Sogeti Ireland has launched a report on ten ways for public and private sector organisations to extract more from their IT suppliers in a downturn.

The study says that a straight percentage cost reduction on all components of the organisation's IT budget is a quick and crude response to the need to "do more for less".

However, there are alternative more selective approaches that can achieve the same short-term results while not jeopardising the more strategic medium to long-term impact on IT delivering tangible value for the organisation. The appropriate approach should also position the organisation to be more capable of responding to the future upturn in the economy.

Indeed, Gartner has advised IT departments not to simply undertake cost-cutting exercises in response to the economic crisis, but to instead focus on cost optimisation programmes. Gartner views this distinction as important because cost reduction is more narrowly focused on spending less on IT procurement and in reducing baseline IT costs On the other hand cost optimisation focuses on enhancements to enable business restructuring and innovation and value realisation.

This Sogeti white paper puts forward ten areas of focus that will have the immediate effect of achieving better value from existing and new IT suppliers :

1. State clearly your minimum requirements and quantify these

Do not add the "optional extras" and the "nice to haves" as suppliers are likely to price these into any proposal; you may potentially use these to differentiate proposals that are near in price or to negotiate better value later in the procurement negotiation process.

2. Give the maximum duration/value contract

The longer/larger the contract, the more likely you are to secure a lower price and realise better value and commitment from the supplier. You can also use a probation period and defined service levels to protect yourself and mitigate against risk.

3. Measure service levels and apply service credits

Agree and document realistic and measurable service levels, deliverables, timelines, metrics etc. and ensure they are reported on a weekly basis as a minimum. Ensure service credits are included and invoke these if required.

4. Request discounts even if the contract is current.

In these challenging economic circumstances, it is OK to ask a supplier to reduce the price in order to help you meet your revised financial targets in the current conditions. Be realistic if your budget is reduced by 10%, ask your suppliers to reduce prices by 10%. A supplier who values the long term relationship will assist you in meeting your revised targets.

5. Always tender for new projects/assignments

Regardless of how small or large (within reason) write an Invitation to Tender (ITT), Request for Proposal (RFP) or Request for Quotation (RFQ). State clearly the conditions.

Large complex requirements will normally have comprehensive ITTs and small projects simple short ITTs. Get at least 3 proposals from qualified suppliers.

6. Review and manage your total spend with a supplier

As customers, we often do not manage our suppliers as a single entity. Consequently, the total value of spend with a supplier is not clear. Make the total spend (past, current and future) visible and use this to negotiate the best possible volume discounts.

7. Drive more value from your current IT spend

Measure the real value the supplier provides to your business. Are they meeting service levels? Have we a service level improvement plan? Are the individuals who work for your supplier maximising productivity and performance? Connect key performance metrics to cost, cost savings and additional revenues.

8. Ensure supplier contracts have value improvement targets and they are measured

We use the term value to cover cost reduction, productivity improvement, and/or revenue enhancement. The bottom line is that the supplier of services is adding to your organisation's stakeholder value (profit in private sector, cost/value in public sector). Long term contracts or projects can have financial performance targets. As a supplier, we frequently commit to annual cost reductions and improved service levels for managed services.

9. Create competitive tension reducing supplier power

In particular looking at supplier power we know competition can drive down costs or drive up value. Get at least three quotations for new projects, ask current suppliers to demonstrate value compared to the open market, benchmark formally in contracts or informally through procurement.

10. Ensure there is a business case for all spend and measure to ensure it delivers

There should be a formal business case for everything from simple routine expense spend commitments to major capital expenditures. For simple routine spend ensure your purchasing approval process requires clear and compelling justification for the spend and that alternatives are considered. For larger expenditures, it is not difficult to have a formal business case template to be completed demonstrating return on investment and clear tangible and measurable value to the organisation.

Declan Kavanagh, (pictured) Managing Director, Sogeti in Ireland said, "The challenging business environment and market uncertainty are resulting in a sharp focus on cost reduction and value for money throughout all sectors, public and private."

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