by August 1, 2009 0 comments

If your organization is worried about retaining key customers, then so are
your service providers. So, if your customers are demanding more from you at
lesser costs, then why shouldn’t you? So, when it comes to IT, CIOs can reduce
costs by re-negotiating all existing contracts. Ask for a reduction and more
value for what you’re paying your service provider; chances are that you would
get a mix of price reduction as well as value-adds.

According to our managed IT services survey, more than 50% of the CIOs did
some level of re-negotiation with their managed IT service providers to bring
down their costs. Out of this, nearly 16% managed to bring it down by 20%, while
others brought it down by different amounts. Some even managed to cut down their
costs by as much as 35-40%.

So, re-negotiation should be the first option to explore for reducing costs,
before considering to reduce team size, lower purchase, etc. Chances are that
though you may not get a significant reduction, but will certainly get a better
bargain in terms of more services and value-adds. For instance, maybe you’ll get
higher Internet bandwidth for the same price, or longer support hours.

Be clear about what is expected from the same. Let it get
documented, debated, and discussed so that when it finally gets executed,
the results are as per expectations. Otherwise, it will only return
statements and not values.

Suresh A Shanmugam,
Head — Business, IT Solutions, MMFSL

Don’t make your (skill set) team sit idle while outsourcing
that particular skill set. It’s better to move them to another skill set as
a value addition. Even the team would gleefully accept the offer, support
the outsourcing deal, and even help you see it through.

J Ramesh
, CIO, Mirc Electronics

Here are a few things to do before re-negotiating:
Re-visit SLAs: If you haven’t gone through your SLAs recently, then this is
the right time to do so. Look at the gaps in the service delivery that require
improvements, re-visit the penalty clauses to see if they need revision, etc.
Don’t just look at penalty clauses as a way to pin down the MSP. Do also look at
a reward system if the MSP does better than expected or over-delivers. After
all, you want this to be a win-win partnership.

Think long-term: While it’s important to address cost issues, it’s not the
most important thing when re-negotiating a deal. Ultimately, you want to achieve
the true value potential of your IT infrastructure, and the MSP wants to earn
some profits. So you have to make sure that both sides benefit from the deal.
Otherwise, if you squeeze out too much of the cost, then the MSP would also
start cutting corners, which won’t be good for your IT infrastructure. Instead,
try and strike a balance between the right cost, and the right set of

Accepting an SLA without any adaptation to your requirement
is the most significant mistake to avoid while moving to managed IT

Atul Kumar,
President – Enabling Technology and Automation, Ispat Industries

Don’t allow loose SLAs. Pin down the accountability and
attach rewards/penalties to the performance. Implement them strictly to get
the best out of your vendors/service providers.


Vice President & CIO, Bajaj Electricals

Re-visit your payment terms: If you’ve been having issues in service
delivery, then make the payment terms more stringent. Pay only when specific
tasks have been achieved. At the same time, you shouldn’t become so stringent
about payments that the MSP starts cutting corners. One possibility is to
negotiate the price for a whole year, and revisit the same only after the
contract period is over, or if there’s a drastic violation of the SLA.

Compare against other customers: You’re not the only customer that your MSP
is dealing with. During tough times like these, it’s better to speak to as many
people as possible to understand how they’re saving costs. So talk to other
customers of the MSP and try to understand how much are they paying. Knowing
this information would make your position stronger while negotiating with your


More productivity from existing manpower: The MSP would depute some manpower
for the services being offered. These could be for 24×7 support, resident
engineers, etc. Revisit these deployments to see if you can do with lesser
manpower in any place. For instance, perhaps you can do with fewer people for a
particular project as compared to the existing number. Maybe certain
applications don’t require 24×7 support, or others could do with remote support.
The other possibility is to get more out of existing manpower provided by your
MSP, instead of increasing it. Of course, if the MSP increases the manpower
without any financial impact on you, then it’s a different thing altogether!

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