Smart Contract Talks Help an IT Department Save Big
AT&T, Hewlett-Packard offer better deals after Lafarge hires a negotiating advisor. Part 1 of 5.
Mon, July 28, 2008
Welcome to Part 1 of our 5-part series on IT cost cutting. Each day this week, we'll look at money-saving IT projects that you can replicate, from Gap, Lafarge, Title Resource Group, the U.S. Department of Defense and Washington Mutual. Stay tuned.
No one wants to overpay vendors, but Lafarge North America was.
Patrick Kys, VP of IT and CIO of Lafarge North America, thought he wasn't getting the respect—that is, the pricing leverage—he should get from the company's major suppliers, such as AT&T, HP and Microsoft.
Lafarge North America is a private company, owned by Lafarge Group SA in France, that makes concrete, gypsum and other construction materials. With $6 billion in sales, the Herndon, Va.-based company isn't small potatoes.
But Kys and other senior managers didn't know what level of discounting they could get and therefore weren't sure they were as bold in negotiating as they could have been, Kys says. It's hard for individual technology managers to get reliable information about what others are paying, he says, even from each other. Vendor contracts often stipulate that customers can't discuss pricing. Maneuvering with vendors around the negotiating table takes practice.
To gain perspective, Lafarge North America last year hired NPI Financial, a spend management consulting firm in Atlanta. Within several weeks, NPI had reviewed the company's contract with AT&T. NPI then reviewed other Lafarge North America IT contracts and concluded that it was overpaying several vendors. Right away, the company set to work to get better deals.
NPI advises many clients and negotiates for some, collecting benchmarks on vendor pricing across industries while keeping individual client data confidential. Kys says he got the inside knowledge he couldn't get elsewhere.
NPI representatives guided Lafarge negotiators, and sometimes stepped in to negotiate, in contract talks with AT&T, getting the vendor to "do better" on pricing, says Sepehr Kousha, IT controller at Lafarge North America. For a negotiation with Hewlett-Packard, NPI provided benchmarking, she says. "That's very effective."
"We took their arguments off the table," Kys adds.
Lafarge is a big HP shop, using HP desktops, laptops, servers, printers, storage-area networking products and various utility software. When it was time to renew maintenance and service agreements with HP, NPI spent two weeks assessing Lafarge North America's current contracts against similar terms, conditions and pricing offered by third-party providers and against what HP was offering other customers, Kousha says.
"This helped us to not only improve our current-year prices but to also negotiate a multiyear deal, whereby our prices are not locked for the next 24 months," she says. Those negotiations took about six months. That's not unusual, as software pricing is not only costly but complex.
In a new networking and data telecommunications deal with AT&T, Lafarge gained "seven-figure savings," Kousha says. She declined to provide specifics.
Kys adds that that savings was 20 percent more than he had anticipated. He credits NPI with getting that margin. NPI is paid a retainer, with some incentive-based fees as a bonus.
Telecom negotiations are usually intense, Kousha adds, but better informed, Lafarge staff persevered. "They try and wear you down and won't come to a final price quickly. They try to make you give up," she says. "We decided tactically to hang in there."
Kys advises other IT leaders to add a controller or financial manager to the technology department. Most IT managers negotiate with vendors "sporadically [and] don't have all the tactics to win." Kousha reports to Kys, with a dotted-line reporting relationship to the corporate finance chief.
Next up for Kousha and Kys are contracts for storage equipment and Cisco's Smartnet technical support.
In Part 2 of the our series on IT cost cutting, learn how Gap, the clothing retailer, automates end-user access permissions, to speed up a tedious administrative process and save up to $1 million worth of the IT department's time.