In hard times like these, businesses are looking to slash costs -- so should CIOs beat on their vendors relentlessly for price cuts? It's a tempting short-term alternative, but it's probably not the right strategy. The next wave of leaders among IT vendors will be those that offer innovative programs to share some of the current risk in return for a bigger slice of future rewards.
In hard times like these, businesses are looking to slash costs -- so should CIOs beat on their vendors relentlessly for price cuts? It's a tempting short-term alternative, but it's probably not the right strategy. The next wave of leaders among IT vendors will be those that offer innovative programs to share some of the current risk in return for a bigger slice of future rewards.It's the only way that's going to work beyond the very short term, and two recent examples point the way. On the vendor side, Oracle president Charles Phillips recently told InformationWeek that good products and healthy vendor/partners in it for the long haul demand healthy margins.
On the CIO side, Kent Kushar of winemaker E.&J. Gallo has developed a 12-point model for rating vendors called SUMnership -- the sum of all parts of a partnership -- that analyzes six qualities for the vendor company, and six specific characteristics for its products. Kushar told my colleague Andrew Conry-Murray that too many CIOs are looking to dominate their vendors.
"That strategy doesn't work," Kushar says. Rather, he values relationships where vendors act as partners. "We share our strategy with vendors, show them what we're doing, and ask for their help."
As Conry-Murray notes in an excellent package on vendor/customer relationships, Kushar and his team analyze vendor companies for leadership, strategy, integrity, relationship, work location, and talent; and analyze products for functionality, service level, ease of use, price, perceived value, and experience.
The vendor position expressed by Phillips has merit as well, and is embraced by Oracle rival SAP as well, according to an excellent piece on software pricing models by InformationWeek's Mary Hayes:
Bill McDermott, president of global field operations at SAP, makes no apologies for SAP's decision, announced in July, to replace its two levels of support offerings with just one premium support offering, called Enterprise Support, with an annual price of 22% of the software license. "The real criticism you can make is, 'Gee, Bill, why did it take you guys so long to increase the cost of customer support, because you were five points below the industry benchmark of 22% all that time and giving up shareholder value?'" McDermott says. "That's a fair criticism I'll accept with open arms."
I think there's a lot of middle ground to be explored by leading vendors like SAP and Oracle, and that's why I've written an open letter to Oracle CEO Larry Ellison with some suggestions. Take a look and let us know what you think.
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