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In the latest meeting with your company’s executives, the ultimate goal was the same as ever - increase revenue, decrease spend.
Do more, with less.
Your directive is to find a 10% cost savings in the next year and you are looking for some quick, streamlined ways to achieve that goal.
Have you taken a good look at your current contract situation? Where can you find savings in the software and products you’re already paying for?
In this article, I’m going to share how you can create a system to manage and optimize your current (and future) IT contracts. By taking these steps, you'll achieve the best cost savings (often upwards of 25%) for your company.
How do you manage & optimize your current IT contracts?
To optimize your IT spending, you need to get organized. Tons of contracts are flying around and you have to know where you’re starting from today to be able to optimize for the future.
You have multiple contracts with each supplier you work with. Each product you buy from them throughout the year has its own legal commitments: Master Service Agreements (MSA), Statements of Work (SOW), order forms, etc.
Each supplier has a number of IT contracts they use with their clients.
Any of these types of contractual documents probably have different commercial language.
And they all add up to time and money obligations for you.
The worst part? Almost none of these contracts will be co-termed. Regardless of the company they’re with, each contract will have a different term period. Some of them will be for six months, a year, eighteen months, what have you.
This creates mass chaos and it’s all by design.
In order to get out of that chaos, you need to get above it - get a bird’s eye view of the landscape of your IT contracts. This can be a very arduous process but the payoff is huge. Take the time to align each of the contracts so you can properly optimize around them.
Step 1: Create an Asset Inventory List
If you don’t have a contract management system - and most companies don’t, even the biggest ones out there - you need to create an Asset Inventory List.
Basically, list out all your suppliers and all the IT contracts. You need to be clear on what contracts you have with a specific supplier.
You can do this with a fancy Excel spreadsheet like the one I’ve created below. You can download this template for your own use.
Essentially, this list will have the vendor name, contract type, contract term, and price. Consultant groups charge millions for this fancy spreadsheet but you can create one yourself from my free template.
Through this process, you’ll identify 2 things:
With this information, you can tackle the next step. You now know what contracts are coming up for renewal and when. You know the negotiation period and can bring in extra help in advance to work through that process. And finally, you can now work on co-terming all the order forms and SOWs.
These adjustments create more administrative ease versus the chaotic burden they’re designed to be.
Once you’ve got a survey on your IT contract landscape, you can move on to Step 2.
Step 2: Analyze Each Supplier Against a Right Size/Right Price Matrix
Start with the suppliers that are your biggest spend items. These will most likely be your ERP provider, your Microsoft Office contract, and your CRM software.
Do an internal assessment of these suppliers and determine:
This will help you determine that you are, in fact, only paying for the items that you need versus those that you don’t. All too often companies are paying for products that they aren’t even using because they don’t have a handle on their contracts.
The second thing you’ll be able to keep an eye out for is whether you’re paying for the right license types or not. Challenge your company to look at ways you can downgrade your subscriptions.
The third piece of knowledge you’ll gain from this process is figuring out which business capabilities each supplier is supporting. You’ll be able to see which suppliers are overlapping functionalities.
This overlap is common in decentralized organizations. Each business stakeholder wants to use the software they’re familiar with even though three other companies provide the same capabilities. Your corporation is likely spending way too much on overlapping suppliers that provide the same digital capability.
Paying for software you’re not using is called shelfware. Don’t make the mistake of paying for shelfware.
You need to start this internal assessment process six months before your next contract renewal. If you don’t, you’re going to be playing catch up to these large suppliers because they know more about you than you do.
Step 3: Preparing for negotiation