June 6, 2013
Many clients ask me for help in dealing with very large software companies who, in their opinion, always seem to have the upper hand in negotiations. "How can I make myself less dependent on X?" they ask, or "how can I cut the amount I have to pay Y each year?" They're CIOs or sourcing professionals who are used to being able to push suppliers around, threatening to kick them out if they misbehave, and they struggle to accept the reality that their normal tactics won't work with the likes of IBM, Microsoft, Oracle, SAP. My advice is, get used to it. These companies have grown so big and profitable that they will dominate the business technology market for years to come. Yes, they will face competition from younger companies, but they generate so much cash and have such strong embedded positions in so many enterprises that they can always acquire the upstart, or develop a product that beats it in most deals.
However, the software giants' huge power isn't necessarily a bad thing. Their scale enables them to spend far more money on development than their smaller rivals, and this usally results in excellent innovative products. Yes, they can also be inflexible, siloed, frustrating, bureaucratic – but when it comes to software development, size matters. So there really isn't much point in questioning whether the world would be a better place if these companies were much smaller than they currently are. Instead, we should accept reality and learn how to survive and thrive under their rule.
The ePurchasing category offers a good illustration. I’ve just been at Ariba’s EMEA customer conference in Berlin, and before that spoke with some of Emptoris’s product development leaders (now within IBM’s software division). Both companies have so far retained their focus on and passion for ePurchasing technology while benefitting from greater investment, additional talent, better foundation technology and expanded sales channels. So far these have outweighed the negatives, such as pressure to launch products prematurely, or difficulties retaining any talented people who are unhappy with the new corporate culture.
There are pros and cons for the potential buyers of these products too – an opportunity to expand a strategic supplier’s footprint on the one hand, but on the other, the risk of becoming over-dependent on a powerful incumbent. Enterprise sourcing leaders considering investing in ePurchasing technology should therefore start by examining their organization’s current relationship with the software giants, so they can decide whether they want to partner more closely with these companies, or instead to channel spend to new, independent suppliers. You can then make functional comparisons in the context of this higher level strategic decision.
Bottom line: Enterprise sourcing and vendor management leaders need a strategic approach for dealing with these dominant software providers, aligned with the reality of how their organization makes important BT decisions. For instance, an ABC first strategy may be right for your company, but in that case you shouldn’t rely on transaction negotiations of each separate purchase. Conversely, there is no point signing a large enterprise agreement if the rest of the organization is trying to reduce its dependence on ABC.
I’m going to be discussing how to implement such an approach in my sessions at Forrester's Forum For Sourcing & Vendor Management Professionals EMEA in London next week. I’ll be suggesting how to set these high-level software sourcing strategies, and how to align commercial negotiations with those strategies. I’ll be going into more detail at the forum, using an, I hope, amusing and informative analogy with a popular HBO TV series – come along to find out which one!