Insights into strategic vendor consolidation, part 2: What you should consider first

In Insights into strategic vendor consolidation, part 1: Key drivers and benefits, my colleague, Torsten Strass, shares his thoughts on why so many organizations are transitioning from a multi-vendor approach for managed services to strategic vendor consolidation—the selection of one or a few preferred vendors. While using multiple vendors has been the norm in managed services for decades, the complexities and inefficiencies of this approach are making vendor consolidation a more viable and attractive option.  

In this second blog, I share a few considerations for organizations seeking to pursue vendor consolidation. As Torsten notes, this approach helps organizations achieve “greater alignment, improve operational efficiencies, and drive cost-effectiveness—ultimately maximizing the value of their managed services engagements”—an enticing value proposition for any organization.

Consolidating vendors, however, isn’t easy, and some studies show that up to 30% of vendor consolidation initiatives fail. For organizations seeking to reduce their vendor pool, what should they consider before proceeding down this path to ensure the best outcomes?

Consideration #1: Business strategy alignment

Consolidation requires evaluating your existing vendor pool and selectively narrowing it down to a few reliable and effective partners. How do you determine which vendors to eliminate or keep? Should you add any new vendors? The first consideration to keep in mind is whether a prospective vendor can contribute to the achievement of your overall business strategy for an extended period.

What is your defined business strategy? What are the essential requirements for successfully executing it? How does each prospective vendor align with this strategy? Do they have the capabilities to meet your strategic business needs over the long term?

Asking these questions helps to identify vendors with a willingness and ability to align with your strategy, embrace your strategic objectives, and commit to delivering the full services required to achieve those objectives. It also helps to identify a true business partner from a transactional service provider. (For more on this topic, I invite you to read my colleague Steve Lippock’s blog, Will the real trusted advisor please stand up?)

Consideration #2: Cost and long-term sustainability

Relying on services from multiple vendors makes operations more complex and expensive for CIOs and CTOs. It can lead to an oversized IT vendor portfolio with redundant solutions that negatively impact cost, performance, and risk posture. There also is significant overhead associated with managing multiple negotiations and contracts.

Vendor consolidation is a way to simplify operations and save costs. It also helps ensure the delivery of solutions that are sustainable over the long term based on the vendor’s deep knowledge of the client organization.

A second consideration, therefore, is whether a prospective vendor’s offerings can advance your financial and long-term sustainability goals. This involves assessing the overall financial cost and impact of the vendor, as well as evaluating whether its solutions will enable you to achieve today’s business objectives while future proofing your business.

Consideration #3: Value generation

While cost is a key consideration, it’s important to look beyond finances and consider other ways that vendor consolidation can generate business value.

Partnership is the essence of vendor consolidation. When vendors become partners aligned with the organization's strategic objectives, the vendor relationship becomes transformative, driving initiatives that  transcend traditional vendor-client engagements and deliver more value. This value is achieved through closer alignment and collaboration, enhanced communication, standardized processes, joint innovation, stronger compliance, and more.

In pursuing consolidation, consider whether a prospective vendor can generate value for your business in addition to savings costs. This requires a close examination of its capabilities, which, in turn, brings us to the last important consideration.

Consideration #4: Vendor capabilities

To be successful, vendor consolidation requires careful consideration of a prospective vendor’s ability to deliver required services effectively. What are the vendor’s capabilities and differentiators? Critical areas to examine include the vendor’s managed services experience and track record, industry and technology expertise, range of services, frameworks/processes/tools, governance, innovation practices and outcomes, global and local resources, and alliances.

It’s also important to evaluate less tangible qualifications such as the vendor’s partnership approach. Does the vendor collaborate as a partner? Is the vendor committed, trustworthy, accountable, transparent, flexible, and outcome-led? Does it share the same values and align not only with your business strategy but also your culture?

One vendor that can deliver holistic capabilities and expected results through a trusted partnership approach is of far more value than multiple vendors that, in practice, operate solely as service providers.

Avoiding vendor consolidation failure

Vendor consolidation success depends on keeping the above considerations in mind before you embark on a consolidation journey. Ultimately any vendor consolidation exercise needs to enhance the organization’s capabilities, increase efficiencies, drive agility, and infuse new talent.

If, based on these considerations, you’re ready to move forward with strategic vendor consolidation, then be sure to read the last blog in this three-part series in which my colleague, Frank van Nistelrooij, shares a multi-phase approach for reducing your vendor pool successfully.

As one of the world’s leading managed services partners, CGI is working with clients to explore and implement vendor consolidation strategies and approaches. If you’d like to learn more about our work and the outcomes that we’re helping clients to achieve, feel free to contact me.