Squeezing Willing (and Not-So-Willing) Vendors

If you spend a lot of money on a vendor, you deserve much more than the product or service you purchased.
How much do you spend with Microsoft, Oracle, IBM, SAP or Dell? How much? What do you get for all that money?

If you’re completely happy with these vendors, you’re misguided. Why? Because if you’ve been a loyal customer and spend more than a million bucks a year with these guys, you should get much, much more than the product or service you get in the normal transaction process. What if you spend $5 million a year with a vendor? How about $10 million – as many large enterprises do?

What if you have mega-contracts for data center management or desktop/laptop support? What if you spend $25 million a year – or more – with IBM, EDS, CSC or Accenture – as some of us do? What kind of special treatment should you expect?

If you spend serious money with a vendor, here’s what you should expect:

  • Extraordinary (Nordstrom grade) support – even if you haven’t paid for platinum service. Long-term vendor-customer relationships should be rewarded by extremely excellent service. It should not matter that you only paid for gold service: when the heater breaks in the winter it should be fixed within hours, not days. Of course, if the heater breaks every other day no one has the right to expect extraordinary service for less than fair and reasonable cost. But vendors should not quibble over the terms of a service level agreement when the pipes have burst. Nor should they provide you with a huge “I did-you-a-huge-favor” bill for such infrequent but critical services.

  • Shared risk contracts. Shared risk relationships can be tough to manage, especially when relationships are new. But over time, relationships should be based on mutual respect: I respect your ability to deliver for me as you respect my qualifications as a customer. In fact, I am not just a customer; I am a special client. If either of us fail to fulfill our responsibilities, then we should accommodate the relationship in some meaningful way.

  • Subsidized pilots. Let’s assume that I use IBM or Oracle’s database platform. Let’s also assume that I spend several million dollars a year with these vendors. I am currently thinking about a data warehousing project to determine if I can better cross-sell and up-sell my products and services, but I am concerned about selling the business case to the senior management team that is notoriously cheap about such initiatives.

    Is it reasonable to expect IBM or Oracle to heavily subsidize the demonstration pilot project? Absolutely. In fact, the primary database vendor – who has a huge financial vested interest in the outcome of the pilot – should not only subsidize the project but pay for it entirely.

    The quid pro quo, of course, is additional work for the incumbent vendor if the project is successful. Is this reasonable? Yes, if the size of the additional project is substantial. Some ratios to consider: if the new project is worth $100,000, then a fully subsidized $10,000 project is reasonable; for a million-dollar project, a $100,000 pilot seems right. And yes, for a $100 million project, $10 million is appropriate. 10:1 is about right – if not a little light.

  • Requirements prioritization. Every vendor wants us to stay with their products and services. Oracle wanted us to stay with their CRM solutions so badly they bought the industry leader. SAP wants its customers to stay with its platform so badly that it keeps introducing and improving new functional modules – CRM, BPM, etc. – to keep its customers from pursuing best-of-breed/buy-and-integrate strategies. The trouble is that the functional capabilities of some of the major database, ERP, CRM, and other vendors are often inferior to some of the more specialized vendors.

    This capabilities gap provides leverage to buyers – if they understand how to communicate their requirements to their primary vendors. For example, SAP needs to make its supply chain management (SCM) module as good as – if not better than – Manugistics application if it wants to keep clients from straying.

    This means that your supply chain planning and management requirements are especially important – or should be if communicated effectively – to your ERP vendor which will listen carefully if they are doing their job. “Fix it or else” should be what your vendor hears when you suggest what requirements need to be addressed in the next version of their application. Large clients should have a seat at the requirements table as major vendors improve, redesign and re-engineer their applications.

  • R&D partnerships. Related to all this is a longer-term partnership that includes you in the R&D activities and plans of your key vendors. Here I am not talking about “briefing days” where your vendors get to persuade you to buy new applications or new features in old applications.

    Instead, a true partnership here involves your vendors’ sharing information about significant R&D investments they’re making and plan to make and the opportunity to overlay your anticipated requirements on to those R&D plans. One way to accomplish this objective is to encourage “internships” with your vendors where your key business technologists get to spend weeks if not months with your vendors’ R&D teams. If your vendors don’t invite you in, invite yourself.

    All of these ideas constituent advanced vendor management best practices. Remember, we buy all this stuff – over a trillion dollars a year in hardware, software and services in the U.S. alone. Don’t we deserve special treatment?

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