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Monday’s Musings: It’s The Relationship, Stupid! (Part 2) – Stop Slashing The Quality Of Support And Maintenance

Published on March 30, 2009 by R "Ray" Wang

Economic Downturn Challenges Enterprise Software Executives To Uphold The Sanctity Of The Vendor – Customer Relationships

Conventional wisdom would assume that in a challenging economy, strong relationships would be a key success factor to retaining business and mitigating loss of revenue.  Unfortunately, this does not appear to be the case for many companies, including vendors in enterprise software.  Blame it on the economy, fear of depending on their people, or plain greed, but a good number of executives have taken an approach that attempts to preserve shareholder value at the expense of their vendor – stakeholder relationships (i.e.employee, customer, and partner).  Now in their defense, these muckety mucks face dire times and hard decisions need to be made.  However, they are not in a unique situation and risk jeopardizing brand value, trust, and market credibility for short term gain. Let’s look at five common value destruction strategies:

Part 2: Slashing the quality of support and maintenance while failing to deliver value.

Declining prospects in growing new license revenue in 2009 leave many vendors with few levers to grow margins. As vendors focus on mining the install base, support and maintenance remains the most lucrative driver for growing software revenue.  Though not all vendors have done this, one approach is to raise maintenance fees.  Another approach that some vendors have put forth is to reduce the cost of delivery of the support.  Some strategies such as web based and self service resources help mitigate the costs.  Other strategies such as community support groups provide improved value.  However, as clients become cognizant of the 70 to 85% margins in maintenance, software vendors can expect a backlash from customers seeking choice, value, and predictablity from support and maintenance contracts. Here are a few examples of what end users are experiencing from the “bad” vendors:

  • Moving to the lowest cost support model without regard for quality. “Recently, they replaced our client support team with more junior hires and college grads and we noticed a significant change in quality.  The reps no longer understood our business and we spent more time educating them then got value from them.  While they met their service level agreements for response, they failed at resolving issues.  We had better luck with the free online support forums.  In the end, this was a major factor in switching to a third party maintenance provider who gave us just what we needed – regulatory, tax updates, and bug fixes. “  Global 2000 discrete manufacturing company, Director of ERP
  • Reduction in the overall stream of innovation despite soft commits to product direction. “When we met 4 years ago to discuss our product direction, the vendor invited us to join an advisory group of fellow industry experts.  We found this helpful and thought we would have a role in influencing product direction.  However, their shift in focus to different industries and market segments left us with great plans that never were delivered.  Instead, we ended up with the same list of enhancement requests as our competitors  and we are all waiting for our maintenance dollars to go towards more innovation.  We thought we had a great relationship.  Well, at least we got the regulatory requirements!” Global Pharma, CIO
  • Increasing the cost to remain on stable products despite a customers desire not to upgrade.  “We’ve been using the product for 7 years and don’t plan to upgrade.  Our margins are too low to justify this.  We want to still receive tax and regulatory updates but we now must pay double the maintenance fee we started to pay even though we don’t intend to do any more for this stable release.  The vendor won’t budge and threatens to withhold the software license keys if we don’t pay up even though this is a perpetual license!  What kind of long term relationship is this?” NA based CPG firm, Director of IT

The bottom line for end users – keep seeking value for support and maintenance

Keep in mind that not all vendors are out to squeeze the customer. In fact, we see a resurgence in hiring of senior support executives to run “world class” support teams.  Just recently, the number of openings in the market place reflect this renewed emphasis in hiring by vendors.  At one vendor, they’ve added 90 support personnel in the past 3 months.  But as a precautionary measure, clients can take the following actions to improve value for maintenance:

