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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 ^[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 and risk jeopardizing brand value, trust, and market credibility for short term gain. Let’s look at five common value destruction strategies:

• 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 3: Pushing products that clients don’t need in order to grow revenues

At this point in time, clients really need their vendors to propose options to help theme save money.  Clients seek assistance in reducing their cost basis of running their software.  Though in some cases, new products may help clients create operational efficiency or meet regulatory requirements, clients increasingly report their sales people pushing a number and not a product that meets their needs.  Three cases in point:

• Forcing clients to spend more to keep a low rate for maintenance. “Our sales rep told us we needed to spend a total of 5M euros for maintenance in order to keep the lower tiered rate of maintenance.  We were short by 500,000.   He then gave us a list of items we had not purchased to date.  Nothing on that list was beneficial to us.  We did not need BI.  We did not need compliance.  He said this was of no consequence.  We needed to come up with the difference and he would not make any exceptions.  We also wanted to reduce the number of instances of ERP.   He even got angry at us!  Our experience with this vendor showed us how much they took our relationship for granted.  We now have a concerted focus to limit our exposure to this vendor “  Global Oil and Gas,  ERP Director
• Selling additional products that have no future road map because of post acquisition road maps. “We were told that we needed to upgrade to the latest version of our XXX product.  Post acquisition we were left confused as to the final product road map.  Our contract renewal came before the final decisions were made.  We asked for a 60 day extension.  The sales rep told us we would be out of compliance should we wait.  Against our better judgment we went forward with the purchase of additional licenses only to find out the product would be discontinued.  We asked for credit towards the new product and were told none would be given.  We have put a freeze on all future spending with this vendor for the next 8 months “  North American Manufacturer,  CIO
• Suggesting additional consulting services that require additional product purchases. “They came to us with a consulting offering that would help us identify and benchmark how we were doing compared with other companies in our cohort.  We thought it might be a good idea.  After spending 150K with them, we received good insights.  However, at every step, they tried to get us to buy additional products in BI and compliance or upgrade to their latest suite release.  We called members in our local user group and they told us that other members have complained as well but the user group had been over-influenced by the vendor and was not able to assist”  Global CPG,  ERP Program Manager
  

The bottom line -relationships should focus on solution selling and not meeting total account values ^[8].

Strong relationships are crucial for success, particularly in a difficult economy.  Despite the pressures to meet unrealistic revenue forecasts, clients should expect their vendor sales teams to take a solution selling approach to identifying options to reduce costs.  Those that fail to do so will face a wrath of rebellion when clients have the opportunity to take action.  The good news, vendors who understand how to craft real solutions that provide ROI and immediate impact, have already implemented programs to provide assistance ^[9].  Examples include improving existing peer forums, renegotiating existing terms, offering more entry points to support and maintenance options, assisting with vendor financing, and lowering cost of usage and ownership.  Kudos to those vendors!

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.