Balancing efficiency with control in the next wave of IT sourcing transformation

By Daniel Rohrhirsch, Peter Wienand, Patrick Ruthardt and Christian Wehrberger

Most large enterprises eventually face the same dilemma: Their IT vendor landscape becomes sprawling, complex, and costly. Different business units have signed their own contracts, legacy providers remain entrenched, and dozens (sometimes hundreds) of vendors need to be managed across service towers, applications, and geographies. At some point, the organization asks the obvious question: Can we consolidate vendors to reduce costs and simplify governance?

The answer is almost always yes – but with a caveat. Vendor consolidation, if done poorly, can reduce competitive tension, limit access to innovation, and lock an organization into a handful of large providers. The challenge is to capture the benefits of consolidation without giving away leverage. This article explores how to approach consolidation strategically, the levers available to sourcing leaders, and the internal capabilities required to make it work.

The paradox of consolidation

On the surface, consolidation looks straightforward. Fewer vendors means:

• Lower procurement overhead (fewer RFPs, fewer contracts to negotiate)
• Economies of scale (better rates for higher volumes)
• Simplified governance and compliance (fewer points of failure, clearer accountability).

But there is a flip side. A small vendor base can:

• Reduce competition, weakening your negotiating position
• Make you overly dependent on a few large providers
• Limit access to niche expertise and innovation.

This is the paradox of consolidation. The very act of simplifying your landscape can undermine the competitive pressure that keeps vendors sharp. The solution is not to avoid consolidation but to approach it strategically, balancing efficiency with leverage.

Strategic levers for consolidation

There are several practical levers that organizations can use to consolidate their vendor base while still maintaining control and competition.

1. Segmentation of the vendor landscape

Not all vendors serve the same purpose. Begin by segmenting them by service category:

• Infrastructure services: These include data center and cloud, workplace, and network services.
• Application services: These include different subcategories such as strategic and information management, supply chain management , project management, etc.
• Portfolio & application lifecycle management services: These include services such as IT project portfolio management , security, and compliance.
• Support services: These include services such as service desk and onsite support.

At Roland Berger, we use our proven IT service Design Blueprint to categorize services and bundle the right services to capture synergies. This segmentation ensures that services with dependencies are bundled together to avoid unnecessary overhead and management efforts between vendors.

2. Bundled sourcing

Rather than issuing numerous small RFPs, organizations should group related services into larger sourcing initiatives. For instance, instead of contracting application maintenance separately for each country, consider consolidating the scope into a regional or even global agreement. Services should always be bundled by category to reduce dependencies between providers and ensure smoother delivery. Thoughtful service bundling can unlock significant synergies: Combining services with strong interdependencies reduces the need for coordination and minimizes management overhead across vendors. Bundling increases deal size, which attracts top-tier vendors, but it also requires careful design to avoid "all-or-nothing" contracts that lock you in.

It is best practice to structure bundles with optional components, so vendors compete on both the core service and selected add-ons.

3. Framework agreements

Framework agreements allow an organization to consolidate contracts while keeping multiple suppliers eligible. For example, a framework with three pre-qualified application vendors means that business units can source under the umbrella agreement but competition is preserved at the transaction level. This is particularly effective in consulting, system integration, and temporary staffing categories.

4. Competitive tension among tier-1 vendors

In consolidated landscapes, you rarely want a single provider per tower. Maintaining at least two tier-1 vendors across major categories is a proven way to keep them in check. For instance, one vendor might own 70% of the infrastructure business while another holds 30%. The one with the smaller share will remain motivated, and the larger provider knows they can lose ground if they underperform.

Benefits beyond cost

Cost savings are often the trigger for consolidation, but they shouldn't be the only story. Done well, consolidation delivers advantages that go beyond financial benefits:

• Improved governance: Fewer vendors mean fewer governance forums and clearer escalation paths
• Standardization: Vendors can align on common processes, tools, and SLAs, reducing complexity for business users.
• Accountability: With fewer providers, finger-pointing decreases and it becomes easier to assign responsibility for outcomes.
• Stronger partnerships: Larger, consolidated contracts create the scale for vendors to invest in the relationship, assign senior resources, and bring innovation.

These benefits can outweigh the pure cost savings and should be part of the narrative when presenting consolidation strategies to stakeholders.

Practical lessons and pitfalls

From project experience of multiple vendor consolidation projects in various industries, several lessons emerge about what to do – and what to avoid – when consolidating vendors.

1. Don't underestimate stakeholder resistance - Business units often have "favorite vendors" they trust, even if contracts are small or expensive. Removing those vendors can generate pushback. Strong change management and clear communication of benefits are essential.

2. Avoid vendor lock-in - Large integrators will push for sole-supplier arrangements. Resist the temptation to consolidate to one vendor per tower. Always keep at least two capable players in your ecosystem.

3. Look at total cost of ownership - The cheapest vendor isn't always the best choice. Evaluate costs holistically, including transition, governance, risk, costs for potential change requests, and potential innovation benefits.

4. Establish clear exit ramps - Contracts should include exit clauses, benchmarking, and mechanisms to rebalance scope if performance falters.

5. Balance global efficiency with local needs - Consolidation often pushes toward global contracts, but local regulatory or cultural requirements may still require flexibility. A "glocal" design – global frameworks with local adaptation – works best.

Capabilities needed internally

Vendor consolidation is not just about changing contracts. It requires strengthening internal capabilities. A strong, centralized vendor management office (VMO) is crucial, as this team tracks performance, manages governance, enforces standards, and maintains competitive tension. Procurement teams must also have the strategic sourcing skills to run large, complex sourcing events and structure contracts that balance consolidation with competition.

In addition, clear escalation paths, joint steering committees, and performance dashboards are necessary to manage fewer but larger vendors, forming the foundation of strong governance structures. Finally, sourcing leaders need the soft skills to manage internal politics, address fears, and align business units behind the consolidation strategy.

Without these capabilities, consolidation may save costs in the short term but create risks in the long term.

Undoubtedly, vendor consolidation is not a one-off cost-cutting exercise. It is a strategic move that reshapes the organization's sourcing model. The paradox is real: Fewer vendors bring efficiency but risk reducing leverage. The solution lies in thoughtful segmentation, smart contract design, and maintaining competitive tension even in a consolidated landscape.

Organizations that succeed are those that go beyond cost savings and focus on broader benefits: Governance, standardization, accountability, and innovation. They also invest internally, building vendor management functions and governance structures that keep the landscape healthy over time.

In the end, consolidation should be seen less as a procurement tactic and more as a transformation of how the enterprise engages with its IT ecosystem. When done strategically, it not only simplifies the vendor landscape but also strengthens the organization's ability to innovate and deliver value.

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