Establishing how to use technology in the workplace is a struggle with which all IT managers are familiar. But it?s only half the battle. In a fast-moving industry where regular changes in product specification and revolving product lines are the norm, working out what, when, how and from whom IT kit should be bought has always been a major problem for businesses.
It?s not just a question of how the central IT department makes purchases, either. More and more departments, particularly in bigger organisations, are now sourcing and financing IT purchases themselves. And financing itself is becoming a more important issue as companies question both the value of the investment they make in technology and consider the all-important question of cost of ownership. And, where once IT staff could confidently say that no-one ever got sacked for buying IBM, the choice of suppliers in a myriad of technological areas has made the buying process more complicated than ever.
Business Computer World commissioned research firm Spikes Cavell to interview IT managers of companies with a #30m or more annual turnover about the buying issues they face on a day-to-day basis. The survey covers supplier lists, the breadth of the decision-making unit, the buying power that has been devolved to departments, the number and types of suppliers that companies use, what companies actually buy and even the financial management that goes into IT purchases.
The key theme to emerge from the survey is one of competence. Are user departments competent to make buying decisions? Are suppliers competent enough to meet the needs of business? Is there sufficient competence in the design of the purchasing process to ensure companies get both value for money and the right IT in place? If the answer to any of these questions as far as your business is concerned is ?no?, now is the time to start thinking about managing your methods of buying IT.
Despite the growing awareness of IT among general business managers, the responsibility for making computer-related purchases still resides largely with the systems department ? 83 per cent of IT managers are still part of the buying process for their companies? computers.
Yet only 61 per cent of respondents have purchasing power. Three-quarters specify IT products, and just over half claim they influence the decision about what to buy.
This suggests that IT buying has become a far more dispersed procedure than it has been in the past, and users or departments which now consider themselves IT-aware are getting involved. It also means that many IT managers are simply not trusted with the cheque book. One who is, explains: ?Our system works very well. I?m in the IT department, but I?m also the financial controller.?
Some companies take a more democratic approach than others. ?We have small IT groups within departments who are responsible for their own computer purchases,? says one IT manager. But even she insists: ?They all keep in touch with the IT department.?
However, this is still the exception rather than the rule ? only one in five companies allows individual departments any kind of IT spending power, even below pre-set limits; and the majority of companies that do give a limit to departments, tend to set it below #1,000. Any purchase above this is generally referred either to the IT department or to the board.
Meanwhile, in companies where the IT department is not tasked with handing over the cash, that responsibility tends to rest with a purchasing department.
Who to buy from?
If the absolute power of IT departments to specify and purchase IT equipment is indeed being eroded, perhaps the best way of ensuring that a whole company is singing from the same songbook is to set up an approved supplier list. Indeed, two-thirds of companies have one in place already. But for many IT departments, this doesn?t mean much: two-thirds of our respondents claim that they can ignore the list if they choose to do so, and 52 per cent regularly deviate from approved suppliers. (Interestingly, those respondents who claim their companies are technologically ahead of the field, all keep religiously to approved supplier lists, although the figures are too low to be statistically accurate.)
The real beauty of approved supplier lists isn?t that they limit knowledgeable IT managers. In fact, they really come into their own when they restrict less techie business managers; and in 89 per cent of companies that responded, these people have to stick to known suppliers, easing fears about buying substandard or incompatible kit.
Equally gratifying for IT managers is the fact that they tend to compile the approved supplier lists; two-thirds in our survey are entrusted with the job. However, once they reach the upper echelons of IT directorship their influence declines ? only 20 per cent of approved suppliers are selected by board members.
So how can IT companies get on big businesses? supplier lists? The two most important factors ? with 86 per cent of respondents citing each ? are reputation for service and past experience. Overall reputation and high-quality technology are cited by three-quarters of respondents, while word of mouth remains an important factor for half the respondents.
