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Set IT vendor selection criteria to evolve with the times

As enterprises' IT tool sets expand to include more specialized providers for cloud and DevOps deployments, they face new vendor management challenges.

Technology and business leaders are perpetually on the hunt for the perfect IT tool set -- one that meets their precise needs for functionality and cost.

How enterprises choose IT tools and software, as well as the vendors they purchase them from, has changed. In general, there's been a shift away from single sourcing from a small handful of tech giants, such as HPE, IBM or Microsoft. IT organizations are picking tools from a broader range of smaller or third-party vendors, and even the open source community.

There are several factors prompting this shift. Enterprises want IT tool providers that align with the latest cloud adoption and DevOps trends, while still meeting their core cost, compliance and customer support requirements. But this change introduces some challenges around IT vendor management and negotiation strategies.

Wanted: The ideal IT tool -- or 10

Enterprises' IT vendor portfolios have grown more diverse and broad over the past several years, according to Chris Powers, managing partner at ClearEdge, an IT contract consulting firm based in Needham, Mass. For example, many of Powers' Fortune 1000 clients enlist ClearEdge to help manage relationships with 20 to 25 IT suppliers -- a number that was in the 5-to-8 range just a few years ago.

This increase could be a microcosm of an industry trend: Rather than strictly go all-in with a massive, jack-of-all-trades tech vendor, enterprises seek out IT tools that support fewer uses, but do so very well. And many of these specialized vendors have roots in the cloud.

Salesforce, in the CRM market, was an early and prominent example of this trend, threatening software incumbents like SAP and Oracle. In 2020, organizations seek out these niche IT vendors across technology segments from security to monitoring to data management.

"There are a ton of smaller, best-of-breed vendors that are very technology- or business-specific," Powers said.

The cloud has redefined IT vendor selection criteria in the enterprise. Sprawling ecosystems of specialized, third-party software providers have sprouted up around major public cloud platforms, such as AWS, Microsoft Azure and Google. These vendors give IT and business decision-makers far more options than they've had in the past.

"These [platforms] have just exploded the number of vendors that are critical to an enterprise," Powers said.

Consider adopting SaaS applications that complement, or run on the infrastructure of, your company's preferred IaaS provider. Many of these SaaS offerings can be found easily in IaaS providers' online marketplaces.

Vendasta Technologies Inc., a provider of sales and marketing software for media companies, uses Google Cloud Platform for its IT infrastructure. And although many native Google cloud services and tools meet the company's needs, Vendasta has also filled in feature-set gaps, said Dale Hopkins, CTO at the Saskatoon, Saskatchewan-based company. Hopkins' team, for example, uses Datadog, a Google Cloud partner, for its SaaS-based application monitoring, rather than rely exclusively on Google's native monitoring tool, Stackdriver.

"Google has started to focus more on the enterprise, so some of the more innovative and newer features and things that I need tend to come from third parties," Hopkins said, noting PagerDuty, a SaaS-based incident management tool that also integrates with Google, as another example.

Buying decisions mean partner decisions

Organizations, particularly mid-sized ones, might opt for a smaller, specialized IT vendor because it's what they can afford, according to Mike Cisek, VP analyst at Gartner. In some cases, these vendors' pricing models are more cost-effective than sprawling suites, and their customer support services are more accessible than those of a major IT vendor. A smaller company with limited IT staff should evaluate support as a fundamental part of vendor selection.

"If I have ... 24x7 operations responsibilities, what [these vendors] do after normal business hours is critically important to me," Cisek said. "Large enterprises -- they have that staff."

Request customer case studies and references from a prospective vendor, and ask to speak to those users directly about their customer support experience.

In general, smaller providers can simply move more quickly to align their products with modern technologies and trends, such as microservices and DevOps, compared to traditional IT vendors, who are often encumbered by legacy baggage, said Bob Laliberte, senior analyst at Enterprise Strategy Group. "There are all sorts of changes taking place, and they're opening up opportunities for these smaller vendors that can iterate and have cloud-native [offerings]," he said.

Some niche tech players and startups even built their software from inception to support or enable these modern technologies. As enterprises plan roadmaps, they prioritize these capabilities in IT vendor selection criteria.

More IT management tools to manage

Despite the allure of having a deep bench of specialized IT vendors, there some potential drawbacks.

First, more IT tool sets and vendors means more contracts, licenses and subscriptions to oversee. Pricing and billing structures vary from one SaaS tool provider to another, potentially complicating IT budget and cost management plans. Large vendors with broad product portfolios have a streamlined contract setup for their customers, covering multiple tools and capabilities, by comparison.

Second, conducting a large portion of business with a single IT vendor can give a company leverage in terms of price or contract negotiations. This perk could be lost if the organization decentralizes its suppliers, distributing that same amount of business across multiple vendors.

"It becomes one of those things where I get a less holistic relationship [with IT vendors] and [less] ability to work together to optimize both our costs and benefits," Hopkins said.

And third, more cutting-edge IT vendors might not offer the compliance backing of larger competitors. There is a cost and operations overhead associated with a vendor achieving, for example, HIPAA compliance for its software. This particular IT vendor selection criteria favors incumbent tech providers, compared to smaller players or startups, unless those vendors make compliance certification a priority.

"As we start to compete in different markets and have regulatory compliance issues, it does sometimes eliminate smaller players," Hopkins said.

Lastly, market consolidation among vendors can pose a challenge; that hot startup's tool might eventually become an acquired asset under an established legacy provider.

"What you're seeing across the board is that these new cloud-native companies are getting snatched up by the bigger ones," said ESG's Laliberte.

While the acquisition of an IT tool vendor won't necessarily cause significant disruption to users, it can change product roadmaps and pricing, and shake up existing customer-vendor relationships.

What to look for in an IT vendor: A checklist

There are many boxes to check in the search for an IT vendor. While specific requirements vary across organizations and IT departments, some general -- and emerging -- criteria include:

  • Addresses a specific IT or business need.
  • Has a cost-effective pricing model.
  • Delivers functionality that works with a cloud platform.
  • Supports distributed architectures and DevOps.
  • Demonstrates agility in its product roadmap.
  • Meets necessary compliance requirements.
  • Provides sufficient levels of customer support.
  • Offers references and case studies.

Strike a balance

There are certain steps an enterprise can take to mitigate the challenges, and optimize the benefits, of a wide-ranging IT vendor portfolio.

Appoint the CTO, or another qualified stakeholder in the business, to develop and lead an overall IT buying strategy. Balance the needs of IT teams with those of the business, Powers said. This is especially important, as the business side, over the past five years or so, has become a prominent buyer of SaaS applications -- applications that IT teams are ultimately tasked to manage and support.

"The role of the CTO has shifted back and forth from managing the back office to basically being responsible for managing a technology portfolio and trying to set a strategy behind that," he said.

Don't onboard such an extensive number of specialized IT vendors that it becomes an integration nightmare for the IT team, Hopkins said. Instead, be strategic, and adopt tools that fit well within the ecosystem of an IT platform or vendor you already use.

"My preference has been to find a major provider that can do the work you want, and then supplement in areas where either the innovation or the value [of a third-party tool] is so big that it's worth the overhead," he said.

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