Vendor Relationship Critical Partnership Element #4: Ability to invest / Low Cost Providor
I recently ran an informal poll on LinkedIn that asked a relatively simple question:
Today’s IT leaders depend on a plethora of new players to drive change. What should CXOs most look for in a partner?
Here are the results ….
My next several blog posts will focus on each of the possible answers and share my thoughts, along with those of my respondents (public and otherwise), on why each of them are in fact critical.
I start with the one that not surprisingly received NO VOTES from my vendor-heavy polling group, “Ability to invest / low cost provider” and I will call this blog post “Have you MET the CFO?”
Why Cost Matters
- The IT department has become a crucial partner with the business units to achieve greater ROI (return on investment). With IT costs being a significant chunk of shared services costs for the typical corporation, there is tremendous visibility on effectively managing these costs.
- According to a 2010 survey from Gartner and the Financial Executives’ Research Foundation (FERF), The CFO is increasingly becoming the top technology investment decision maker in many organizations. The study concluded that “CIOs must understand the impact their CFOs have on technology decisions in their organizations and ensure that they are providing the CFO with the appropriate understanding of technology, as well as communicating the business value that can be achieved.”
- Every CTO or CIO has had at least one conversation in the last 24 months where he or she was asked to “discuss our objective to reduce overall IT costs by X% while maintaining or improving service quality and supporting our business growth.”
- While there are MANY CFOs out there that have significant experience in technology, all too often CFOs view IT as a cost-center only, a shared service that is ripe for chronic annual reductions with or without regard for quality of service or innovation.
- According to a 2011 Gartner/FEI study, only about a quarter of the CFOs surveyed had confidence that their own IT organization “has the organizational and technical flexibility to respond to changing business priorities,” or “is able to deliver against the enterprise/business unit strategy.”
- The survey showed that CFOs “are inclined to invest in technologies where competitive advantage can be demonstrated, analysis and decision-making is assisted, or efficiencies and cost reduction are achieved.” See more
The fact is, no matter how much you want to pick vendors that have the coolest tools and the most trustworthy teams, each technology investment MUST generate positive return for our company. And, while there are SEVERAL factors in ROI, cost remains one of the most visible, even if not the most impactful. To get the attention of your CFO and thus your top management overall, you must be prepared with a cost effective value driving solution. So, a vendor that wants to bring something new to the table will often be asked to invest in the relationship by significantly reducing cost of entry for the client.
Vendor Relationship Tips for CIO/CTO
Yes, cost is critical, and yes vendors must realize this and be prepared to make an investment in a new relationship. That said, here are my thoughts on how the CIO/CTO should work with vendors to create win-win relationships.
1. Think about the marathon. Is this vendor someone that you want to work with in the future? Remember that a buyer’s market will ALWAYS become a seller’s market. Payback is a …. Bummer. The recession may give you the upper hand now but when markets rebound, memories are long and you may be on the other end of the negotiating table. Think about the relationship as long-term and act accordingly. Negotiate in good faith, with integrity, and with fairness.
2. Remember tradeoffs. As you’ve often told your CEO/CFO, cost and quality are inversely relational. Do you really want to negotiate so hard your vendor has no ability to make any profit, thus forcing them to cut corners, bring junior resources, or otherwise fail? We signed a deal recently that we estimated would save us “an insane amount” in a particular area of our infrastructure. We squeezed the vendor so hard that the project was, frankly, a nightmare. The disruption to the business, the rework and errors, and the added costs to bring in additional resources took away much of the savings. Neither our team nor the vendors were happy in the end.
Mark Church, who was my Account Manager at Cisco when we awarded them “Vendor of the Year 2010”, said it best in his response to the poll:
“I think one must evaluate both sides of the equation: Is it better to be the lowest initial cost, or the solution with highest return? Whenever possible, partners must strive for both but should be rewarded for driving transformation through innovation.”
3. Be authentic and honest. If you have trust in this vendor (and given this was in the top two responses in my survey I’m guessing you agree this is important), you should openly discuss cost challenges and ways the vendor may help your business. For years, I have had a practice of writing my annual cost reduction target in large numbers at the top of my office white board. Every vendor partner that meets with me can see the target. Vendors that are part of my strategic partner circle actively and regularly come prepared with ideas for helping me achieve the target.
I am proud of the relationships I have built with my vendors over the years and very much appreciative of the investments they have made to help me drive value for our clients. Most importantly, I hope they would all work with me again in the future based on the relationship we have built. While no one voted for “Ability to invest / low cost provider”, I would argue that perhaps that is because this more than the others could be considered “table stakes”. If you are so expensive I could not even begin to bring your technology to our executives – especially the CFOs of the world – trust, execution skills, and business knowledge just will not matter.
Which is Most Important?
Founder and CEO of New Relic Lew Cirne (twitter @sweetlew), said he was torn in making a selection. “Great list of options, nearly all are critically important,” he wrote in his comments after voting. I agree completely! All five of the characteristics are important. Frankly, the perfect vendor should have all, but in the era where there is a new technology, a new tool, some new social media outlet popping up every day, which would YOU put FIRST?
I would love to hear from you!
Vendor Relationship Series
- How To Squeeze Top Value From Your Technology Vendors – Investors.com – http://bit.ly/rjXNDM
- Vendor Negotiation: Squeeze Now, Pay Later CIO.com – http://t.co/KpMfCen (horrible, short-term strategy that was popular in early 2000s after the first tech bust)
- Forrester: How to squeeze your vendors | ITworld – http://bit.ly/nZRuBn (more balanced approach in worst days of recession – late 2008)
- CFOs Lack Faith in CIOs and IT Teams, Survey Shows CIO.com – http://bit.ly/ovklhQ
- The role of the CFO in cost reduction – http://bit.ly/oPrZsl