The Rise of the Disruptive Supplier

Author: Steven Zolman

In last month’s blog post, “How a 5% Performance Improvement Can Result in a 50% Savings”, we discussed how the economics of IT deals of all kinds (Cloud, SaaS, Hardware, Software, Services, Outsourcing and Telecom, among others) can be dramatically improved with very small strategic improvements in the process of IT optimization.

We asked you to stay tuned to this month’s newsletter, and the blog post, “The Rise of the Disruptive Supplier”, mainly because optimization itself is often thought to be (and many times is) a unilateral activity.  Certainly it is always a best practice to understand the macro market conditions to ensure the economic value of your deal aligns to the industry.  Furthermore, we now commonly see what we call “disruptive suppliers” offering ostensibly similar (or in many cases even superior) value propositions for significantly less economic outlay.  Due to disruptive market forces, such as: the shadow IT industry (organizations that are buying technology enabled solutions not through IT, but rather through the business units in need), the digitalization of industries traditionally thought to be non-tech, and the continual proselytizing of the technology supplier community – the industry has gotten a lot murkier.  In the process, these market forces have also given rise to a new breed of technology supplier(s); a disruptive supplier, one who offers high–value, low-cost solutions.

Despite a murkier outlook due to rapidly changing market conditions, what’s increasingly clear, is the skills required to negotiate complex IT deals are fast becoming the requirement needed for all future deals in the business.  Why do I say that?  Because if you consider the four major pillars of this particular incarnation of the technology revolution (Cloud Computing, Mobility, Social Networking, and Big Data) you can quickly realize that parts of the business are rapidly departing from traditional in-house IT solutions, and are instead focusing on enabling innovation, improving and automating business processes, quickening time to market, and improving quality and reducing risk.  Companies are not doing this by  building traditional in-house IT infrastructures, but rather by buying technology enabled solutions from suppliers that offer high-value, low-cost and low-risk; i.e. disruptive supplier solutions.

These four technologies have re-architected how we think about the technology supply chain, the technology marketplace, and the value we can help our clients achieve through company technology spending. But they have also quickened the pace of solution deployments in various business units not typically on the forefront of technology innovation and, in fact, will also force entire industries, even those traditionally thought to be non-tech, to digitalize their business to keep up with market movements.

As a result, technology spending will increasingly happen outside the control of the CIO, and absent even the most basic procurement methods, injecting a significant amount of risk into the economic and strategic value continuum.

According to Gartner, not only will 25% of companies have Chief Digital Officers by 2015, but technology spending will surpass the $4 trillion mark in 2016.  SVP of Research, Peter Sondergaard, also said that, “Every budget is an IT budget.  Technology is embedded in every product.”

Disruption is a double edged sword, however.  On the one hand, there is the opportunity to significantly lower costs and improve business value concurrently.  On the other hand, there is the opportunity to do just the opposite, AND muck up the business in the process.

This disruption is also causing some amazing shifts in our industry…

  • The migration of IT purchase decisions from the CIO to the CMO
  • IT Investments changing from Capital Expenditures to Operating Expenditures
  • The move from focusing on a TCO based justification to an ROI based justification

Because things run at the pace of business, and not at the pace of IT, Line-of-Business executives and Chief Marketing Officers alike focus on the here and now.  They need to make their numbers, and their concerns are time to market, return on investment, and operating margins.  Typically, if they can make as much or more on the next dollar of spending as they did on the previous dollar of spending, they will spend that next dollar every time.  They are rarely willing to wait for a lower cost alternative if they can make their numbers with a higher cost solution faster.

This breeds some inherent economic risk into the model and also causes some internal friction as CIOs, planning to build less expensive private clouds are often left in the dust by business unit managers capturing time to market advantages.  In addition, this shifts the focus away from traditional capital spending, which is typically spread thin and leveraged by the CIO in a capital-rationing mentality to achieve high levels of leverage across multiple solutions.  The new focus is that of an operational mindset, where technology is application specific and justified on a per project basis, often leading to low levels of utilization and high levels of overlap; i.e. sub-optimization.

