Insights into strategic vendor consolidation, part 1: Key drivers and benefits

As we work with organizations across industries and around the world, we’ve observed a growing tension between innovation and efficiency. Organizations want to drive more innovation and growth, but, at the same time, they need to improve efficiency and cost control.

The importance of balancing these competing priorities is confirmed by our latest CGI Voice of Our Clients (VOC) research. In our strategic conversations with 1,800+ executives, they expressed a renewed focus on revenue growth and the corresponding need to innovate. At the same time, they cited the pressure to improve efficiency and cost control through modernization, optimization, and other cost-oriented priorities.

How can organizations best achieve this “dual agenda” of innovation and efficiency to achieve their desired business outcomes? Engaging a managed services partner is a key enabler, with organizations increasingly leveraging managed services to streamline operations and drive value. However, many organizations operate within a multi-vendor delivery model, which can introduce complexities and inefficiencies that hinder their managed services objectives. 

Strategic vendor consolidation plays a complementary role within managed services, helping organizations optimize their vendor landscape to enhance the effectiveness of their managed services strategy. By evaluating their existing vendor base and selectively narrowing it down to a few strategic partners, organizations can achieve greater alignment, improve operational efficiencies, and drive cost-effectiveness—ultimately maximizing the value of their managed services engagements. 

In this three-part blog series, my colleagues and I will share insights into strategic vendor consolidation, including key drivers and benefits (part 1), strategy considerations (part 2), and a recommended approach (part 3).

Three drivers for vendor consolidation: efficiency, governance, and cost

Efficiency: With a large vendor pool, managing contracts and relationships efficiently is challenging. Significant effort is required in selecting vendors and negotiating contracts. Further, each vendor has its own processes, standards, technology, and services, resulting in operational and delivery complexity.

Through a smaller, more controlled group of suppliers, organizations can simplify engagement models, contracting, and pricing, resulting in more effective negotiations and resource allocation. They also can streamline their operations—from procurement to maintenance—by eliminating silos and advancing a more unified approach to their myriad technological strategies and initiatives. Further, ideas, best practices, tools and metrics can be more easily shared, enhancing collaboration and innovation, which, in turn, leads to improved quality and performance.

Governance: Tech sprawl is a growing concern for CIOs because it leads to unsustainable cost structures, slower delivery of new IT capabilities, decreased operational resilience, and increased security risks. Enterprises with inadequate IT governance are challenged with oversized IT vendor portfolios and redundant solutions that negatively impact cost, performance, and risk mitigation.

With a smaller pool of vendors, organizations can reduce sprawl, simplify governance, and enhance security. Vendor consolidation makes it easier to align vendors with the organization’s strategic goals and ensure their activities advance those goals. Further, it drives a higher level of partnership, fostering a culture of co-responsibility and transparency, as well as closer collaboration among all stakeholders. In addition, through process standardization, misalignments and errors are reduced, enhancing security and compliance.

Cost: Another driver behind vendor consolidation is cost reduction. The cost of negotiating and managing multiple vendor contracts is high. There also are significant indirect costs, including costs related to tech sprawl, decreased efficiency, and increased risk.

Vendor consolidation can help reduce these costs through more favorable rate negotiation and volume rebates, as well as improved operational efficiency and security. Further, the higher level of partnership made possible by vendor consolidation positively impacts the bottom line. Having fewer vendors drives added business value through greater collaboration, joint innovation, strong accountability, and more.

Key outcomes resulting from vendor consolidation

A streamlined vendor approach can be dynamically adjusted to meet organizational needs without the complications of managing numerous suppliers. Taking this approach can yield significant benefits, including the following:

• Streamlined management through simplified relationships, greater transparency, and improved communication
• Unified workflows through process standardization across all delivery stages
• Improved quality through the consistent maintenance and application of quality standards
• Improved delivery through lean operations and agile methodologies
• Reduced risk through process standardization, close alignment to organizational objectives, and a stronger client commitment
• Strategic growth through increased focus on short- and long-term strategic goals and the development of deep strategic vendor partnerships that go beyond transactional interactions

These are just a few of the many strategic benefits vendor consolidation can deliver; there are many more. Efficiency, governance, and cost are driving organizations to pursue vendor consolidation, and these business outcomes are validating their business case and investment. However, vendor consolidation is not a one-size-fits-all approach, and it’s imperative to have a strong rationale for it beyond cost-cutting. My colleague, Amar Aswatha, will address key strategic considerations for pursuing vendor consolidation in part 2 of this blog series.

As one of the world’s leading managed services partners, CGI is working with clients to explore and implement vendor consolidation strategies and approaches. If you’d like to learn more about our work and the outcomes that we’re helping clients to achieve, feel free to contact me.