Friday, July 27, 2012
CIO worst practices: Vendor Relationship Management
Having sat on both sides of the table, I have observed a pattern of missteps that many enterprise CIOs continually repeat. At the top of my list is the mistake in not paying attention to the vendor’s cost of sales…
If a CIO became more aware of their own behaviors and how it can increase the cost to the vendors that serve them, then they can make their own enterprise agendas more successful. First and foremost, it is vital to acknowledge that the enterprise at hand isn’t the only business that needs to reduce costs. This is a trend that applies to be enterprises and vendors alike. If your vendor is a consulting and you require them to hold dozens of meetings onsite where they have to incur travel costs, you will ultimately pay for this cost in terms of increased consulting rates.
A consulting firm measures their profitability in a variety of ways, but one measure to focus on is margin. Every vendor has an established guideline for target margins for each account. Think of the game whack-a-mole. If you increase the cost of sales something will popup elsewhere. A vendor has a few levers to play with. They could propose to conduct business via webinars and reduce costs which serve the enterprise in a way that doesn’t compromise integrity nor causes overall costs to rise. This could of course require the enterprise to focus less on facetime and focus more on outcome.
A vendor could also humor your need for facetime and incur whatever costs are necessarily to satisfy the enterprise need for facetime and pass it along in either the form of increased rates or by providing a junior resource and billing them as if they are an intermediate resource. Generally speaking, enterprises who complain about quality of resources, frequent turnover of staff and changing points of contact tend to be blissfully ignorant to the fact that they may be the cause.
The scenario I outlined above doesn’t just apply to sales facing roles. In fact, it could be manifested in other areas of interaction. Consider the scenarios where you have asked the vendor to create special invoicing, status reports or other clerical/administrative-level activities that aren’t either standard and/or 100% reusable across their other accounts.
If your vendor is more focused on software the challenge of cost of sales exists even more but in manifested in a different manner. Are you guilty of making proof of concepts (POC) way too long or in squeezing every cent out of a deal at procurement time? The former is somewhat more obvious in terms of the cost it brings, but the later at times can actually be more sinister.
Have you ever heard of a cheap lawyer? I haven’t. Every time you want to change some otherwise minor sentence, it is almost always guaranteed to have to be reviewed by a lawyer. Lawyers really aren’t outcome-oriented and usually only focus on the practice of law. They have a unique way of wasting lots of time discussing the nuances of every sentence. Think about how simple it is for a developer to write Hello World and then switch to thinking how would two lawyers think about putting a contract around it.
Taking this one step further. Most sales teams are coin-operated. In other words, you have to compensate them for each and every activity in some way. The longer it takes for a deal to close, the likelihood of them staying focused on your unique needs decreases. Even when they are assured that a deal will close regardless of how long it takes, they still have to spend time internally to their own organizations churning about it. This creates stress and we all know that there is no ROI in the cost of stress…
| | View blog reactionsIf a CIO became more aware of their own behaviors and how it can increase the cost to the vendors that serve them, then they can make their own enterprise agendas more successful. First and foremost, it is vital to acknowledge that the enterprise at hand isn’t the only business that needs to reduce costs. This is a trend that applies to be enterprises and vendors alike. If your vendor is a consulting and you require them to hold dozens of meetings onsite where they have to incur travel costs, you will ultimately pay for this cost in terms of increased consulting rates.
A consulting firm measures their profitability in a variety of ways, but one measure to focus on is margin. Every vendor has an established guideline for target margins for each account. Think of the game whack-a-mole. If you increase the cost of sales something will popup elsewhere. A vendor has a few levers to play with. They could propose to conduct business via webinars and reduce costs which serve the enterprise in a way that doesn’t compromise integrity nor causes overall costs to rise. This could of course require the enterprise to focus less on facetime and focus more on outcome.
A vendor could also humor your need for facetime and incur whatever costs are necessarily to satisfy the enterprise need for facetime and pass it along in either the form of increased rates or by providing a junior resource and billing them as if they are an intermediate resource. Generally speaking, enterprises who complain about quality of resources, frequent turnover of staff and changing points of contact tend to be blissfully ignorant to the fact that they may be the cause.
The scenario I outlined above doesn’t just apply to sales facing roles. In fact, it could be manifested in other areas of interaction. Consider the scenarios where you have asked the vendor to create special invoicing, status reports or other clerical/administrative-level activities that aren’t either standard and/or 100% reusable across their other accounts.
If your vendor is more focused on software the challenge of cost of sales exists even more but in manifested in a different manner. Are you guilty of making proof of concepts (POC) way too long or in squeezing every cent out of a deal at procurement time? The former is somewhat more obvious in terms of the cost it brings, but the later at times can actually be more sinister.
Have you ever heard of a cheap lawyer? I haven’t. Every time you want to change some otherwise minor sentence, it is almost always guaranteed to have to be reviewed by a lawyer. Lawyers really aren’t outcome-oriented and usually only focus on the practice of law. They have a unique way of wasting lots of time discussing the nuances of every sentence. Think about how simple it is for a developer to write Hello World and then switch to thinking how would two lawyers think about putting a contract around it.
Taking this one step further. Most sales teams are coin-operated. In other words, you have to compensate them for each and every activity in some way. The longer it takes for a deal to close, the likelihood of them staying focused on your unique needs decreases. Even when they are assured that a deal will close regardless of how long it takes, they still have to spend time internally to their own organizations churning about it. This creates stress and we all know that there is no ROI in the cost of stress…