It would also appear that our IT managers are an incorruptible lot: none of them has been influenced to include a supplier on an approved list as a result of being offered a freebie. Well, they?re either incorruptible or very discreet.
There are always extenuating circumstances as well. For many companies, finding the right IT supplier means finding someone who understands your business. And as one IT manager points out: ?We only deal with companies that have the ability to supply on a worldwide basis ? we need to know they have worked with big companies before.?
At the other end of the scale, we wanted to know why IT managers dump companies from their approved list. Not surprisingly, poor service and the support and quality of products feature high up the list, but it?s worth noting that 40 per cent of respondents will trash a company simply because its prices are uncompetitive. Even in an age of total cost of ownership, purchase price can make a difference.
And, as with getting on to the list, a tarnished reputation is the quickest way to fall off an approved supplier database. ?We drop anyone who doesn?t keep promises,? says one IT manager, while another points out that his business simply can?t afford to have dud IT companies as partners: ?If any of our suppliers do not keep up with the latest available technology, they are out of the door, because that will compromise our competitive position.?
We also wanted to know what kind of products would feature on a typical list. We found that, while 99 per cent of our IT managers will use only accepted suppliers for PCs, when it comes to, for example, Web browsers, only 53 per cent make any prescription at all. Again, any power being devolved to user departments tends to be tightly controlled, where standardisation issues are at stake. But for lower-grade products, there?s more freedom.
Only two companies in our survey claimed to have a sole supplier for IT kit; the vast majority have at least five, with a third using more than 10. This makes the job of co-ordinating suppliers much more difficult. So what can managers do to alleviate the problem?
The first thing, as we?ve seen, is to issue a list of approved suppliers, so that support and service costs are kept down, and technicians can get to know common problems. Nearly 40 per cent of our IT managers have standardised on one brand of PC, for example, and just 10 per cent have more than five brands on site. We also discovered that just over half of our IT managers stick to one set of PC specifications at a time. Of course, there will be a massive legacy of older specifications within those companies. Furthermore, even among the companies that don?t set one specification, the number of different configurations tends to be small ? the majority have fewer than five different specs on the approved list.
The other good way of managing suppliers is through contracts. Service level agreements are used by about 40 per cent of IT managers. This is actually a fairly low figure and, despite the universal use of warranties, any IT manager who is genuinely concerned about cost of ownership needs to agree an SLA with their supplier.
When asking questions like ?Do you think your company has a good or bad process for purchasing IT kit??, we expect IT managers to lie ? at least to some degree. Few people are openly critical of themselves. But although there was the usual low turnout for ?bad? (1 per cent) and ?not good? (3 per cent), we were surprised to see 33 per cent of IT managers admitting that their purchasing process was ?indifferent?.
It?s possible that this shows how honest our respondents can be, but the other likelihood is that the IT industry, by its very nature, makes IT purchasing difficult. There are so many different products on offer, and technology advances so quickly, that even companies with rigidly enforced approved supplier lists have to review them regularly. Indeed, more than a quarter of IT managers review their lists daily.
But the real problem remains one of changing technology. The harassed IT manager, faced with a new set of hardware and software options every six months, still needs to supply the right technology to keep the company competitive ?s competition-conscious business units happy. With the concept of total cost of ownership adding fresh concerns about whether a deal really is as good as it seems, the purchasing process is tougher than ever.
One IT manager in the public sector highlighted a major problem: ?Our system is good, and it usually works. But with IT there simply isn?t time for the long process of tendering, which we are expected to undertake.? IT purchasing is in a different league to any other business buy.
One thing is clear. Some 81 per cent of respondents don?t think that business units could take over the purchasing of IT equipment ? and we would agree that, at the moment, this is still a specialist job. IT managers need to talk to business managers in a language they understand to ensure the right purchases are being made. But the confusing state of the market makes it impossible for departmental heads to take on the responsibility. And, taking into account the 89 per cent of our respondents who would not like to see that shift happening in the first place, it looks like IT departments will be in control for some time.
