Open source software, which includes a wide range of software tools, utilities, and platforms available to organizations, represents a class of software that is largely developed by open communities and usually distributed free of charge for commercial use. Organizations that leverage open source software across the enterprise often realize a number of efficiencies including low or no initial and upgrade license acquisition costs as well as reduced support requirements in a number of areas. Additionally, open source software typically gives an organization just that - open source code from which they can modify or enhance to meet specific organizational requirements, rather than wait for vendors to address requirements in future versions of their software
Virtually every IT group possesses some level of opportunity to reduce IT spending without sacrificing technical capability, capacity, or quality. However, certain characteristics lend themselves to greater opportunities for increased efficiency. Organizations with significant opportunities for reducing undesirable IT spending frequently possess one or more of the characteristics summarized below.
A mature asset management function is another important component of an organization’s ability to effectively control IT costs. In addition to helping the organization better leverage idle or under-utilized assets, the existence of strong asset management can significantly reduce technical support and administrative costs.
IT assets commonly segment into two major categories; hardware and software. These assets serve vastly different purposes and to a large extent, exist as wholly distinct concepts; one physical and the other largely virtual. Based on the unique purposes and nature of each, organizations typically realize increased efficiency by managing each using different approaches and even systems.
Securing the best possible price on IT products is critical to the health of any organization that spends a material amount on information technology. But there are tactics both ethical and unethical that can damage not only your future ability to secure the best possible pricing but also you and your organization’s reputation. Common practices that do more harm than good include:
Many organizations incur monthly charges for a wide-variety of IT services based on a number of subscription or other variables, such as headcount. The provisioning of these services is typically unavoidable as new employees, contractors, interns, and other staff require access to e-mail, phone, and other IT services. Additionally, as organizations continue to rely more heavily on cloud or outsourced providers for services, the need for external provisioning of services is increasing.
When vendors sell a piece of hardware, they’re often counting on more than the initial product margin, they’re counting on a 3-5 year revenue stream from the annual support contracts or warranty uplifts that many companies buy along with the product. The gross margins on support can be as high as 100% for the vendor, depending on the customer’s use of the support.
IT spending is frequently mischaracterized as an expense that should simply be minimized or avoided whenever possible, similar in view to that of office supplies or real estate square footage. In reality, IT spending is often one of the best areas of investment for an organization. Increased IT spending can, for example, significantly enhance employee productivity, provide a better experience for customers, help develop new products, or open new markets.
Many organizations do not possess a policy and capability for maintaining spare IT hardware assets as an internal support tier, instead relying on vendor support to achieve the service levels required for any given hardware asset. However, the cost of support agreements that provide parts replacement is in many cases not competitive with an effective sparing policy. For example, in many cases the difference between the annual cost of basic and premium support levels is the provision of on-site spares, yet the price difference between the levels is more than fifty percent of the equipment’s original cost.
Many organizations maintain a highly fragmented approach and set of processes for requisition of vendor products and services, frequently using separate workflows and processes for approval by a disparate set of individuals. The lack of consolidated and centrally managed requisition and acquisition functions frequently inhibits an organization’s ability to manage spending at the point of initiation, where significant opportunities exist to shape or even avoid purchase. Additionally, the ability to implement standards as well as gain broader visibility into organizational spending is often made unfeasible under a decentralized approach.
There’s no question about it, vendors love to bundle services and support with product costs. The reason: the margins on services are the highest for vendors, and no vendor wants to make it easy to negotiate these costs. But for the purchasing organization, these services are usually the best to negotiate down exactly because of their high margins. Ensuring the vendor breaks out the pricing is obvious, but sometimes the vendor won’t budge on support, training, or implementation costs. The reasons for this are numerous.