Companies that focus on TCO view things from a cost perspective, and given that, endeavor to keep costs down as money saved (or not spent) and additional profit.  By contrast, companies focused on ROI view spend based on measurable business outcomes and often view more spending as more profit.

All of this leads to new opportunities and new challenges ahead for most of our clients.  Certainly, we have seen many challenges in trying to conduct disciplined technology supplier evaluation, selection and contracting processes, as many times high level decisions are made anecdotally because of the priorities on time to market.  Moreover, suppliers that know how to position themselves as low-cost, low-risk and high-value, can often take down a deal before an organization has had a good chance to thoroughly evaluate their solutions.  In one example, a VP of Sales read a full page ad in Golf Digest suggesting that Salesforce.com could help him improve his company’s sales performance, so he instructed his team to make the move.  They did, and a year later, they were in a terribly cost prohibitive and restrictive agreement several multiples higher than an internal cost comparison on the company owned CRM solution.  This unfortunately is a common tale.

So, who are these disruptive suppliers?  Clients ask us many times which ones are good and which ones are bad.  The bottom line is that they all have the potential to be both, but the truly disruptive suppliers are the ones that help you do this right.  They are not named; rather, you make them by how you handle the strategic sourcing and strategic supplier management process.  If you do it right, you get a disruptive supplier that will help you transform your business. If you do it wrong, your dream supplier turns into your worst nightmare.

If done right, clients can get:

  • Agreements that offer more flexibility, and greater protections
  • Investments that are pennies on the dollar in comparison to legacy
  • Relationships that are positive, client centric, and focused on mutual success

If done wrong, clients can get:

  • Agreements that are restrictive and punitive
  • Investments that, at scale, are far beyond legacy costs
  • Relationships that are opportunistic, predatory, and focused on lock-in

We encourage you to do it right.  One way you can do it right is by using NET(net) VET™, our innovative peer networking social platform for supplier market research, anonymous supplier solicitations, and supplier capability match-making.  Simply enter your project requirements and NET(net) VET™ will match your needs against the capabilities of thousands of prescreened suppliers to find the ones that can help.  Registered NET(net) clients can log in directly.  Non-registered clients requesting additional information on NET(net) VET™ subscriptions should contact NET(net).

Another way to do it right is to formally engage NET(net)’s services.  We can help you make sure your agreements, investments and relationships are economically and strategically optimized, so you can maximize the value of your technology supplier relationships, helping you make your suppliers disruptive for all the right business reasons.

There is a Lot at Stake

There is a lot of value up for grabs.  As mainstream suppliers like SAP, Oracle, Microsoft, IBM, HP, Cisco, Symantec, EMC and others try to hold on to the strong market positions they enjoy, and suppliers like Google, Amazon, Workday, NetSuite, Box, Zen Desk, Rackspace, and others try to disrupt the market, hundreds of billions, or even trillions, of dollars could change hands in just a few short years.

NET(net)’s Website/Blogs/Articles and other content is subject to NET(net)’s legal terms offered for general information purposes only, and while NET(net) may offer views and opinions regarding the subject matter, such views and opinions are not intended to malign or disparage any other company or other individual or group.

About NET(net)

Celebrating more than 10 years, NET(net) is the world’s leading IT Investment Optimization firm, helping clients Find, Get and Keep more economic and strategic value. With over 1,500 clients around the world in nearly all industries and geographies, and with the experience of over 15,000 field engagements with over 250 technology suppliers in XaaS, Cloud, Hardware, Software, Services, Healthcare, Outsourcing, Infrastructure, Telecommunications, and other areas of IT spend, resulting in incremental client value captured in excess of $100 billion since 2002, NET(net) has the expertise you need, the experience you want, and the performance you demand. Contact your NET(net) representative, email us today at info@netnetweb.com, visit us online at www.netnetweb.com, or call us at +1-866-2-NET-net to see if we can help you capture more value in your IT investments, agreements, and supplier relationships.

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