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Leveraging IT Procurement Best Practices
By Ames Flynn, SVP & CIO, Extended Stay America
Currently, I have the unique advantage of leading both the IT and Procurement organizations for Extended Stay America hotels, one of the largest owner-operated hotels in the U.S. Previously, I led a very large indirect procurement organization for Lowe’s Home Improvements that included sourcing specialists for Marketing, Facilities/Construction, IT, Store Operations and Corporate Services. Of all the disciplines that I have had the opportunity to touch IT Procurement, in particular presents unique challenges, as there are typically many options for selecting technologies to develop a solution.
Success is in the Process
The real secret to success is planning ahead and taking enough time to follow a proven procurement process. Such processes include appropriately defining business requirements and scope as well as designing a solution with the least amount of customization and specialization so that more vendors can participate in a formal request for proposal (RFP) process. Utilizing skilled IT Procurement Professionals that understand how to effectively run an RFP is equally important. Essential competencies of a skilled IT Procurement Professionals should include the ability to formally document all RFP requirements, identify the right universe of RFP participants, allow time for quality responses, produce key contractual templates and legal terms in a timely manner. The professional should demonstrate the know-how to document and score responses, run proofs of concepts and potential pilots, check references and most importantly, demonstrate strong negotiations. An exceptional CIO also knows how to appropriately allow for the input of internal business partners during the RFP process, without the influence of bias, personal relationships or something read in an in-flight magazine!
Knowledge is Power
A proactive and strategic CIO is always reading, networking and attending conferences and events where they can strategically gather information and vendor/consultant contacts for future procurement needs. This work can contribute pre and post RFP process in order to gather intelligence and lessons learned from other successful or not so successful IT procurement events. A CIO should never be afraid to engage a specialized IT procurement consulting firm, as well as industry analyst insights such as from Gartner or Forrester. There are many specialists today in the areas of negotiating telecom, Microsoft and Oracle licensing, as well as enterprise resource planning software – all with much knowledge to glean from.
The real secret to success is planning ahead and taking enough time to follow a proven procurement process
There are hourly, fixed fee and savings/gain share payment options with IT procurement consultants. Personally, I tend to favor fixed fee savings consulting, but some portion tied to validating and realizing savings. I prefer this arrangement because a consultant doesn’t take a disproportionate amount of savings as their fee, but the fee is earned on real realized savings and incentivizes the consultant to assist with collecting on these savings.
The Contracting Stage: Picking the Right Partner
While I am a firm believer that you should never select a vendor where you would have to refer to contract to get them to perform, the contracting stage of procurement is vital. It will quickly tell you how confident the vendor is in their respective product and/or service. For example, will vendor let you cancel the contract if not satisfied and provide refund terms; will they agree to demanding, but fair service level agreements and/or commit to firm project timelines with financial penalties? How much does the vendor want to charge in the out years for maintenance and support? One of the easy mistakes that can be made by any IT leadership team is focusing on the initial cost of something vs. The Total Cost of Ownership. The contract is a good place to ensure the TCO is fully defined. Proactively give them your contract template vs. accept and react to theirs.
Putting into Practice
Good IT procurement doesn’t stop at the RFP and buying stage. At Extended Stay America, we have implemented several different ways to ensure that vendor partner continues to deliver value after the initial sale, as well as is a true partner in proactively bringing forward new ideas and mutual business opportunities.
At Extended Stay America, we always put a new purchase project into our Project Management Office (PMO). Plans and milestones are tracked and managed. As part of our IT Monthly Key Performance Indicators, we pick key metrics for our larger vendors. These metrics can include the contractual Service-Legal Agreements, number of service tickets/defects, percent up-time and measuring whether the financial results are actually being realized. Additionally, we schedule our top 12-15 vendors for a Twice Annual Business Review (TABR)–more or less a status check on the relationship and performance. These meetings are typically 2-4 hours long, depending on the size of a vendor, and rotation in location – one meeting hosted at our office and the other at the vendor’s office. Meeting attendees include senior leaders from both parties. The agenda includes topics such as general developments in the business, including strategy roadmap, new opportunities, and organization changes. We also review KPI performance, change management, key issues to be addressed and recognition for a job well done.
A Day in the Life
Related to IT Procurement, is the question of how should a CIO be allocating their time? I would say procurement fits in as follows. I try to spend 40 percent of my time outside of the walls of the IT Department, either with internal and external business partners, competing, networking, etc. About 25 percent of my time is spent with people (teammates) focused on recruiting, development and coaching. Strategy, planning, process and our PMO is how 25 percent of my time is spent. Finally, approximately 5-10 percent of my time is dedicated to the financial and procurement matters of IT. Of course, procurement seems to bleed into all of these areas.
In closing, I think it is good to have and develop specific IT procurement resources internally that can focus on this very important discipline. Last year alone, Extended Stay America specifically saved more than $1.5 million to the bottom line just on telecom sourcing alone. We also lowered our cost of software maintenance by moving certain outdated systems to the cloud or in one case bringing a key application in-house. It all depends on the Total Cost of Ownership and always working your process while looking for the next opportunity! It is important to note, IT Procurement isn’t always about cutting costs. There are many ways to drive value with improved availability, reliability, and functionality; business intelligence that produces revenue-generating insights, as well as investing prudently in those technologies that our guests will pay a little more to use such as Wi-Fi Internet access.