For many areas of IT, diversification seems to be the strategy of choice when it comes to IT procurement. More and more organisations are demanding flexibility, agility and value for money.
The BBC have recently announced they are targeting savings of £90 million in the next two years by taking a more flexible attitude towards IT, much like the UK Government’s approach to G-Cloud and the Digital Marketplace initiative. The BBC’s CTO Matthew Postgate said
We are moving away from one monolithic, long term contract with a single supplier, to multiple shorter-term contracts with a number of specialist companies.
The BBC’s new approach is something MTG are seeing more and more within industry. There are a growing number of businesses seeking greater flexibility and value for money when it comes to IT spending.
The BBC’s Postgate goes onto say:
Large and long-term technology contracts were common place and had their benefits when we signed ours 10 years ago. But, again, the pace of change means this is isn’t an appropriate model for the BBC today.
Pace of change
Given the pace of change within the IT industry and the wealth of emerging technologies such as Cloud, SDN (Software Defined Networking), UTM (Unified Threat Management) and new concepts such as BYOD (Bring Your Own Device), you can see how an all encompassing, rigid contract can actually work against an organisation, stifling innovation and in some cases, increasing costs.
The Digital Marketplace
The UK Government operates the successful G-Cloud framework and more recently the Digital Marketplace. G-Cloud 6 boasts over 1,852 suppliers, of which 87% are SMBs. The Digital Marketplace enables public sector users to find technical architects, consultants, web-hosting and IT solutions.
This enables individual departments, local councils and other public sector bodies to identify the most suitable firms, securing value for money whilst simultaneously following a robust procurement framework. Ultimately this delivers value for money and reduces the time it takes to procure services.
While a large, lucrative public sector contract can be a major coup for an IT provider, it may also represent a formidable risk to their business. A massive contract can dramatically increase headcount, increase costs and stretch the capabilities of the business to the limit, whilst risking the alienation of their core customer base through a change in focus.
Some IT providers get the balance right and go on to grow their business, able to service both large and small customers, diluting the risk, not taking their eye off the ball and finding the right balance. Like being relegated from the Premier League, there are countless of examples of businesses struggling or in some circumstances, folding after losing a large contract.
A good rule of thumb is no one customer should represent more than 10% of your revenues. The impact can be catastrophic if that customer leaves. Conversely, it could be considered a risk to focus your efforts around a single vendor or supplier. In the event of a service outage or supply chain disruption, it can seriously disrupt your operations. For many areas of IT, diversification seems to the strategy of choice when it comes to public sector procurement.
Watch this space
There appears to be a marked change in the way public and private sector organisations procure IT services. There is a growing trend towards flexible procurement frameworks when compared to their traditional, monolithic counterparts. This approach may not work for all areas of IT, notable telecommunications and datacentre services where the shear scale makes it difficult to carve up. The emergence of Cloud technologies and the deepening of technical skill sets is, in part, the catalyst for change, a trend that is set to continue over the coming months.