It?s great to have a vision of the way your organisation could benefit from all the technological goodies on offer, but most IT managers know all too well that visions don?t come cheap.
One of the major skills any IT manager needs is the ability to get that all-important budgetary approval from their organisation. Previously, that often meant talking nicely to the finance director, who would often be in overall charge of IT. But, while it?s still a good idea to keep in touch with the finance director, today?s flatter, more distributed organisations mean that there are many more sources of money to fill the IT coffers. The downside is that it requires a lot more time and effort to persuade 20 or more departmental managers of your vision and get them to OK the budget.
So, an essential weapon in today?s IT manager?s armoury is the ability to spot unspent budget and IT champions across the organisation. Most IT managers understand the complex relationship they have with their internal customers and know they need to spend a lot of time selling the business benefits of their technology to departmental and line managers if they are to win over not just the users? hearts and minds but also their cash.
Previously, many IT departments will have opted for a chargeback system to recoup the cost of IT systems from end users, but a number of problems have emerged from this approach. One is that such systems tend to mean very little to typical business managers. It?s more effective for the IT manager to go in and talk to the business manager about what they need to run their business ? and what that will cost ? than to try and put in a technology that claws back the cost through a complex chargeback system.
In addition, the increasing use of clientserver systems creates even more of a problem because it blurs the line between what the IT department provides and what the end-user department does for itself. The upsurge of Internet connections and the building of more and more corporate intranets is exacerbating this problem.
So IT managers are increasingly recognising that they not only have to show they understand the business their organisation is in, but they also have to appreciate the budgetary constraints affecting individual departments. If they want departments to buy their technical vision, they have to go and talk turkey with business managers. Consequently, IT managers must demonstrate an understanding of a more flexible approach to paying for IT, with a mixture of outright purchase, leasing, and even renting, to match payment options to business circumstances.
In the old mainframe days, leasing was a boom business. With mainframes in the million-pound bracket, they weren?t the kind of purchase most companies? finance directors would be writing a cheque for.
To cater for the demand, several specialist computer leasing companies sprang up, willing to offer flexible schemes to provide organisations with the spread of buying power needed to get that mainframe into their data centre, while providing substantial returns for the finance companies.
In at least one case, the returns were too good to be true. The failure of Atlantic Leasing in the late 80s, after it had signed up a large number of buyers to its flexible leasing schemes, was a salutary and painful reminder that nothing comes for free.
Since then, and the recession of the early 90s, there has been a more cautious approach to leasing schemes, and this has been encouraged by the rise in server and PC purchasing, as part of the overall move towards distributed computing. Since PCs are much cheaper than mainframes, it?s no surprise that they are most often an outright purchase ? our survey reveals that 92 per cent of PC servers are bought outright.
But there remains a place for leasing as part of an overall plan for financing IT projects ? indeed, our survey shows that it is still being used by 15 per cent of companies when purchasing major infrastructure products and services.
The main benefit of leasing schemes is that the initial outlay is low, so working capital is not tied up in equipment.
Various types of schemes are available, mostly from third-party finance companies, but there is a growing number of manufacturers offering their own leasing schemes. In April, Compaq, Dell and IBM all unveiled in-house financial services for buyers of equipment (see Barometer in the May issue of Business Computer World).
Dell and Compaq are competing head on with their leasing schemes, which are as yet available only in the US, and the two companies? activites in this area reflect their keen interest in the corporate sector.
It is not just PC manufacturers that are attracted to the idea of being able to offer finance with their products. Last year, network manufacturer UB Networks launched the Georental scheme for its range of products, to offer flexibility to both end users and resellers.
However, UB Networks was taken over by Newbridge Networks in January; according to Steve Brigden, formerly of UB Networks and now marketing manager of Newbridge, this has left the fate of the Georental scheme undecided. That said, Brigden stresses there should be no problems for anyone who signed up for the Georental scheme: ?The renting scheme was done via a rental company, so UB Networks was out of the loop as soon as the contract was signed and the equipment delivered,? he explains.
