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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 ^[2] (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 ^[3]
• Part 2: Slashing the quality of support and maintenance while failing to deliver value ^[4]
• Part 3: Pushing products that clients don’t need in order to grow revenues ^[5]
• Part 4: Under-investing in R&D and then repackaging existing content as new innovation ^[6]
• Part 5: Living in denial by ignoring stakeholders ^[7]

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 ^[8]. “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.