Hard Times Call for Rigorous Vendor Management

CIO Magazine recently published an article entitled "Worried About a Recession? How to Hold the Line on Your IT Budget". They cited some pretty grim statistics such as:

At least 98 companies filed for bankruptcy protection in 2007.

Car and home sales are down.

Food and oil prices are up.

So is unemployment: 1.4 million people were laid off last year.

Morgan Stanley predicts recession will hit the U.S. early this year while Merrill Lynch says it's already here.

The article references the 2001 dot com implosion and resulting downturn. During the last downturn they say "Technology spending as a percent of revenue sank, absolute dollar spending also dropped, and IT layoffs, practically unheard of a few years before, proliferated. Cutting costs and using metrics to prove IT's value naturally became the CIO's top priorities."

I found the statement "using metrics to prove IT's value" very interesting. The Telecom Expense Management space was created during the last downturn. Here are just a few of the TEM companies that were founded or who raised their first substantial capital during the last downturn.

Asentinnel 2002

Avotus 2001

Invoice Insight 2000

Profitline Founded in 1992 but receiving its first funding in 2002.

Rivermine 2001

Symphony 2002

Tangoe 2000 

With all of these companies now helping provide metrics on telecom and wirless spend one would expect that going into the 2008 downturn companies would be better informed. One would might assume they would have employed TEM solutions to attain metrics that would prove IT's value, at least proving the value of the voice, data, Internet, mobile devices, calling cards, conferencing and other telecom services and expenses.

Well lets fast forward and take a look at Aberdeen's 2006 study "The Cost of Not Acting; Total Telecom Cost Management Report".  What did they report on the highest growing expense, wireless? They said "63% of enterprises do not have an accurate inventory of devices" and "44% have no formal program to manage devices." Realize that Aberdeen focuses on the Fortune 1000, mid market enterprise percentages would be higher because they generally have fewer telecom and IT resources.  

The bulk of enterprises have yet to adopt solutions that would provide metrics enabling them to better report on the value/cost/expense of their voice, data and Interent services. Why is that? Perhaps that's a topic for another day.

The CIO article says "Hard times call for rigorous vendor management". I would state the only caveat being you can't rigourously manage what you don't know or can't see. Meaning that most enterprises know they're revenues are flat or declining, workers are being laid off and budgets are being reduced. They also know they need to pressure vendors to reduce rates, but they have no visibility into their telecom and wireless expenses and inventory and hence have no benchmark for success or failure if they rigourously manage vendors.

As 2008 moves forward it will be interesting to see if more enterprises start to realize the best way to hold the IT budget or to gain additional budget dollars is through implementing a TEM solution that will benchmark current costs and inventory. Once key spend metrics and inventory has been benchmarked they or their TEM provider will be better positioned to rigorously manage vendors and track the results. 

As stated from the CIO article:  

One of the worst things a CIO can do during a downtime is simply cut costs. Instead, CIOs should work to tighten spending but bargain to keep some of the resulting savings for small projects, McDonald says. In essence, cut, but don't give it all back.

"Say, 'Give me $50 of the $100 I'm saving you and let me spend it to implement something for enterprise growth,'" McDonald says. "If you're only worried about preserving your budget, you're at serious risk. But if you prove you're doing things more efficiently while supporting growth, you're much more valuable to the organization and your IT group is much more relevant."

Let us know if you'd like more information on how we can help your enterprise more efficiently manage telecom and wireless spend and inventory as well as rigorously manage vendors. On average our software costs 1.5% - 2.5% of telecom and wireless spend and results in an average reduction of 20%. Most CIO's and CFO's would welcome a 20% reduction in spend whether we're in good times or bad.