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A CIO fights to keep his tech options open

Patrick Thibodeau | Nov. 4, 2014
Consolidation among tech vendors leaves users with fewer choices and less leverage at the negotiating table.

NCCI also took a new approach to disaster recovery. Under its DR agreement with IBM, the vendor owned the backup equipment. Spears wanted NCCI to own the equipment so it would be able to more easily switch vendors. He sought new bids for disaster recovery services, and IBM won with a proposal that allowed NCCI to host and offered expanded service options.

That new contract is also saving around $4 million over five years. Disaster recovery "was a commodity that we needed the best price on, and [IBM] heard us," he said.

Spears estimates that the mainframe migration, plus the changes in storage, disaster recovery, maintenance and staffing, will save NCCI a total of about $18 million over five years.

Choices dwindle
But the trend toward vendor consolidation is generally putting users in a tougher spot at the negotiating table.

"This move to integrated systems is taking a lot of choice out of the market," said Charles King, an analyst at Pund-IT. Once a user decides to move to an integrated system, "you are locked into dealing with a vendor on the product," he said.

"The impact on customer choice and negotiating positions" is very strong, he added.

The concern about a narrowing of choices isn't limited to platforms. The industry consolidations resulting from mergers and acquisitions could lead to the discontinuation of development work on certain systems.

"That may force us to switch tools and vendors," Spears said.

The impact of consolidation can be particularly acute in certain markets. The banking sector, in particular, may be the canary in the coal mine that offers an early sign of the risks of IT consolidation.

A study of community banks and credit unions by the Business Performance Innovation Network, a San Jose-based research group, found that those institutions are overpaying for banking IT services. That's because three vendors now control 85% of the market; 20 years ago there were dozens of viable competitors.

"The fact that there are so few vendors means that vendors have the upper hand in negotiations," said Dave Murray, the author of the BPI Network report.

BPI Network says users can improve their negotiating positions by initiating talks early -- at least 18 to 24 months before a contract is set to expire. According to the study, companies that wait longer "tend to reap lesser returns."

 

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