IT purchasing: Who decides what tech to buy?
- 02 October, 2013 15:37
Lowe's knows a thing or two about buying and selling, so it means something that the Mooresville, N.C., home improvement retailer established a procurement department to help its various divisions make better deals.
Now Tom Nimblett, director of procurement for IT, HR, finance and Lowe's dot-com divisions, reaches out to IT managers at all levels, including the CIO as needed, to consult on tech purchases -- which are not inconsiderable given the company's 1,000-person IT staff and annual IT budget of $1 billion-plus.
An expert in procurement, Nimblett, who reports to the CFO, leads a 12-member team that knows how to negotiate contracts that protect corporate information, mitigate risk, ensure consistency and save money -- even on complex products like hardware, software licenses and cloud services.
IT procurement: Key skills
The task of buying IT equipment and services requires a professional to have a number of key skills, experts agree.
People skills. To Brian D. Kelley, CIO of Ohio's Portage County, that means someone who can work through problems and bring parties to consensus and agreement.
Good communicators are able to cultivate relationships with the IT department as well as vendors, elaborates Patrick Campbell, a senior consultant and instructor with International Computer Negotiations, which provides consultant and education services related to IT procurement. Of high importance is the ability to identify and bring together stakeholders and facilitate cooperation and action among them, he says.
Experience in structuring contracts. Buyers need to be able to construct deals that include incentives and penalties, payments tied to milestones, nondisclosure agreements and other pertinent requirements and then work with lawyers to fine-tune terms and conditions.
An understanding of the organization's technology as well as insight into how that technology meets the organization's objectives. "There has to be credibility. An IT director or an IT officer or a CIO isn't going to feel comfortable handing over a [purchasing] negotiation to someone who doesn't know IT," says Campbell.
Nimblett is well aware that Lowe's process differs from many other organizations, where CIOs and the IT department take charge of buying technology and still retain tight control over it.
"The theories from the past, and a lot of organizations still have those, say that because it's an IT product, no one else is intelligent enough to know about it or is intelligent enough to negotiate for it, and therefore it's held within IT," says Nimblett, who worked in IT at other Fortune 500 companies before moving into procurement at Lowe's.
But when purchasing is siloed in that way, not only do you tie up talented IT people doing a job that's not their core competency, you often end up with deals that favor vendors and not the company, say both IT and procurement experts.
The emerging best practice for IT procurement mitigates those drawbacks by bringing procurement professionals and technologists together.
Nimblett's team recently handled a new contract with a vendor to provide IT services in the field. The procurement group contributed its expertise on sourcing, while IT brought its expertise on specifications and technical designs. Together they were able to review with confidence information provided by vendors.
"The partnership allowed emotion and opinion to be tabled while a common solution was found," Nimblett says. "The end result created a well-defined service model for our stores at a cost-effective price."
Procurement pros' specialized skills
In this new partnership model for IT procurement, the key components of the job aren't setting parameters, establishing budgets, detailing equipment specs or even drafting contracts -- though these things are all still important. It's about rolling up all those pieces into the task of relationship management so the organization can maximize all the benefits it can get from the vendor, whether it's low cost or expert support -- or both.
And that task requires a specialist who has skills beyond those that techies typically possess.
"IT managers are quickly learning that having a good procurement pro on their side can mean significant gains in efficiency, cost savings and overall effectiveness," says Mike Lee, procurement supervisor at the University of California, Riverside.
The benefits don't end there. Other returns include:
Right-size contracts. Procurement specialists working with IT can structure deals that allow services or equipment -- as well as costs -- to grow and shrink over the course of a contract's life.
Consistency. Because procurement is the sole thing these professionals focus on, they're able to streamline and replicate purchasing processes, which creates efficiencies that in turn save money.
An eye on the fine print. A skilled procurement professional generally knows what parts of standard vendor contracts need to be reworked to better protect their own organization.
Leverage with vendors. Salespeople can be allies, too, and can often deliver insight on how a business can maximize the value of its products through innovative uses or streamlined processes. Experienced procurement professionals know how to cultivate relationships with vendors to develop partnerships where there's an exchange of ideas that can benefit the organization.
Governance and risk mitigation. Sure, it's possible for IT to manage contracts over the course of their lifetime, but it's not always probable. Having procurement professionals who count this among their primary responsibilities ensures that the task gets the attention it deserves. That means, in turn, that the organization will be more likely to know in advance about any issues, such as mergers or bankruptcies, that could affect a vendor and its delivery of IT products and services.
Procurement partnering isn't about IT blindly handing over responsibilities or gleefully dumping a mountain of routine paperwork on the desks of highly skilled sourcing staffers. Both sides bring specific skills that complement the other, and both sides need to learn about each other's roles.
