Rethink and renegotiate

As IT departments continue to do more with less money and fewer staffing resources, CIOs are trying to keep every dollar in check. Experts say that CIOs may be able to free up some capital in their IT budgets by renegotiating and consolidating contracts with technology vendor partners and consultants.

“Retailers should be doing this on a regular basis already, but today this practice is even more important,” advised David Hogan, CIO, National Retail Federation, Washington, D.C.

The first step is to make a list of every single current technology agreement. For agreements that are approaching an anniversary or expiration date, chains should begin doing their homework and determining how to negotiate better terms that will lead to cost savings.

Gartner VP and analyst Jay E. Pultz agreed.

“It is time to open those contracts and start renegotiating now,” he said. (One-third of Gartner’s clients have contracts expiring in 2009, and two-thirds will be renegotiating in 2010 or 2011.)

When renegotiating a contract, service requirements should be top-of-mind. Rather than assuming what end users need from a specific software solution or hardware configuration, CIOs should discuss requirements with end users. Once the group determines how the solution will best meet the needs of the business and all end users, CIOs must document each point they expect the technology and the provider to deliver.

While it is always sticky talking dollars and cents, experts suggest that chains tie payments to deliverables. For example, a percentage of the investment is due at the contract signing, but retailers should negotiate that a percentage of the fee will be transferred upon full implementation.

“This is a way to free up operating budgets, and work with technology vendors more easily if problems arise,” said Ken Brame of Retail & Systems Consulting, Asheville, N.C.

Besides renegotiating service conditions and rates, companies should consider bundling services. This is a ripe opportunity across networking solutions, as more telecommunications providers offer more deals when data and voice traffic are combined.

The same holds true when negotiating deals on statewide and international service plans, as well as on wired and wireless network support.

Whenever possible, industry experts also suggest that chains do some homework on potential technology partners’ fiscal quarterly and year-end dates. During these time frames, technology providers are more apt to offer the best deals, giving retailers more power during negotiations.

Regardless of the solution, experts also agree that chains need to focus on investments for initiatives planned for the upcoming year. More importantly, Gartner’s Pultz also suggested that companies stay focused on projects that will provide the highest cost savings or support major business initiatives.

“Buy only what is needed now,” he said. “If you over-invest, you will end up with costly solutions that may even need to be replaced sooner than expected.”

And what about those projects that don’t fit into these short-term goals? There is nothing wrong with deferring them until 2010 or when the economy turns around. Just stay on top of end-use requirements and business goals so negotiations will be smooth next year.