Brigden says the main advantage of the rental scheme is its flexibility ? particularly important in the rapidly-changing world of networking. Unlike some schemes, the UB Networks plan did not tie users in for three years, although there was a minimum hire scheme of 12 months. ?After that, if a customer wanted to swap their Fast Ethernet cards for, say, ATM cards, they could do so without penalty,? he comments.
The differences between leasing, renting and hire purchase relate to the length of the contract and whether, as with hire purchase, the user ends up owning the equipment at the end of the lease, which is not the case with either leasing (except in some specific contracts) or renting.
Barry Watts, European business development manager at Livingston Rentals, says the rental option is becoming increasingly popular. ?There is an increasing requirement for shorter processing, but many large organisations are also watching the development of network computing with interest, because that will reduce the need for hardware and processing,? says Watts.
The result is a rise in the number of large organisations looking to rent PCs in volume ? anything up to 3,000 machines ? for a short period of time, such as two years, while they wait to see if Sun?s Java Station and other network computing initiatives take off.
Similarly, says Watts, the development of new technologies, such as intranets, lend themselves to renting. ?Rental is a way forward because an organisation can put a team together, build an intranet and then deploy it on existing equipment. The development can be done on rented machines. It doesn?t have to be a major investment.?
Watts believes many of the existing PC resellers are, not surprisingly, unlikely to encourage a rise in rentals for their customers at a time when the whole PC cost-of-ownership is under scrutiny.
For most major purchases, such as large network implementations, many organisations will be looking at the possibilities of leasing, rather than renting, equipment.
There are three basic types of lease. A finance lease is the one most like hire purchase, with the customer responsible for maintaining and insuring the equipment, which is shown as an asset or capital item on the balance sheet. Under a finance lease, the leasing company recovers the full cost of the equipment, plus interest, during the course of the contract.
In an operating lease, the leasing company will not recover the full cost of the equipment, but will expect to sell it on at the end of the contract period, so leases tend to be shorter and more common for goods such as cars, where there is a thriving second-hand market.
Finally, there is contract hire, or rental, in which the leasing company maintains the equipment. Leasing is typically used when equipment is required for more than a year; renting tends to be more short term.
In any leasing agreement in which ownership of the equipment remains with the finance company, it is the finance company that claims the capital allowances. If there are any tax benefits from this, the customer gains them only as lower rental charges, but has the advantage of being able to set the full cost of the lease or rental charges against their tax bill as a trading expense.
While leasing has generally been considered more for top-end hardware purchases, today?s more flexible arrangements mean deals can be arranged for software and services as well as cheaper equipment.
The trade-off with any form of deferred purchase or leasing scheme is just the same whatever the size of the deal. It gives more convenience and flexibility and enables a business to schedule regular payments in advance ? but it will cost more than buying equipment outright.
It also means that the equipment is not owned outright ? which is often seen as a positive advantage by many organisations, given the swift rate at which technology becomes obsolete. Any IT manager that has suffered the headache of having to get rid of all those PDP/11s or System 36s, will understand the appeal of being able to ship in the latest PC servers without worrying about where they are going to go once they run out of power in three years? time.
As Newbridge?s Brigden points out, many of the present crop of rental or leasing schemes are simply ways to apply financial options that have long been around, to newer technologies. ?Nobody owns an IBM 3090 or a PBX,? he comments. ?Renting is a cost-effective option for customers that know they will want, for instance, to migrate to a higher speed network in the future, but are unlikely to know the number of ports they will need, or precisely which devices they will want. This gives them flexibility in designing their network.?
Contracts and insurance
Whichever form of finance an organisation opts for, it is vital to check the fine print of any contract. In particular, the details of maintenance and support need careful attention, since responsibility for maintenance varies from contract to contract.