It doesn't much matter where IT purchasing decisions ultimately reside -- the CIO, the CFO or the COO -- as long as that collaboration and teamwork are in place, says Jim Jones, a managing director in KPMG's CIO Advisory service network. "The model we've seen not work well is where IT tries to procure without procurement skills or procurement tries to procure without IT skills."
Know the industry, know the vendors
UC Riverside's Lee is onboard with that assessment. "The new purchasing pros had better know not only the hardware and software that their organizations might be using, but also how to explain the terms and conditions of a contract in plain English to IT and then analyzing the end result for them," says Lee. "At the same time, they have to know the industry. Who are the players and what are they doing? What is going to affect the delivery of my order?"
Lee sees vendor management as a key aspect of the job. "It's about having and keeping the right vendors for the job in your pocket who will respond to your needs," he says. "Do they have the connections to get the hard-to-get items when you need them? Do you have to worry about their pricing, or can you trust them to treat you fairly every time?"
Lee, a veteran purchasing professional who oversees two subordinates, serves the entire UC Riverside campus, including its Computing & Communications Department. Some managers in the field have limited buying authority and can purchase PCs, printers and similar items, although his group provides them with policy, procedure and guidance on those purchases.
Lee works with senior IT managers who report up to the CIO. Recently, a group worked together to purchase a point-of-sale system to support the campus's dining and retail operations. IT asked for direct support for this acquisition, opting to use a formal bid process rather than a sole-source request that was first considered, Lee explains.
By working together and going with the bid process, Lee says, the campus not only ended up with the supplier that IT had originally wanted, but also scored $89,000 in cost reductions and tighter network security measures.
Partnering on the big purchases
Hank Zupnick, CIO at GE Capital Real Estate in Norwalk, Conn., and an active member of the Society for Information Management (SIM), works with his company's sourcing division to make IT purchases, typically relying on the four sourcing staffers who are dedicated to IT, which comprises some 300 staffers and contractors.
Those sourcing professionals know how to research vendors, negotiate contracts and determine values in deals, he says. IT knows what it needs from a piece of equipment or from a service provider and will set parameters for sourcing to follow.
That said, there is flexibility to the partnership, Zupnick explains. Because the requirements on some items, such as laptops or printers, are clear-cut and information on vendors is plentiful, sourcing can work more independently on those purchases. IT plays a larger role for technology that's less commoditized, such as customized software or equipment made by small vendors that don't garner a lot of reviews.
IT and procurement recently worked together on contracting for a new property management system, a key business process for the company. The team developed a vendor shortlist together; procurement vetted the vendors from financial and operational risk perspectives. Once the vendor was selected, procurement took the lead in negotiating the financial component of the licensing and customization agreement.
Zupnick advises that organizations also involve their legal departments, too, to make sure contracts accurately reflect whatever deals are negotiated and protect both parties' interests. As he sums up: "A good negotiation is when everybody is happy with it."
IT still knows best?
For all the enthusiasm from IT pros like Zupnick and procurement specialists like Lee, not everybody is onboard with such partnerships. Cynthia Farren, a Walnut Creek, Calif., consultant who specializes in software asset management, says some organizations are indeed moving toward this team approach for IT procurement, but most companies still handle IT procurement either entirely in IT or entirely in a corporate procurement office.
"There are very few who have had the maturity to see that they need both sides," she says.
And then there are IT leaders like Brian D. Kelley, CIO of Ohio's Portage County, who is somewhat skeptical of the idea of a separate procurement expert -- at least when it comes to departments as small as his.
With an eight-member IT team, Kelley obviously does not have a separate procurement person; IT purchasing decisions fall to him and two others within his department, which commands a $1 million annual budget and serves 1,300 employees.
Although he acknowledges that some purchases, such as printers or desktop computers, could be handled outside of IT, Kelley says he wants his IT department involved in buying IT equipment and services so it can ensure two things: That the selected vendors can deliver on all requirements; and that contracts address the various scenarios that can affect delivery.
"I think that IT departments have to have in-house the skills and expertise to be able to manage vendors, manage contracts and manage the procurement process," says Kelley, also an active SIM member. "We can't rely solely on others outside our department to manage that because technology is so unique."
That doesn't mean that he's not open to collaboration when it's appropriate. One recent project involved connecting HVAC control systems to the IT network. IT and purchasing worked closely to coordinate implementation phases and connectivity requirements, Kelley says.
In general, Kelley sees IT's job in joint purchasing projects as "maintaining an active role, giving input when necessary and steering the process when there are many different variables" -- all roles that most IT managers would agree with, procurement partner or no.