizing the contract, there are some due diligence activities also most effectively handled by technical staff. For instance, calling or visiting customer references is commonly part of the process. While corporate finance cannot and should not step aside, the best deals and technology decisions will be made when IT is a partner with finance and procurement.

What activities appropriately belong in the purview of IT management both during and after the purchase has been made? Some considerations include:

Vendor performance - Systems are available within IT to track vendor performance. These items can include trouble-tickets from a service desk, alarms from operational management tools that allow for vendor tracking, etc. Reports and analytics from such solutions offer the company evidence of the supplier’s performance.

Contract terms - IT may have a different perspective on contract terms. Based on the strategic plan, it may make sense to have only a three year contract with a service provider due to an anticipated shift in direction at the three year mark.

Compliance - Ensuring compliance with contract terms such as software licenses needs to be monitored on an ongoing basis using IT’s tool sets.

Competitive landscape - Offerings in the market are continually shifting. IT will know when both requirements and options in the market dictate a switch in order to reduce operational costs and improve service.

SLA compliance and vendor penalties - Service contracts generally include service level agreements and associated penalties. These agreements tend to support complex services being offered by IT, which will be in the best position to assess any quality breaches that may have occurred.

Maturing delivery methodologies - Cloud computing and other delivery methods are becoming increasingly complex. This opens up options, but also can reduce required contract terms in the case of SaaS-based solutions -- a factor at purchase as well as operationally.

I believe the case is obvious for IT’s involvement in the business deal for any technology. Finance has to be involved not only at the time of a purchase, but also as the business relationship progresses and evolves in order to get the most effective results from suppliers. Either one on their own will be less successful.

Return on investment has a role at the time of purchase, but it is also dependent on operational impact. High daily operational costs will quickly exceed any discounting achieved at the time of purchase. Similarly, poor service and support can further impact business services being delivered by IT. The best choice for the organization’s bottom line is the involvement of both teams.

Lisa Erickson-Harris is a research director with Enterprise Management Associates in Boulder, Colo., a leading analyst and market research firm focusing exclusively on enterprise infrastructure management. Lisa has more than 25 years of experience working in all aspects of IT, including operations, software development, product management, and strategic partnership development. She covers IT Financial Management, IT Asset Management, Service Desk and Service Catalog for EMA. She can be reached via e-mail at lisaeh@emausa.com.


Tags: ROI, sla, EMA, software vendors, contracts,
 

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