  • Track interaction history.  Keep a log of support calls, requests, and correspondence with the vendor.  This will help in undestanding who uses support resources and for what purpose and provide proof points with the vendor and to the internal team.  Identify how often patches and updates are applied.  Many clients who pay over $1M in maintenance a year often just call the vendor no more than 10 times a year.  That’s the equivalent of $100k a call.  Someone better show up with white gloves on the next plane and handle the support request in person!
  • Stay on the current release when possible. Despite the high levels of ERP “upgrade fatigue”, being on the latest version or at least the latest technology foundation allows users to keep all options open without going through the whole process of a full upgrade cycle.  When ready, clients can then deploy and access new features or enhancements that have already been paid for in the maintenance fees.
  • Separate support and maintenance contracts. About a decade back it was common to have 2 line items.  Support covered help desk requests, bug fixes, and troubleshooting.  Meanwhile, maintenance provided access to regulatory updates, tax changes, enhancements and sometimes point releases.  Today the bundling of both support and maintenance prevents customers from choosing to keep maintenance without support or vice versa.  In new contracts, clients should push for separate line items so they can eventually engage the vendor in deciding what they would like to pay for going forward.
  • Reduce overall maintenance costs where possible. With an understanding of the value currently provided by the vendor, now’s the time to engage the vendor in conversations on what value can be extracted from existing agreements.  Determine a win-win go forward strategy.

Click here for more contract negotiation strategy tips.

The bottom line for vendors – create market differentiation with good service

Most vendors I’ve spoken with recognize that now’s not the time to raise maintenance fees.  Instead, the top vendors proactively provide programs for clients facing this economic downturn.  A combination of leading techniques focus on a few key areas:

  • Securing proper funding. Though it goes without saying, proper funding does correlate to higher satisfaction scores which result in higher retention and loyalty.  Often, only a small portion (i.e. 2.5 to 7%) of the support and maintenance fees paid by clients actually reach the support organizations.  Now’s the time to step up funding to prevent a customer backlash for the biggest revenue stream.
  • Investing in the support staff. Beef up your support staff with skilled resources who actually understand the product.  Improve training on relationship management, problem solving and resolution, and expectations management.
  • Aligning client facing teams. Sales, consulting, and service teams need to collaborate to solve the clients needs.  While natural conflicts will arise between sales and support, determine the rules of engagement that will preserve a client first philosophy without breaking the bank!
  • Delivering proactive and periodic outreach. Craft an outreach plan to help customers understand their existing investments, where they can gain value, and how they can optimize usage.  New customers should have an on boarding plan.  Balance the frequency of touch points with a prescribed plan that shows how the vendor can earn a more trusted adviser status.  Push out more frequent updates and patches.  Reduce time between major releases.
  • Embracing client feedback.  Its one thing to solicit input but another to actually implement suggestions.  Whether it be feedback on product direction or suggestions to improve support and maintenance policies, leading vendors provide multiple mechanisms to put feedback into action.  Some vendors leave open lists that are ranked order by clients.  These vendors openly and frequently communicate the progress on issues and concerns.
  • Providing choices. Customers need to have different options.  Tiered maintenance programs allow customers to adapt the right level of support and maintenance to their circumstance.  Vendors who have only one support option should create new tiers that reflect customer requirements.  Those with multiple tiers should help customers understand the trade offs.  If possible, separate support from maintenance.  Include version upgrades with maintenance.

Your POV

Got a success story where your vendor has put a value creation strategy based on improving the quality of their support and maintenance?  Has your firm changed their policies to improve the relationship?  Or got a great story on the bone-headed thing your vendor or your employer has done to destroy value in the relationship!  Send me a private email to rwang0 at gmail dot com.  Posts are preferred!   Thanks and looking forward to your POV!

Copyright © 2009 R Wang. All rights reserved.

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Speaking Engagement: Interop 2009 – SaaS Track – Honeymoon and Divorce: Changing SaaS Providers

Published on March 26, 2009 by R "Ray" Wang

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TUESDAY MAY 19TH

The Mandalay Bay Hotel, Las Vegas, NV

4:00 pm-5:00 pm

Honeymoon and Divorce: Changing SaaS Providers

Software-as-a-Service has taken the IT world by storm, offering turnkey application deployment and less management headaches. But IT’s job hasn’t vanished — it’s changed. From managing application sprawl to customizing SaaS portals, from monitoring performance to ensuring tight security, this series of panels and presentations looks at the new role of IT teams in a SaaS world.

