Is Your Deal Sustainable?

Author: Steven Zolman

With all the Technology Titans beating street estimates lately, IT Spending is seemingly on the mend, and my 401k is no longer looking like a mere shadow of its former self. With all the good news, why do I have this nagging suspicion in my mind? Why am I worried about the sustainability of clients’ investments in technology to improve efficiencies, promote collaboration and foster innovation?

Sustainability can only be achieved when a deal is balanced with the needs of the Client, the needs of the supplier and is reflective of the market conditions. To achieve optimization, the sustainable deal cannot be altered in a way to improve the position of one party without harming one of the other parties involved.

When dealing directly together, Clients and suppliers may be able to define terms that are equitable to each other, but only 3 in 100 deals are sustainable as evaluated against our above definition. As the markets change, the originally agreed to terms may no longer offer long term sustainability to all parties. If Agreements don’t serve as a guide on how to do business together, and rather serve as a document on how to file suit against one another, subtle changes (viewed by one party as) required to reflect the current state of business can be seen (by the other party) as unrealistic demands outside of the terms of the agreement.

Many Clients that were forced to negotiate cost reductions with suppliers in 2009 can relate. Many suppliers promoted their willingness to work together to achieve business objectives, but when those business objectives included cutting 20% of the the supplier costs, suppliers politely referred Clients to sections of the Agreement that (as interpreted by the supplier’s legal counsel) prohibited such reductions. Ouch. Where’s that ‘partnership’ they talked about in the sales cycle?

In 2009, we saw situations where long-standing working agreements that had been honored in the past were no longer honored because ‘it wasn’t in the contract’. We saw contract interpretations change wildly in ways that favored the author of the Agreements and limited and/or eliminated the rights of the other party. We saw significant across-the-board supplier increases of 30% and more right in the midst of a global financial crisis. In a time where Clients needed their suppliers to ‘partner’ with them, like it says in all the marketing materials, the suppliers once again referred to the definition of the word partner – which is of course defined on a website unilaterally controlled by the supplier (sort of like your definition of support – check your contract). 😉

Even in a strong buyer’s market, it was still extremely difficult to achieve levels of optimization in the investments and in the relationships. As a result, many relationships were strained as Clients were forced to cut costs. There were of course exceptions to these rules, and those are the relationships that will endure. As purchasing picks up, those suppliers are in line to receive a lion’s share of the bounty.

As the worm begins to turn, some predict that a lot of ‘pent up’ purchasing will occur. We have been seeing that for a while now in Outsourcing, we are starting to see that in some of the infrastructural areas now, and expect to see it in the months ahead with the first wave of preferred providers of business enabling technologies. It will be interesting to see how Clients react when the wave comes for legacy providers in May through December. Will the Suppliers welcome the new interest in re-investment? Will they compete hard and fairly for the new business? Or in areas where they have a strong position will they try to extract some additional value to recapture some of what was lost in 2009?

The major tenants of IT Sustainability are timeliness and they are published for anyone to see right here

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