Navigating the Maze of IT Vendor Consolidation

In the ever-evolving landscape of information technology, vendor consolidation has become a central theme for many IT organizations. This move can lead to cost reduction, a more streamlined IT environment, enhanced risk management, improved vendor management efficiency, and increased business agility. But it's not without its trade-offs, particularly when it comes to innovation. Given this, how do CIOs balance the need for consolidation with the need for fresh, innovative solutions? This post delves into the drivers of vendor consolidation, the selection process, the areas where IT most needs consolidation, and the critical considerations for a successful consolidation strategy.

Understanding the Drivers of Vendor Consolidation

According to industry experts, the push for vendor consolidation stems from multiple factors. Former BusinessWeek CIO, Isaac Sacolick , says, “vendors consolidate if they over promise growth and the markets didn't respond. Meanwhile, CIOs consolidate their approved vendors to reduce costs, risks, and skills, and to simplify their operations.” Manhattanville CIO, Jim Russell, MPubA , agrees, “cost is the biggest driver, including total cost of ownership (support, platform, DevOps, etc.). Another factor occurs when an organization gets serious about addressing the need for agility or tackling technical debt.”

First CIO, Deb Gildersleeve , claims “vendor consolidation can give more leverage in the relationship with the vendor. It also gives less support for a smaller support team.” Summarizing with an industry perspective, Constellation Research Vice President, Dion Hinchcliffe says, “The largest drivers of vendor consolidation are:

• Portfolio rationalization
• "One throat to choke"
• Pricing/service advantages
• Alignment to IT/Enterprise Architecture strategy
• Complexity management
• Integration/duplication reduction

Vendor Differentiation in the IT Stack

When consolidating, how do organizations choose which vendors to keep? Russell highlights cost as a significant factor, including the total cost of ownership, while in transition CIO, Martin Davis (CIO) , points out that external acquisitions and internal strategies can differ greatly. For manufacturers, as Manufacturing CIO Joanne Friedman notes, it's about meeting customer demand for integrated solutions. Sacolick says, I have consolidated vendors because it benefits my business (costs, simplicity, risk, etc.).” Finally, Hinchcliffe claims, “yes, there are strategic vendors and tactical ones. Strategic vendors are often partners who have a special relationship, including deeper knowledge of the customer, higher level relationships with executives, and are usually seen as being on a journey together.”

The IT Stack: Where is Consolidation Most Needed?

The IT stack is diverse, and for this reason, the need for consolidation varies from one organization to another. Some professionals argue for data consolidation at the source, such as ERP systems, or access points like a single data lake. Others emphasize the consolidation of cloud infrastructure, databases, and collaboration tools. Russell says, “variation is natural since business needs should drive IT priorities. For many, consolidation is about data - either at source such as ERP or access like a single data lake. For others what slipped during COVID needs wrangling such as collaboration or hardware.” Sacolick adds on to Russell by saying, “where is consolidation most needed in the IT stack? Everywhere. Too many categories and vendors across the board.”

Davis agrees and suggests, “a lot of consolidation is required in many catagories, especially security, ERPs, and CRM systems. Often, the roots of the need for consolidation is mergers and acquisition activity and lack of central control of disparate business units. In terms of where it is most useful is where the following are the case:

• Rule of thumb: More than 5 ERP systems, more than 3 CRM systems
• Cloud infrastructure: Fewer vendors better but one is the wrong answer
• Databases (needed, but hard)
• Too many collaboration tools?

The Gating Criterion: Partnership or Transaction?

The debate on whether vendor consolidation should be based on partnership or purely transactional relationships is ongoing. While some argue for a partnership approach, others maintain that vendor consolidations should primarily benefit the business, not just the relationship.

Critical Considerations for a Vendor Consolidation Strategy

Developing a vendor consolidation strategy requires careful consideration of several factors say CIOs:

• Business Need: Understanding the essential requirements and the reasons behind the cost involved.
• Business Strategy: Evaluating how the vendor will meet business needs over an extended period.
• Cost: Considering the financial impact and the overall expenditure.
• Sustainability: Ensuring that the vendor's solutions are viable over a range of operating environments
• Security: Assessing the security measures and protocols the vendor has in place to protect data and systems.
• Vendor Viability: Analyzing the vendor's financial health and ability to continue providing services.
• Net Value Increases: Looking at how the vendor can add value to the business beyond just cost savings.
• Vendor Capability: Evaluating the vendor's ability to deliver the required services effectively and efficiently.
• Enterprise Architecture: Understanding how the vendor's solutions fit into the existing enterprise architecture.
• Vendor Track Record: Considering the vendor's history of performance and reliability.
• Skills Availability: Ensuring there are sufficient skilled resources available either from the vendor or within the company to work with the vendor's solutions.

These factors are crucial to ensure that the vendor consolidation leads to improved efficiency, reduced costs, and better alignment with the company's strategic goals. When considering vendor consolidation, it's important for CIOs to perform a thorough analysis of each of these factors and then make an informed decision that will benefit the company in the long run.

Parting Thoughts on Vendor Consolidation

Vendor consolidation is not a one-size-fits-all approach. It's imperative to have a strong rationale beyond cost-cutting. Change management becomes crucial when consolidating business-impacting technologies like ERPs, CRMs, and CRMs.

Vendor consolidation in IT is a complex but necessary strategy that organizations must navigate carefully. By understanding the drivers, evaluating the IT stack, and considering the critical elements, businesses can make informed decisions that balance cost savings with innovation and strategic partnerships.

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