Most leasing and rental deals include maintenance and support. However, as with outright purchase, it is necessary to check the level of support included, particularly over call-out times, whether replacement kit will be included if there is a failure, and whether maintenance will be on-site or not. The overall cost of any leasing contract needs to be weighed up against the cost of, for instance, taking out a bank loan to pay for the equipment outright, although not all banks will lend money for complex systems that include software and services.
Finally, it?s a good idea to check the insurance provision in a contract. While no user has lost out, UB Networks? Georentals scheme should be a reminder that nothing is fullproof. Fortunately, there are few fiascos on the Atlantic level, but it?s as well to check you are covered should the whole scheme come a cropper.
l 68 per cent of companies use a list of approved suppliers to control IT purchases?but only 48 per cent of IT managers adhere rigidly to this list, and two-thirds are allowed to ignore it
l The most popular means of gathering information on suppliers are IT magazines (71 per cent cited them) and workmates (70 per cent)
l More than half of companies set a standard specification for all new PCs purchased
l Only 39 per cent of IT managers insist on service level agreements from suppliers
l Nearly half of IT managers have sourced IT products from 10 or more companies over the last year
l 56 per cent of companies have used an open tendering procedure for large IT purchases in the last year
l 35 per cent of IT managers think their purchasing process could not be improved
l Only 18 per cent of IT managers think user departments could take over IT purchasing
l 77 per cent of IT managers don?t think business units understand the concept of ?total cost of ownership?
l Easily the most popular means of financing all but the most costly IT purchases is still outright purchase
Banner: IT professionals stake their claim
According to the latest annual survey from marketing and communications agency, Banner, there are nearly 1.3m IT decision makers in the UK ? including small and large organisations, lower-grade decision makers (users who nag IT people) and the primary decision makers (PDMs) who have the final say on what to buy.
One of the major findings from the 1997 survey is that the IT department is reasserting control over IT purchasing. The decision-making unit ? the group of people involved in any IT purchase ? is still broad, encompassing different departments and levels of seniority. But the number of PDMs in the IT department has actually increased.
?This reflects the increased complexity of making decisions in the IT world,? says Joanna Bryant, research director at Banner. ?For example, laptops which are being chosen for the sales department will probably have to do much more than run a spreadsheet or presentation package. They must be able to access the corporate network, enterprise applications and log on to the Internet ? put simply, the days of buying a PC because of its colour are over.?
The interesting change, which backs Bryant?s claim, is with PDMs. While in medium and large companies, only 12 per cent of all decision makers are in the IT department, 75 per cent of primary decision makers have IT job titles. And the number of PDMs who are IT professionals has grown over the last year by 16.5 per cent.
A day at the races: the supplier's story
So what ports of call do purchasers and specifiers of IT equipment visit to find out more about a potential supplier? Our survey shows that they go initially to two main sources. First, they turn to magazines such as Business Computer World ? although, according to industry analysts, the importance of the specialist computer press is waning as the industry?s biggest vendors plough large chunks of marketing funds into the national press. Some 71 per cent of respondents said that they turn to magazines when gathering background information on suppliers.
Colleagues appear to be the second most popular port of call, with 70 per cent of respondents claiming they seek the advice of fellow IT professionals. Exhibitions and reference Web sites are also high on the list. Nearly two-thirds said they use exhibitions as a means of drawing up a potential shortlist of suppliers, and nearly half surf online in search of background information.
Interestingly, however, when asked to rank buying influences, the value attached to specialist computer magazines slips right down the list. When decision makers draw up their shortlists, it?s reputation for good service, technological quality, past experience and word of mouth that count the most.
Only 1.2 per cent of IT decision makers claimed that vendor freebies have any bearing on their purchasing behaviour. But, as the Labour Party discovered to its cost in the 1992 election, what people say they are going to do and what they actually do, often differs. If wining and dining doesn?t work, then why do potential suppliers spend so much time and money ingratiating themselves with customers at topnotch venues?