Switching software is hard enough to do when you run it in-house. But when you’re moving from one SaaS provider to another, you face new challenges. You may not own your data; you may miss features you didn’t know you were using; and custom code build for one SaaS platform may need rewriting on another. This panel of end-users who’ve made the jump shares lessons learned from SaaS migration.

Esteemed Panel

Switching software is hard enough to do when you run it in-house. But when you’re moving from one SaaS provider to another, you face new challenges. You may not own your data; you may miss features you didn’t know you were using; and custom code build for one SaaS platform may need rewriting on another. This panel of end-users who’ve made the jump shares lessons learned from SaaS migration.
Moderator – Jerry Smith, CTO, Symphony Services

Speaker – Michael Topalovich, CTO, Delivered Innovation

Speaker – R “Ray” Wang, Vice President, Forrester Research

Speaker – Rick Nucci, CTO, Boomi

For more info, click here

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Speaking Engagement: Winshuttle User Group

Published on by R "Ray" Wang

Winshuttle User Group

Winshuttle User Group

May 11, 2009
Orlando, FL

We are pleased to announce our first annual Winshuttle User Group (WUG). Scheduled to coincide with the annual ASUG/SAPPHIRE conference in Orlando this May, the premier WUG is a complimentary event for our valued customers. This is a great opportunity to learn about Winshuttle’s product plans and to hear from R “Ray” Wang, Vice President and Principal Analyst of Forrester, about SAP and ERP trends. You will also have the opportunity to speak with peers from other companies to discuss and compare unique ways Winshuttle tools are being used to solve their business needs.

All attendees will have the chance to win a Sonos Multi-Room Music System

RSVP for the WUG

When: Monday, May 11th, 2009
4:00 pm
Where: International Plaza Resort
10100 International Drive
Orlando, FL 32821 map
(transportation will be provided within the Orlando area)
What: 4:00 pm – Introductions, Vikram Chalana, Winshuttle’s Founder & CTO
4:15 pm – Keynote, Ray Wang, Forrester, VP & Principal Analyst
5:15 pm – Winshuttle Plans, Lewis Carpenter, Winshuttle’s CEO
6:00 pm – Cocktail Reception & Birds-of-Feather Meetings
7:00 pm – Dinner
Why: Meet the Winshuttle Team
Hear about Winshuttle’s Product Plans
Hear a Keynote from Forrester’s Principal Analyst, Ray Wang
Meet peers who are also using Winshuttle’s tools
Get a special Winshuttle goody-bag
Enter to win a Sonos Multi-Room Music System
Because it’s even more fun than using transactionSHUTTLE
Eat, Drink & be Merry

RSVP for the first annual WUG.

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Tuesday’s Tips: Five Simple Steps To Reduce Your Software Maintenance Costs

Published on March 24, 2009 by R "Ray" Wang

Maintenance costs represent a major part of the software budget and the largest growing source of revenue for software vendors.   In fact, an aggregation of the past four quarters of software vendor financial results definitively demonstrates double digit declines in new license revenue, even more exacerbated by the evils of currency flux from the strong dollar for US based vendors. Not surprisingly, vendors are hard at work vigorously protecting their 70 to 80% margin in maintenance revenues just as clients and readers of this blog now zero in on this line item as the major concession target during contract negotiations.  Here are five steps (i.e. as simple as ABC’s) you need to do now*:

