The Hidden Costs of Relationships

A word cloud of several significant players in the IT industry.
There’s a piece of inherited wisdom in most IT organizations- vendor complexity is a good thing.
T

he theory goes that if you have multiple manufacturers in your environment, you foster competition between them and drive down prices on every purchase. There are practical implications on long term costs associated with supporting vendor complexity in your operations, but let’s take a step back and look at the implications for front end purchasing.

First, the case for vendor complexity. Good old fashioned capitalism. Having multiple manufacturers and vendor partners competing for your budget forces a reduction in prices on a given purchase, resulting in more efficient spending habits and reducing capital spend on an ongoing basis.

This makes perfect sense on paper, but it leaves out a critical element- the importance of relationship building. Why is that? Let’s take a look at a hypothetical case study.

Company X needs to refresh their server platforms. Their past history of purchasing is based 100% on price. Whichever partner/manufacturer combination that can bring them the lowest prices will win the business.

What are the negative consequences of that approach?

THERE ARE THREE PRIMARY EFFECTS OF THAT WAY OF DOING BUSINESS:

1) IT REDUCES EVERYTHING TO A TRANSACTION.

Some might see this as a feature of the theory, but it ignores the negative consequences. The first is with the manufacturer- the cost from a manufacturer can be negotiated by the partner. But, getting cost reductions requires a strong business case, which ultimately rest on the strength of the relationship. If a manufacturer believes that they are in a good position to win the server refresh, as well as other projects you have in your plans, they can make a business case to reduce their price to the partners for every project. Reducing it to a transaction based solely on price ties their hands, and actually reduces their willingness to build that case.

The second negative consequence is for the partner/VAR that sells it to you. In a similar way, they are forced to cut their own profitability to get a win- and you can always find a partner willing to do that. But, over time, that partner is less willing to want to work with you, it just isn’t worth the time and effort to end up losing over a matter of percentage points. Post sales support will also decline to the point of non-existence.

2) IT IMPACTS THE CONSULTATIVE VALUE THAT MANUFACTURERS AND PARTNERS CAN BRING TO THE PLANNING PROCESS.

If the partner and manufacturer knows that no matter what, the final decision will only be based on price, they might not be willing to help consult during planning. This is limiting to the end customer over time because they are not availing themselves to the expertise and strategic thinking afforded by partners and manufacturers. This cost is harder to define, as the negative results are not always apparent. But, over a long enough time frame, the customer will be limited by their own thinking and experience, which will ultimately hurt their bottom-line.

3) YOU’LL EVENTUALLY GET BLACKLISTED.

In this case, fired doesn’t necessarily mean that the partner and manufacturer won’t supply a quote. However, they will see it as a limited opportunity and will act accordingly. They’ll send the quote back, and that’s all you will hear from them. And everyone will be that way. You’re effectively fired as a customer.

LET’S RUN THE HYPOTHETICAL AGAIN, BUT THIS TIME WITH RELATIONSHIPS BUILT IN.

Shaking hands indicate a partnership not founded on a cost basis, which can provide numerous benefits.
Building relationships on more than just a cost basis can provide numerous benefits.

Customer X has a server refresh coming up. They contact their partner pool and ask for their pitches. Through the last few years, they’ve enjoyed the customer experience and post sales support of one partner/vendor combo in particular, and have actually made several purchases with them.

There are several positive advantages that are now in play, because relationships have been established.

1) THERE IS A HIGHER PROBABILITY FOR BETTER PRICING.

The “favorite” partner vendor combo can, because of past purchases, make a better business case for better pricing for this project. Additionally, their are pricing benefits for future projects. Because of the relationships built, the favorite partner/manufacturer combo rightly believes they have a shot at winning future business. As a result, better pricing is more probable for future projects.

2) THERE IS AN OPPORTUNITY FOR STRATEGIC THINKING.

The favorite partner, through the course of several recent meetings has built an understanding. They know the customer’s shared storage has been a recurring issue, and is likely up for refresh next year. The partner calls up the customer and says “I know that your storage refresh is a year out, but would it make sense to look at a hyperconverged solution? We can size it to take care of your server refresh now, and then scale it for storage in next year’s budget.” The customer hadn’t thought of this. There is now an opportunity to innovate the datacenter platform because an outside set of eyes was brought in.

3) THE CUSTOMER IS ABLE TO OUTSOURCE THE DUTY OF STAYING CURRENT ON MARKET TRENDS TO A TRUSTED PARTNER. THIS ALLOWS THEM TO FOCUS ON THE TASK OF PROVIDING VALUE TO THE BUSINESS.

Because of the relationships that are built, the partner/manufacturer are more than willing to provide educational updates. Even when there are no projects currently on the table, they are there to help. This leads to better future planning. Things like what should be moved to the cloud, how to accommodate major applications/upgrades, and how IT can provide more value to the business while lowering operational costs can be discussed thoroughly.

When viewed through the lens of relationships, it becomes clear that the advantages of vendor complexity have out-sized negative consequences for customers.

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