I’ve been through three major vendor consolidation efforts in my career. One was wildly successful. One saved money but created operational problems we’re still fixing. One we abandoned halfway through because the business case fell apart.

Here’s what I learned about when consolidation makes sense and when you’re better off keeping multiple vendors.

The Obvious Case for Consolidation

Let’s start with the scenarios where consolidation clearly wins:

Duplicate tools doing the same job. You’ve got three project management platforms because three departments made independent decisions. That’s pure waste. Consolidate.

Overlapping vendor capabilities you’re not using. You’re paying Microsoft for Teams but everyone’s using Slack. You’re paying for Adobe Creative Cloud but only using Photoshop. Time to rationalise.

Small vendors with high administrative overhead. Managing vendor relationships costs money. If you’re paying five different vendors each less than $10K annually, the procurement overhead might exceed the service cost.

Contract leverage. When you’re a small customer of multiple vendors, you have no negotiating power. Consolidating spend with fewer vendors can get you better pricing and terms.

These are no-brainers. The tricky decisions come with everything else.

The Hidden Costs of Consolidation

Every consolidation business case focuses on hard cost savings: “We’re paying five vendors $200K total, we can get it all from one vendor for $120K.”

But there are costs that don’t show up in that calculation:

Migration effort. Moving data, retraining users, rebuilding integrations. This isn’t trivial. I’ve seen migrations that cost more than two years of savings.

Productivity loss during transition. Even smooth transitions have a learning curve. Your teams will be slower for weeks or months.

Reduced competition. Once you’ve consolidated to a single vendor, you’ve reduced your negotiating position for next renewal. Vendor knows you’re locked in.

Single point of failure. When one vendor provides multiple critical services, an outage or security incident affects more of your organisation.

Feature compromises. The consolidated platform is rarely best-in-breed for every use case. You gain integration, you lose specialisation.

The business case needs to account for all of this, not just the sticker price difference.

When “Best of Breed” Wins

There are scenarios where maintaining multiple vendors is the right call:

Critical systems where downtime is expensive. If an outage costs you serious money, vendor diversity is risk management. Don’t put all your eggs in one basket.

Specialised needs that commodity platforms can’t meet. Your consolidated platform might handle 80% of use cases adequately. But if that remaining 20% is business-critical, you need the specialist tool.

Rapidly evolving categories. In areas where technology is changing fast (AI tools, data platforms, security), locking into one vendor’s ecosystem can leave you behind. Better to stay flexible.

Different business units with genuinely different needs. Sales and engineering might both need CRM-type tools, but their workflows are different enough that a one-size-fits-all solution makes nobody happy.

Vendor lock-in risk. Some platforms make it extremely difficult to leave. If the switching cost is high, think twice before consolidating your data and workflows there.

I’ve learned to be particularly sceptical of consolidation in categories where vendor lock-in is strong and innovation is fast.

The Microsoft Trap

Let me talk specifically about the Microsoft consolidation decision because nearly every Australian enterprise wrestles with this.

Microsoft’s pitch is compelling: you’re already paying for E5 licenses, why not use everything included? Teams, SharePoint, Power Platform, Dynamics, Azure - it’s all right there.

And for some organisations, this works great. Particularly if you:

• Have strong Microsoft in-house expertise
• Don’t have deeply specialised needs
• Value integration over best-in-breed features
• Want to minimise vendor management overhead

But I’ve also seen organisations struggle when they:

• Forced business units onto Microsoft tools that were clearly inferior to what they had
• Underestimated the customisation effort needed to make Microsoft platforms work
• Discovered Microsoft’s “included” features still require expensive implementation partners
• Found themselves locked into architecture decisions that aged poorly

The decision isn’t “Microsoft vs. everyone else.” It’s “where does Microsoft make sense, and where do we need something else?”

A Framework for Deciding

Here’s how I approach these decisions now:

Step 1: Map your actual vendor spend by category. Not what you think you’re spending - what you’re actually spending. Include shadow IT.

Step 2: Identify true duplicates. These are easy wins.

Step 3: For the rest, assess:

• How critical is this to business operations?
• How satisfied are users with the current tool?
• How much effort to migrate?
• What’s the realistic timeline to realise savings?
• What capabilities do we lose?
• What’s the vendor lock-in risk?

Step 4: Model the total cost of ownership over 3-5 years. Include migration costs, productivity impacts, and opportunity costs.

Step 5: Pilot before you commit. Don’t trust vendor demos. Test the consolidated platform with real users and real workflows.

The Right Pace Matters

I’ve seen organisations announce a “vendor reduction initiative” with aggressive targets. “We’re going from 200 vendors to 50 in 18 months!”

This creates pressure to make bad decisions fast. Better approach:

Start with the obvious wins - true duplicates, unused licenses, admin-heavy small vendors. These are low-risk and build momentum.

Then tackle one category at a time. Do it properly. Prove the business case. Learn lessons.

Vendor consolidation is a multi-year effort, not a one-time project.

When to Keep Complexity

Sometimes the right answer is to keep multiple vendors, even when consolidation would save money.

I worked with a retail organisation that kept three separate e-commerce platforms for three different business units. On paper, consolidating to one platform would save millions.

But each business unit had different customer segments, different merchandising needs, different international requirements. The complexity of building one platform that served all three well exceeded the cost of keeping them separate.

They accepted the “inefficiency” because it was the right trade-off for business outcomes.

The Bottom Line

Vendor consolidation is a tool, not a goal. Sometimes it’s the right answer. Sometimes it’s not.

The organisations that do this well are honest about total costs, realistic about timelines, and willing to keep multiple vendors when that’s the better choice.

The ones that struggle are chasing arbitrary vendor count targets without thinking through the implications.

Your job as a technology leader isn’t to minimise vendor count. It’s to deliver business value at acceptable cost and risk. Sometimes that means consolidation. Sometimes it doesn’t.