  1. Assemble all the relevant contract information. Aggregate all your contract information and vendor interaction history so that its centrally accessible.  Determine the value of your maintenance agreement. Examine how often you call for support, apply patches, conduct upgrades, and require technical assistance.  Then calculate the total support and maintenance spend.  Most customers will find that for $1M a year, 5 support calls can be pretty pricey at $200k a pop, especially when upgrades aren’t in the picture for the next 24 months.   The vendor better show up the next day with white gloves and be there in person.
  2. Breakdown the total cost of shelfware. Simply put, shelfware is the software licenses purchased, not deployed that is incurring support and maintenance fees.  That great deal 3 years ago you got on 1000 user licenses, when you only ended up using 800, now comes to bite you in the butt.  Calculate the maintenance fee you have for 200 user licenses at $1000/user which is $200,000 X 20% annual support and maintenance X 3 years.  At $120,000, you had better make up the “big” discount you got for buying 1000 user licenses by at least 12% this year and 15% the next year.
  3. Craft your overall software adoption strategy. Consider the business drivers that impact software adoption.  Assemble the domain experts, vendor management and sourcing professionals, legal experts, business owners, and IT team.   Apply a long term apps/ recession proof apps strategy and determine when and how licenses will be used in the software ownership lifecycle.  What processes will be supported? What roles will use the software?  When will you upgrade?  Can you consider an alternative?
  4. Determine all the alternatives. Depending on your adoption strategy, multiple paths exist.  If there are no intentions to upgrade or enhance the software, self support and third party maintenance (3PM) options from vendors such as Rimini Street and Spinnaker should be considered.  In some cases, an upgrade should be completed before switching over to 3PM or self support.  If the system can be replaced, begin vendor selection efforts so that you will have leverage during the negotiation.  If the system cannot be replaced, consider swapping out unused licenses for credit towards newer or more desirable modules.  Reduce your CPI for new maintenance.  Focus on reducing new license costs.
  5. Follow-up with Engage your account representative at least one quarter before the contract expires. Put preparation on your side and begin to let your sales rep know 3 to 6 months in advance that you are unhappy with the current agreement.  Based on steps 1 to 4, you now have the ammunition you need to negotiate from a position of strength.

The bottom line – align your contract negotiations strategy with your product adoption strategy.

Successful negotiations will require these 5 steps.  However, more importantly, organizations should keep a current apps strategy and product adoption strategy.  Without these two key documents, lack of visibility into the business case will lead to shortsighted negotiations that fail to meet the true requirements of the business.  Sourcing, procurement, and vendor management professionals should partner with domain experts who can provide third party, independent and objective advice that will complement contract negotiations strategy.  Click here for more contract negotiation strategy tips.

Your POV

What’s your best practice in reducing maintenance costs?  Post your comments here or send me a private email to rwang0 at gmail dot com.  Do you need more advice on contract negotiations strategy?  If you are a Forrester client, call the inquiry team and they can set up some time.  In your request, specifically ask for R “Ray” Wang.

Contribute to the 2009 Enterprise Software Licensee’s Bill of Rights

Take the new poll on what rights should be included in the 2009 Enterprise Software Licensee Bill of Rights   Posts are preferred!  For every good idea or comment, whether or not we use your idea, we’ll send you a copy of the final report.  Let’s put the collective wisdom of the web to work and help our end user clients create a fair win-win playing field with the vendors.  We’ll be publishing the official update in Q2 2009.  Thanks and look forward to your input!

*Caveats are as follows:  1) This does not constitute legal advice.  Please consult your legal counsel for an official opinion and wording.  2) This does not consider any procurement or vendor management rules that must be applied to your enterprise.  Please work with your vendor management teams for compliance.  3)  Contract negotiation support provides insight into overall trends and price points.  Benchmarks are not provided as each user scenario is unique.

Copyright © 2009 R Wang. All rights reserved.

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Protected: Best Practices: 5 Tactics to Maintaining Analyst Objectivity (For Industry Analysts)

Published on March 23, 2009 by R "Ray" Wang

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Event Report: Reflections On Microsoft’s Convergence 2009

Published on March 21, 2009 by R "Ray" Wang

Banner from Microsoft Convergence 2009

(Photo: Convergence banner in the New Orleans Convention Center.  Copyright © 2009 R Wang. All rights reserved)

