Monday, December 17, 2012

 

How CIOs enable vendor lock-in

You are an enterprise CIO with a limited budget to implement a strategic enterprise application. Your shop isn't disciplined enough to put the brakes on the business continually asking for enhancements. Your procurement department gets involved and adopts the mindset that everything is a commodity and therefore the price should be as cheap as possible. The only thing that gets procurement to change their mind is the melodic words of mass customization...


Any customized service or product configuration creates switching costs that increase a customer's willingness to continue buying from that particular vendor rather than bidding out every opportunity. The trick is to ensure that whatever high-end services that are developed, can't be duplicated by their competitors without great effort even when you violate the NDA and share the vendor's intellectual property with their competitors in order to bring down price.

As we encourage IT to further align with the business, it is almost certain that the vendor community will become participants. A highly desirable brand name, or a product in heavy demand by your customer’s own customers or users, can be very effective at pulling vendors products through the enterprise. The “Intel Inside” advertising campaign creates pull-through for Intel. When Mattel offers Toys-R-Us an exclusive arrangement for particular configurations or for products with their own consumer brands such as “Barbie” or “Hot Wheels” or “Harry Potter,” it is making itself indispensable to this very tough customer. For organizations that hire Accidenture, they often find themselves hooked like crack addicts when they can no longer access their services.

What if the CIO stopped espousing partnership and actually decided to be genuine in creating true partnerships. Each organization wants to protect themselves and retain/obtain as much money as possible. Relationships are critical on both sides. Both parties desire innovation and both can benefit from respective innovations, thus true partnership. If your enterprise processes focus on rate arbitrage, contract word twiddling, attempting to commoditize your vendors intellectual property or other worst practices, it is certain that your vendors will have no choice but to respond with tactics that ensure vendor lock-in.




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