5 Ways You Lose on Technology Deals

 Over the past 16 years, we’ve seen almost every way possible for an organization to lose value in their technology supplier arrangements, agreements, and relationships.  Sometimes these situations arise from external forces that leave little in the way of options like mergers, acquisitions, or litigation.  Many times, however, we find that organizations could have improved if only they had a few key insights.  If a company is willing to take the necessary steps to acknowledge where they have shortcomings in information, expertise, and experience, they could avoid many of these pitfalls.  It’s difficult to know what you don’t know, and as a result, many clients left to their own devices will struggle to improve in these areas.  But for those that are willing to disrupt their own internal processes, and challenge their thinking, there are rewards awaiting them in the form of reduced costs and risks, and improved realization of value and benefit in their technology agreements, investments, and relationships.

Below are five (of the many) ways you lose value on deals with your Technology Suppliers:

1.  The Lack of Market Intelligence

You might be surprised to learn how many professionals try to get market intel by searching online or by spending hundreds of thousands on management consulting engagements, only to find that the amount of experience these consultants have is often quite limited and situational. Information is generally available for suppliers, features, options, configurations, implementations, integrations, etc., but it is very difficult to find accurate pricing information that gives any greater insights than ‘market average’ costs.  Relying on a peer or a single market benchmark often results in a poor outcome.  In one recent example, we found that our client was paying over five times the market costs for a technology solution, and when we dug further, we found that they did a benchmark against another customer in the same industry and geography and ‘beat their benchmark’.  We are now talking to that other client, too!  Bad deals are pervasive, and not having good market information can lead to bad results.

2.  The Lack of Commercial Expertise 

There are very few (if any) true commercial negotiators within an organization. For sure, companies have negotiated some big and complex deals and have a breadth of knowledge on several different strategic suppliers, and ‘really know how to get what they want’, but few know the true market value of what that’s worth, nor do they have the commercial expertise to achieve those outcomes.  When it comes to big suppliers like Oracle, SAP, Microsoft, IBM, Salesforce.com and more - all have profit margins that would make Warren Buffett blush, and they didn’t get those high profits by negotiating low-margin deals.  You may have someone inside your organization responsible for a single large supplier who has commercial expertise dealing with them at one or two of their previous employers and has done maybe three or four deals with them over the last ten years, but this does not provide for the kind of global commercial expertise you need to optimize costs.  We work with thousands of clients in virtually all industries, and all geographies, and have done tens of thousands of deals resulting in hundreds of billions of dollars of incremental client value captured.  That is the kind of in-depth market knowledge that provides your team with the expertise they need to move the needle in a transformational way.

3.  The Lack of True Supplier Relationship Management

Point blank: The best way to keep your supplier acting right is to have and maintain viable alternatives and options. However, nearly 80% of IT spending is monolithic – meaning with a single supplier with few options.  IT buyers generally ‘box themselves in’ and leave little room for negotiations due to how they plan for, deploy, and/or consume the technology they use to run their business, resulting in almost no leverage to manage the supplier relationship properly.  In other circumstances we see IT so laser-focused on providing a business solution to a given problem, they fall in love with the first one they think ‘fits the need’, and then they stop looking for alternatives, forever.  Suppliers love these kinds of customers and always look to solidify dependency on the technology, and then ratchet up margin over time, making cost and value misalignment only a slightly trailing indicator of the migration and replacement pain and cost.  As a result, if you maintain viable alternatives and effectively use carrots and sticks, you can generally keep costs low and value high.

4.  You Let the Supplier Do ‘Performance Management

Often, we see suppliers shaping the narrative around management of… well, themselves. Most of the SLA and performance reports are provided by the suppliers, along with the commentary and context in many cases.  In addition, there are often Quarterly Business Reviews or other management meetings where the information presented is all gathered and disseminated by the supplier.  All this information is massaged and positioned in very specific ways to help shape a positive image of themselves.  On the other side, the customer often has only anecdotal evidence on performance or may have metrics pertaining to slivers of information, but rare is the case that there is a holistic view presented by the customer back to the supplier.  The evidence is empirical and companies that don’t have a Strategic Supplier Management discipline and methodology hemorrhage exponentially more value than those that do, suffering from an increase in cost and risk of 22% (on average) and a loss of value and benefit past 34% (on average) over three years.

5.  Suppliers Let You Have THEIR Way

The ‘Technology Cartel’ is all aligned to sell you more stuff. Your business consultant brings in a software provider, who requires you to add hardware, who then recommends an implementer and integrator, and it all comes through “value added” resellers, and all the while, your ‘analyst’ is telling you that you are the only one not doing this yet.  When is the last time anyone told you, no, you don’t really need to do this -- No, you don’t need that software -- Yes, the free version of our software works just fine for your use case -- No, you don’t need those added options at an extra cost -- Yes, you can terminate that product without us re-pricing your support costs on the remaining products?  With all the cartel members aligned with a common goal of separating you from your money, wouldn’t it be smart to have just one partner on your side that helps you question the need to do things, and the costs associated with doing those things, and has a goal of helping you get everything you need for the least amount of money, and getting the maximum amount of value?  We think so, too.

In Summary...

All our clients buy technology, and many believe they have all these points securely taken care of and even outperform their peers, and maybe some do. But, in almost all cases, we find commercial and/or contractual and/or relationship issues that can be improved.  Shortcomings in just one of these areas can prove damaging to your bottom line and negatively affect your financial performance for years to come.  Monies that could be spent on digitalization, business transformation, or other important initiatives are often siphoned away to compensate for bad deals. 

The remedy to any or all the above starts with a simple acknowledgement that you might need some professional expertise to help you navigate the ocean of complexities out there that cause sub-optimization.  There are experts for anything and everything these days, why not make sure you have one that specializes in Commercial Negotiations with IT suppliers working for you?  NET(net) has been successfully doing just that for 16 years, with over 25k field engagements around the world, resulting in well over $250 Billion of incremental client value captured.  Click here to contact us or email dsiglin@netnetweb.com and find out how our Subject Matter Experts can help you.

About NET(net)

Celebrating 15 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 2,500 clients around the world in nearly all industries and geographies, and with the experience of over 25,000 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 captured value in excess of $250 billion since 2002. NET(net) has the expertise you need, the experience you want, and the performance you demand. Contact 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 relationships.

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