Over 7000 customers, partners, Microsoft staff, and paparazzi made the pilgrimage to New Orleans to hear the latest and greatest from the Microsoft Dynamics team.  The great band, surface computing demo, and festivities in New Orleans wiped out most of the gloom and doom of the economic recession and negativity towards continued reckless US government spending.  Attendees were upbeat, optimistic, and energetic.  One explanation for this sense of “can-do” attitude among attendees can be based on how Microsoft has successfully transformed itself into a value and innovation alternative to the large ERP vendors moving into the small-medium enterprise/business (SME/SMB) space.*  Customers such as National Air Cargo state a 25% increase in employee productivity, GFK talks about is 50% less time spent on financial reporting, and Champion posts 60% faster order processing times using Microsoft Dynamics products.  Conversations with Rick Harkins and Robert Dills of the Cleveland Red Cross highlight the ease of use and rapid implementation time.  Customers of Hitachi consulting expressed both Microsoft and Hitatchi’s commitment to getting the job done right and the close relationships with the Microsoft Dynamics product teams.

In fact, in more than a dozen customer conversations at this year’s event, these born again ERP evangelists exclaimed, this is the “kinder and gentler” ERP company.   One other attendee professed, “I know, I know, its Microsoft but they aren’t the big bad wolf in the enterprise applications space”.  Another demonstration of care for customer and corporate responsibility includes the generous volunteerism with Habitat For Humanity in bringing over 400 employees, attendees, and partners to rebuild homes in New Orleans as part of the pre-conference activities.

Users And Partners Express High Levels Of Satisfaction

In a quick two question survey of 71 ERP users at this year’s Microsoft Convergence event, respondents from all industries and Microsoft Dynamics ERP product lines praised Microsoft Dynamics for the following when asked ” What features or qualities do you find positive about Microsoft Dynamics ERP”

  • Office integration (n=66 or 92.9%)
  • Usability (n=64 or 90.1%)
  • Product quality (n=60 or 84.5%)
  • Implementation time (n=59 or 83.l%)
  • Total cost of ownership (n=57 or 80.2%)
  • ROI or overall value (n= 55 or 77.4%)
  • Extensibility (n=53 or 74.6%)
  • Easy to learn (n=52 or 73.2%)

And of course, a few found opportunities for improvement in Microsoft Dynamics for the following when asked the converse question, “What features or qualities do you find negative about Microsoft Dynamics ERP”:

  • HR/payroll capabilities (n=61 or 85.9%)
  • Finding the right Microsoft Partner (n=56 or 78.8%)
  • Upgrade path or ability to easily upgrade from older releases (n=51 or 71.8%)
  • Mobile options (n=45 or 63.3%)
  • Deployment options such as SaaS and Hosting (n=38 or 53.5%)

2009 Convergence Highlights Progress In Delivery Of The Promised Road Map

Key design elements across all product families include a people centric approach with a strong foundation on user experience research, the Microsoft Dynamics Customer Model (61 user profiles), and a Role Tailored Design.   With the death of Project Green (the convergent product lines project), Microsoft moves forward from the lessons learned and upholds its promises across the 5 major product families:

  • Microsoft Dynamics CRM pushes forward to cover the large enterprise and small business. One can say that Dynamics CRM was the star of this year’s event from demos to product announcements.  Over 16,000 customers, 800,000 users, from small to enterprise organizations in over 80 countries now use the product in over 25 languages.  As the product progresses towards CRM ’5″, the CRM 4.0 March 2009 update includes accelerators for analytics, eService, Event Management, Enterprise Search, Business Productivity, Extended Sales Forecasting, CRM Notifications, and Sales Methodology Support.  Other capabilities include Up-time SLA, Internet Lead Capture, Cloud Integration Services, and Quick Start Tools.

