Working IT

Have you been putting off tech spending? Now's the time to get high-tech equipment at low prices.
Magazine Contributor
3 min read

This story appears in the October 2004 issue of Entrepreneur. Subscribe »

Business spending on new technology is rebounding, which is good news for vendors-and entrepreneurs who move quickly to take advantage of prices for PCs and other goods. A recent study of IT purchasing by New York City consulting firm McKinsey & Co. says timely purchases, clever negotiation and internal controls can help businesses save megabucks. The catch: You have to do it soon, and you have to do it right.

There's no doubt that vendors have slashed prices for computers and other technology. "What you used to spend $2,000 for, you can get for $950 to $1,200," says Alan Pearlman, a Northbrook, Illinois, attorney and computer consultant. "I don't think there's a better time to buy than right now."

Prices are probably going up. After PC sales to U.S. businesses were down in 2002, and up just 9.1 percent last year, shipments to businesses are growing 14.8 percent in 2004, according to market research firm IDC. Worldwide, the value of PCs shipped this year to businesses will grow 6.5 percent, IDC says-money that will come from buyers' pockets.

Or not. The McKinsey team estimated that savings of 10 to 20 percent on IT outlays were possible using its recipe. That means you could be paying less while everybody else pays more. Here's how:

1. Renegotiate existing contracts for services such as network support and consulting. Telecom is especially ripe for bargains. Start by setting bench marks for rates and auditing bills to ensure you're not overpaying. And instead of buying all long-distance, local phone and other telecom services from one vendor, dual-source it. Vendors will treat you better and charge you less. McKinsey says one firm saved 28 percent on telecom with these and other tricks.

2. Make sure you need whatever new technology you do buy. Inventory all PCs, printers and software. Look for opportunities to consolidate purchases, standardize configurations and root out duplication. McKinsey's example company had 30 percent more printers than it needed. It also reduced PC configurations from 10 to three.

3. Set up a system to keep doing it. Pick a team of people from IT and other departments, and meet with them regularly to discuss what they need and how to save on it. That can save 3 to 7 percent on IT outlays. In the last year, Chicago attorney and entrepreneur Joe Messer, 42, has made major tech purchases for legal, manufacturing and real estate ventures that together employ 26 people. A VoIP telephone system costs $30,000 but allows no-cost communications among offices across Chicago. "And we bought a Dell server for $8,000," he adds. "We were impressed with the price on that."

But consider the caveats. Messer's VoIP system requires regular telephone service as a backup, since VoIP won't work if the power goes out. And the new server was necessary because the company was standardizing on a new $20,000 accounting software package that wouldn't run on the old server. Remember, too, that newer technology isn't always better. Messer eyeballed VoIP systems for a long time before writing a check. "We waited for stabilization because we'd heard there were some problems with the earlier version," he says.

So assuming the technology you see is the technology you need, waiting may not be the best strategy for the moment. Also, if the McKinsey report is right, changing the way you buy IT may more than make up for any savings realized by not buying any at all. Most important, it's almost certain that prices have slowed or stopped their years-long slide. As Pearlman says, "Get your technology now, before these prices start going up."

Mark Henricks writes on business and technology for leading publications and is author of Not Just a Living.


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