Special Report: Putting The Squeeze On IT Vendors

The systems administrator at an Arkansas-based printing company just took advantage of the slump in the high-tech market to negotiate a 10% to 15% savings on new hardware and the service contract that came with it.

Industry analysts and corporate users say Brent Masters of Ink Enterprises Inc. is doing exactly what savvy IT executives should be doing right now — making the economic downturn work for him.

“I don’t think I could have gotten those deals before 2001. It sure didn’t seem like I could,” says Masters, who adds that the cost savings definitely shed some positive light on him at work. “I needed a new server and workstations. I found a local company that wanted our business…but I had a better price from an online vendor. I kept going back to the local company with that and it worked for us. I saved 10% on the hardware costs, easily, and the service contract was 15% off the normal hourly rate.”

Stumbling Giants

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Read these two Special Report sidebars:

10 Tips For Negotiating with Vendors in a Down Economy
Don’t Overlook Used Equipment Market.

There’s been an obvious turn in the industry over the past year. Headlines scream of dot-com demises instead of IPO takeoffs, and technology giants are reporting revenue shortfalls instead of stock splits. In April alone, Microsoft Corp.’s earnings came in below Wall Street estimates, Gateway reported a first-quarter loss, and Compaq Computer saw its revenue continue to fall.

In the IT sector, it’s no longer all about how to keep your IT staff, but how to get an IT job. More than 200,000 of the country’s 10.4 million IT workers are out of work right now, according to a report from the Information Technology Association of America (ITAA).

But there is an upside to all of this.

Analysts say now is the time to stop hand-wringing over stock losses and turn your sights on your vendors. The economic slide means vendors need their corporate customers more than ever. And it also means they’ll be more willing than ever to go that extra mile to gain a customer or to keep an old customer happy.

“People are looking at the landscaping and realizing that things aren’t so hot in vendor land,” says Judith Hurwitz, principal of CycleBridge Technologies, LLC, a strategy consulting firm based in Newton, Mass. “A lot of vendors had been setting prices too high, way too high, because that’s what the market would bear at the time. As the market has come down, they’ve had to reassess whether to close up business or give huge discounts.”

More For Your Money

Paul Belsky, director of Enterprise Information Technology at RR Donnelley & Sons Co., a Chicago-based global information services management company, says he has been using this time to renegotiate vendor agreements, getting more for his company’s money.

“My sense is that vendors are very willing to work with you,” says Belsky. “Look at the total relationship (with the vendor). Price is important, but it’s not the only thing.”

Belsky says that means he’s been negotiating and renegotiating with his vendors to get more meat added to their contract for the same amount of money. For instance, he says he now has vendors that give him monthly reports — how many products bought, total spent, what products went to which offices — and that saves RR Donnelley from doing that administrative work themselves.

“It helps tremendously when you get to that level of detail and you can get the big picture of what’s going on,” says Belsky. “Oh, yeah. I can get that deal much easier now than I could a year or two ago.”

Andy Palmer, CIO of Infinity Pharmaceuticals Inc., a Boston-based drug discovery company, says he too has been renegotiating his vendor deals. Actually, he has gone through every one of his vendor contracts and set up short-term and long-term goals for them to work on.

“We’re finding that we’ve been able to achieve dramatic efficiencies,” says Palmer, who adds that the technology industry slowdown and the renegotiated deals are simply signs of the market straightening itself out and coming off an over-inflated high. “With the Internet boom, technology became an end in and of itself. It’s really not. It’s about helping us improve our productivity.”

Palmer, for instance, says he pushes his software vendors to make their products compatible with newer technology, such as Windows 2000 server and Windows Explorer 6.0. And for the long-term, he negotiates with them to move to a Web services-based architecture and to deliver applications that can run on a distributed system.

“It’s not just about renegotiating a better financial deal,” says Palmer. “If I end up paying the vendor the same amount, but I get more of what I want out of them, then I’m happier than if I had saved a buck.”