As IT's role in retail innovation grows, so does spending and so does executive interest in the way IT costs are being managed. It wasn't very long ago that CFOs had little knowledge about IT investments beyond line item descriptions. Today, they are expected to play an active role in IT spend management. As such, CIOs must be prepared to draw back the veil for CFOs and share how, why and where spending is happening.
Below are six questions every CFO and CIO should discuss if they want to prevent overspending and make their IT budgets go further:
Are we benchmarking our IT spending? "Trust, but verify" was Reagan's approach during the Cold War, and it's equally appropriate for IT purchasing. There isn't a public list price available for most IT products and services. Furthermore, technology is evolving so quickly that pricing and terms for the same product can change drastically every year or two. Retailers should be sure that vendor pricing and discounting is at fair market value, and that terms are transparent.
How locked-in are we with our vendors? There are advantages to working with the same vendor over time, but too often IT fails to invite other vendors to the table to keep pricing, terms and performance competitive. Keeping pressure on the incumbent is critical to maintaining an optimized vendor relationship.
Are we choosing the smartest support option? Companies routinely overpay for support – not just because support costs can often be above fair market value, but because they simply choose a higher level of support than they actually need. If you're paying for a premium support package, consider downgrading or outsourcing to a third-party support provider. It's an easy way to cut support costs by 50% or more.
Why are we paying for fixed-fee engagements? Fixed-fee engagements are rarely fixed, especially with the learning curve associated with many new IT advancements in POS and mobile payments. In reality, overages are common and contracts are fraught with loopholes that allow for additional costs. Retailers should bid their professional services engagements on a time and materials basis. You can always ask for a "not to exceed," and the insight you glean from how the vendor is scoping your project is invaluable.
Do we need a Vendor Management Office or IT Controller? IT purchasing has become increasingly complex, especially in retail. For many retailers, it's too complicated to be lumped in with other categories of sourcing – but, it also requires sourcing best practice knowledge that the average IT manager doesn't have. The solution? Many best-in-class companies across all industries are creating Vendor Management Offices (VMOs) and IT Controller roles that are specifically designed to optimize IT purchasing.
Are we internally aligned before we buy? Retail CFOs should be sure their IT organizations have internal alignment before they sign off on any major purchase. This requires having visibility into departmental needs to better predict costs and make sure the investment at hand is the best choice. Failing to maintain internal alignment opens the doors for vendors to approach specific departments and gain leverage in the negotiation process that puts your organization at a disadvantage.
The communication between CFO and CIO is more important than ever before. The business of retail is being transformed by new innovations in IT and retailers those that keep the lines of communication open, purchase wisely and avoid overspending can make strides in every aspect of retail performance.
Jeff Muscarella is executive vice president of IT for NPI, an enterprise spend management consulting firm that achieves significant cost reduction in technology, transportation, telecommunications and more.