When it comes to combining pleasure with business, Hewlett Packard must be fairly high up the starting grid. Since becoming sponsors of the Jordan Formula One team in December 1995, the US computing giant has managed to persuade the Northampton-based company to open its factory site up as a reference site to showcase HP technology in action. With Silverstone race track just a few minutes down the road, HP whisks IT managers round the Jordan factory in the morning and then treats them to a spot of high-octane Formula One corporate hospitality in the afternoon.
On a practical level, it?s easy to see why HP is using the factory as part of its sales pitch. The company has increased its CAD seats from nine to 32, installed #1m-worth of kit, contributed 60 days of consultancy, and has permanently transferred one of its own IT managers to oversee the process. HP?s sponsorship manager, Geoff Banks, claims the factory is ideal for demonstrating the benefits of choosing Hewlett Packard as a supplier. ?We can tweak it to the needs of the customer,? he says. ?If they?re interested in networking they get the NT tour. If it?s design, they see the CAD setup.?
Banks also sees the reference site as an obvious opportunity to flaunt his company?s cutting-edge gadgetry. ?It?s a platform for showing the latest technology,? he says. While the other teams sleep, Jordan uses HP technology to replicate virtual laps from 120 strategically-placed points on the car, calculating what might happen if the downforce were tweaked by 3.002 iotas.
Banks feels that all IT managers, whether they need a system to seek out appropriate recipients of P45s or the latest in hi-tech CAD applications, can make some connection with Jordan?s Northampton factory. ?It?s all about taking what is an essentially unsexy subject and putting it in a sexy context,? he explains. ?For Jordan, as with most businesses, time is of the essence and downtime simply isn?t an option.?
In the past year, 400 customers and potential punters have enjoyed HP?s hospitality box at Silverstone. But, as the saying goes, there?s no such thing as a free lunch. Typically, the relevant HP salesman stalks the IT manager throughout the day in an attempt to bond with his prey. ?We tap into the relaxed environment that you don?t get in a formal sales situation,? says Banks. ?That one extra per cent of knowledge that the salesman gets is extremely valuable.? And, after a day at the races, the client is extensively monitored through questionnaires, which are then fed back to the salesman.
Banks is adamant that the Silverstone tour turns out hard-core leads. ?We?ve had everything from cabling orders, all the way up to increased support levels,? he says. Having signed on the dotted line, further hospitality days become available to the IT manager. ?It?s just as much about cementing relationships as it is about finding new ones,? explains Banks. Indeed the more established customers experience the international race scene, coupled with liberal doses of HP Unix-based CAD stations.
For Bull Information Systems, by way of contrast, it is the cucumber sandwich that rules. According to Bull marketing manager, Eric Hall, by the time a potential IT purchaser is invited to a reference site a deal is usually imminent. A shortlist that may have originally numbered as many as 10 suppliers will have been whittled down to just two. ?We would expect to be in a head to head situation when we invite customers to a reference site,? he explains. ?Good reference sites are a scarce commodity. We must be convinced that the customer is interested.?
So, before inviting IT purchasers for a day out, Bull will have generated firm leads by placing success stories in the press. The company?s recent successful implementation of SAP at Welsh Water, for example, could be sold as an advertorial feature to Water Week. ?You?d be surprised how many calls we get from these kinds of features,? says Hall.
In contrast to the glitz of Silverstone and the heady smell of burning latex, Bull prefers the straight approach ? a darkened seminar room with a presentation from Bull, followed by a presentation from the company that has consented to act as a reference site. A modest buffet lunch then ensues, after which Bull reps depart, leaving users and punters to chew the fat, with the option of re-uniting later in the day. ?The days of freebies are gone. And quite rightly so,? says straight-talking Hall.
Steve Brigden at Newbridge: 01628 828300
Barry Watts at Livingston Rental: 0181 943 5151
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