    Launched in April 2008 for the US and Canadian markets, CRM Online continues to build closer alignment with Microsoft Online via integrated services, shared billing, and provisioning.  Release 2 delivered in September 2008 adds Internet marketing and supports up to 2000 users per organization.  Deployment options include on-premise, hosting via Microsoft’s data center, or subscription to CRM as as Service from Microsoft’s data center.  Release 3 will focus on improved business analytics.  As proof of its ongoing value, Microsoft announced a 75% savings on Microsoft Dynamics CRM Online for $9.99/user for 6 months if users signed up and activate by May 1st 2009

  • Microsoft Dynamics AX delivers key mid market, industry specific, and globalization requirements. Released in June 2008, Microsoft Dynamics AX 2009 represents the latest release built on top of two important .NET libraries: Windows Communication Foundation (WCF) and Windows Workflow Foundation (WF).  Usability enhancements bring Enterprise 2.0 capabilities.  Further, Dynamics AX represents logical organizational models through improved data structure modeling.  Some examples include Multi-Sites that model advanced internal supply chains, trading partners which model stakeholders such as customers and suppliers, and Shared Services that model inter company relationships.  Microsoft Dynamics AX continues an industry strategy focused on discrete manufacturing, process manufacturing, wholesale/distribution, retail, and professional services.  Public Sector will be revealed in Dynamics AX ’6′.  Though Microsoft Dynamics does not provide multi-tenant SaaS options, the Software plus Services approach delivers new retail customer deployment options for services such as online payment processing and payment services that work on the Service Provider License Agreement (SPLA) price list, (a.k.a. subscription pricing models).

    The latest service pack, SP1, provides over 330 fixes, 5-DCR’s, and supports over 42 languages and language variants.  New features include project time management, intelligent data management, Microsoft Dynamics Mobile, Lean Manufacturing, and the Environmental Sustainability Dashboard.  Key enhancements in SP1 include electronic signatures, left right date support, time zone patching, and enterprise portal deployment.  Technology support includes Microsoft Dynamics Mobile, Windows Essential Business Server 2008, and Microsoft SQL Server 2008.  In Q2, the product will be available in the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, and Russia.  Brazil will have availability in Q3.

  • Microsoft Dynamics NAV 2009 adopts key enabling technologies. Launched November 2008, Microsoft Dynamics NAV 2009 moves from a two-tier to a three tier architecture.  As part of the new release, the product adopts the role tailored client, new reporting capabilities, and more web services enablement.  The product  currently is in an ISV Beta Access Program with more than 70 ISV’s and 15 Technology Adoption Program (TAP) participants representing 7 countries and 8 verticals.  Initial usability results cite 22% more success in performing tasks and 23 point higher satisfaction rate with the new product when compared to the NAV 5.0.  Over time users can expect mobility updates and support for additional countries.  For a more detailed perspective on Microsoft Dynamics NAV, check out a fellow industry star analyst of SMB ERP, PJ. Jakovljevic at Technology Evaluation Centers.
  • Microsoft Dynamics GP 10.0 expands access and reach. Major themes include usability and productivity, access to information, and communication and collaboration.  GP 10 delivered UI improvements including Action Panes and Lists.  Other enhancements included Excel and SRS reports, and work flow and search.  GP 10 FP adds Rapid Install, Configuration, Migration; Excel Report Builder; Project and Field Service.  New for 2009 will be SP4 which adds Microsoft CRM capabilities.
  • Microsoft Dynamics SL 7.0 extends collaboration and role-tailored productivity. Microsoft Dynamics SL offers a project based solution in the North American market.  Key investments include SL 7 FP and SL SP 2 delivered in Q4 2008, improved project manager productivity, and performance enhancements.  SL 7 FP enhances collaboration with access to project, customer, and vendor related documents.  The system adds work spaces and document repositories when new projects are created or when vendors or customers are added.  Project managers gain  improvements with new flexible period time reporting and integration with Office Project 2007.  Usability enhancements reduce the time to create service tasks and financial tasks.

