RTC or others set up a GPO for tech purchases, that becomes a new link in the chain (vendors -> GPO -> members). Downstream (Clients and End Users): - Client Organizations (Buyers): These are CIOs, CFOs, procurement heads in companies who engage cost optimization services to reduce what they pay upstream vendors. They ultimately approve changes like switching vendors, rightsizing usage, or signing new contracts that result from the optimization effort. - End Users within Client: e.g. the employees or departments using software and services. Their usage behavior often needs to be adjusted (through governance or policy) to sustain cost optimization (like reminding employees to shut down unused cloud instances or re-harvest software licenses when someone leaves). Part of value delivery involves educating these end users or implementing processes affecting them (though often indirectly via IT policies). - Financial Stakeholders: The clients finance team or even shareholders, who benefit from cost savings. A successful cost optimization can free budget for other strategic initiatives or improve margins, which ultimately benefits owners/investors. Integration and Margins along the Chain: - Typically, upstream vendors have high margins on their products (software margin can be 90%, cloud maybe ~30-50%). They price in a way to capture maximum willingness to pay. Cost optimization essentially tries to recapture some of that margin in favor of the client. - Intermediaries (consultants) usually charge much smaller fees compared to the spend amount e.g. a 2% fee on a large contract for helping reduce 20% of its cost. Their margins can be good (consulting margins often 30-50%) but they only capture a tiny slice of the overall value chain spend. - Dependencies: The cost optimizer depends on data from the client and sometimes cooperation (or at least information) from vendors. E.g., to negotiate effectively, you depend on getting quotes from multiple suppliers or playing them against each other. Technological dependency: Many optimizations depend on technology enablement e.g. for cloud, you need the clients DevOps to implement recommendations like auto-scaling or shutting dev environments at night. If the client lacks capability to execute the suggestions, savings may not be realized. - Potential for Disintermediation: Could a client do directly what the consultant does? Possibly, if they hire experienced negotiators, but often they dont have the volume of data (the consultant sees many deals across companies). Could a vendor cut out the need by offering consistently fair pricing? In theory if vendors all offered fully optimized, usage-based pricing, need for negotiation diminishes. However, in reality vendors will always push for profit, so an information asymmetry exists that consultants fill. Theres a structural tension: consultants and clients are aligned to reduce cost, while vendors aim to maximize revenue. Consultants effectively sit between clients and vendors as advocates for the client , rebalancing power with knowledge. Value Addition: Each part of the chain adds value in some way: - Vendors provide the actual tech capabilities (but also add complexity/cost). - Consultants add value by providing market transparency, cost analysis, negotiation skill, and execution support . - The clients internal teams add value by implementing the changes and maintaining operations without overspending. Integration Opportunities: - Some cost optimization firms vertically integrate by developing their own tools (instead of relying on third-party software) this can increase efficiency and become a USP. For example, a firm might develop a proprietary dashboard for continuous monitoring of SaaS usage. - Theres also an opportunity to integrate upstream with procurement aggregators e.g. forming partnerships or collective buying with other clients. As mentioned, RTC exploring a GPO for private equity is a vertical integration of sorts: taking on the role of procurement aggregator rather than just advisor . - Margin Concentration: Typically, the biggest savings (margin) exists initially with vendors. Through optimization, 33 16