Microsoft Dynamics Offers Stability And Business Assistance In Today’s Market

As one of the Big 4 (i.e. IBM, Microsoft, Oracle, and SAP), Microsoft’s investments in its Microsoft Dynamics product line remains extensive and steadfast.  As companies begin to worry about the financial viability of their software vendors, Microsoft continues to:

  • Invest in R&D and innovation.  As other vendors begin to cut R&D in the face of global contraction, expect Microsoft to buck the trend and honor its commitments to deliver on its road map as promised.  With more and more consumption of .NET components, Microsoft can take advantage of its technology stack to deliver future innovations in search, data management, content management, and other productivity tools. Key innovations such as XRM for property management, complaint management, citizen management, dealer management and contractor management also highlight the other advancements to come.
  • Prove value to the customer.  Various programs to help deliver value were announced at Convergence including new financing options and the “Unleash Your Potential” program.  With SME/SMB customers facing liquidity issues, Microsoft Financing delivered a 0% Financing Offer that ended March 20th, 2009 on top of its Business Ready Licensing simplification programs.  The new Smart Pay offer allows customers to buy now and pay 6 months later with 24 or 36 month terms so long they take action by June 30, 2009.  Unleash Your Potential provides customers with a best practice business solutions road map to accelerate design time and improve implementation outcomes.

The bottom line – Microsoft Dynamics should be considered in short lists

Whether it be usability, functionality, integration with other services, or global availability, Microsoft Dynamics family of enterprise applications continue to improve with each release.  Large enterprises looking at costly upgrades of legacy ERP and CRM systems should consider the option of Microsoft Dynamics as an alternative in their divisions or subsidiaries.  Small and mid market customers will immediately benefit from usability and integrating with Microsoft Outlook and should leave Microsoft Dynamics in their short lists.

Your POV

How was your Microsoft Convergence experience?  How do you feel about your Microsoft Dynamics products.  Post your comments here or send me a private email to rwang0 at gmail dot com.  Thanks and looking forward to your POV!

Other useful coverage links on Microsoft Convergence 2009

*Other purpose built ERP options include Microsoft “Rainbow Stack” competitors Agresso, Epicor, Exact, Sage, and Syspro, SME vendors such as Lawson, IFS, Infor, and SaaS options such as NetSuite and Workday.

Copyright © 2009 R Wang. All rights reserved.

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Monday’s Musings: It’s The Relationship, Stupid! (Part1) – Stop Commoditizing The Client Facing Workforce

Published on March 16, 2009 by R "Ray" Wang

Economic Downturn Challenges Enterprise Software Executives To Uphold The Sanctity Of The Vendor – Stakeholder Relationship

Conventional wisdom would assume that in a challenging economy, strong relationships would be a key success factor to retaining business and mitigating loss of revenue.  Unfortunately, this does not appear to be the case for many companies, including vendors in enterprise software.  Blame it on the economy, fear of depending on their people, or plain greed, but a good number of executives have taken an approach that attempts to enrich their fortunes at the expense of their vendor – stakeholder relationships (i.e. employee, customer, and partner).  Now in their defense, these muckety mucks face dire times and hard decisions need to be made.  However, they are not in a unique situation.  All stakeholders face the same pressures and require a win-win approach.  Yet, this arrogance places their companies at risk by jeopardizing brand value, trust, and market credibility for short term gain with investors.  Five common conventional wisdom strategies that destroy relationship value often include:

Part 1: Commoditizing the client facing workforce at the expense of the client.  With labor a major cost component for software vendors, it makes economic sense to layoff more expensive, experienced labor in favor of  lower cost workers.  Theoretically, the development and standardization of business processes can both improve quality and support an interchangeable workforce.  This level of “industrialization” can bring benefits, especially in many back office functions where processes are well defined.  Commoditized processes can be placed in shared services and even outsourced.  But in practice, when enterprises apply this theory to highly variable processes in client facing areas, they often fail to account for the value a more gifted or experienced employee may have in leveraging their relationships to deliver lifetime value, retention, and loyalty.  In fact, few managers even understand, let alone appreciate the “art” that’s required to create this level of success.  The result- client perception of lost value and a negative impact to the bottom line, especially when there is choice in the marketplace.  Let’s look at 3 real examples:

  • Changing to a more cost effective indirect sales strategy. “Our sales contact for the past 5 years left the company a year ago.  His replacement is now based at headquarters which is 2 time zones away.  We spend $300,000 a year with vendor X and the new girl has not come by once to introduce herself.  In fact, we used to grab lunch once a month to chat about our issues and we’d craft a solution in a matter of hours.  Now we spend less because we see her less.  Even worse, we’re told that we now have to do everything by phone.  This is unacceptable for such a large account.  An inside source tells us the sales rep spends all her time with telephone based campaigns and is measured on the number of interactions but not the quality of interactions.  We deserve a local resource. This is why we are weeks away from considering a new vendor” – Global insurance provider,  VP of Application Development
  • Replacing sales reps after a merger. “We gave our business to the other vendor because we felt our sales rep could not be counted on.  Since the merger, we’ve had 7 reps in 2 years.  For awhile, we had 3 reps call us a the same time. This current guy barely knows our business and only calls when he smells money. In fact, he has not even visited us once.  He lacks the experience to understand our issues and craft appropriate solutions.  He does not advocate for our success with the product.  We have to do all the heavy lifting including reaching out to the development teams.  We still don’t understand why he has to check in with his manager for everything.  This is truly not the partnership we once had with our more senior account execs who were laid off a year after the merger.” – Public sector agency,  Director of ICT
  • Terminating an “expensive” business development manager. “Six months ago, we were notified by our partner manager that he was being let go and a new one would be assigned.  We had worked with XXXXX for the past 3 years from the inception of the partnership.  The partnership provided $XX M’s in revenue and we believed the vendor would value the relationship we had built.  The initial transition was smooth but as we started to get into the technical details, the new guy lacked the educational and experiential background.  In fact, the guy was at least 3 levels junior and he evolved into just an order taker.  We finally confronted the vendor and confirmed our suspicion that cost had something to do with XXXXX being let go.  Last week, we told our partner that we would end the relationship unless they found a suitable replacement.” – Top 30 ISV – VP of Product Development

The bottom line for end users – clients have leverage in crafting beneficial relationships.

Current market conditions provide clients with the power to determine who they do business with.  Clients who have established strong repoire with a vendor’s client facing staff should make clear to that vendor their expectations in the relationship.  Criteria often include experience level, resolution process, executive sponsorship, and influence in product strategy.  In some cases, clients have written their customer service rep, sales account manager, and partner manager into contracts as both an incentive and reward to the individuals who have lived up to their end of the bargain.  Here’s two examples that illustrate the power of relationships in action:

  • Sales rep’s relationship tips deal. “We could have given the deal to either software vendor.  However, the relationship we had with their senior sales director made the difference.  She knew all our players and had followed our issues over the past 4 years.  She had proven to be good to her word and had our trust.  She came in proactively to always hear what we needed and never waited until the last month of the quarter or contract renewal.  When she walked in to the meeting with our new CIO, he knew it was the real thing.  Despite the recession, we understood their challenges and agreed to meet half way for the next year and they agreed to longer term discount commitments” -  Global 2000 process manufacturer,  Senior Director, Business Apps
  • Client dictates solutions delivery team. “The announced departure of a key player in the vendors’ professional services team midway in the project led us to consider postponing implementation for the year.  Once the VP was informed that the project would be jeopardized by his departure, changes were made to retain the individual.  The vendor agreed to have the individual and 3 other key technical resources written into the contract.  We ended up signing a 2 year deal with the vendor.” -  Consumer product goods division, Office of the CTO

The bottom line for vendors – place value on your staff who manage client facing relationships

Consequently, vendors must look at other metrics other than overall labor costs.  One approach – start by conducting a relationship audit.  Identify high revenue customers and partners and the client facing employees that serve these stakeholders.  Determine revenue per employee and profit per employee.  Quantify their relationship value with clients.  Focus on retention strategies, not replacement strategies.  Then work with these clients to identify win-win strategies to solidify long term value.

Your POV

Got a success story where your vendor has put a value creation strategy based on keeping good relationships? Or got a great story on the bone-headed thing your vendor or your employer has done to destroy value in the relationship!  Send me a private email to rwang0 at gmail dot com.  Posts are preferred!   Thanks and looking forward to your POV!

Copyright © 2009 R Wang. All rights reserved.

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