There are many factors that should be taken into consideration when choosing an outsourcing partner, capability, capacity, culture, price etc. but one that often gets overlooked is size of organisation. Over the past couple of years I have heard grumbles from CIOs and IT delivery managers where they say that their IT partner is not giving them the attention that they deserve or indeed what they claimed they would in that all important ‘Deal Making’ presentation.
The size of a company will impact it in many ways:
- Organisation structure
- Behaviours and Culture
- Decision Making
Also all of these are likely contribute to the quality of relationship between two parties. If the above are aligned, or not too far apart, then assuming the key individuals wish to make the relationship work, then success should be on the horizon. If, however the two organisations are ‘out of kilter’ then there could be trouble ahead.
The most common occurrence of this problem is when small buying companies, the ‘Client’ buy services from large IT service providers, the ‘Supplier’. So what drives the Supplier, or in human terms the Salesman / Account Manager? It is all about, Number of New Customers, Deal Size, Deal Length and Margins – not a Eureka moment I know – but true nonetheless.
So what drives the Client or in human terms the CIO? Quality Of Service, Price, Capability and dare I say – in most cases playing safe. In the 1980s one of the most powerful business phrases was coined – “No One Ever Got Fired For Buying IBM”. So for a very long time this phrase was a recurring nightmare for all non-IBM hardware salesmen, even if their hardware was superior – IT departments across the globe favoured IBM kit. What we see today is that same logic being applied to other aspects of the IT business world, Consulting and IT Service provision, albeit the providers have increased in number from one to many, reflecting the global growth in IT Service provision, particularly from India.
So back to the deal – I mentioned above what drives the supplier, so after the euphoria of the win has long gone, the signatures have dried and the honeymoon period draws to an end – it is the margins, the deal size and prospect of new business that matters, the erosion of margin is considered a sin by the Suppliers Corporate Finance team. On a large account there will be flexibility in the numbers to make the figures work somehow – e.g. by changing some of the team members to ‘lower skilled’ employees, the skills maybe lower, the bill rate will also be lower, but the margin invariably will be higher. However when it comes to a small account everything becomes more visible and there are fewer options to help ease the burden. This is the main reason why in many cases large suppliers are not the right answer for smaller Clients. It will be very hard for the supplier account team to justify to their Corporate Finance team that they should continue to invest into the account when there is little opportunity for growth in business. The relationship is likely to suffer and service levels begin to decline.
There Is Light
A recent client ‘bucked the trend’ when it came to supplier selection. We were very fortunate to be working with a small group of people from a large corporate who had a refreshing outlook on the Supplier market, they were very clear that they did not want the ‘big boys’ because the deal size (lower £ms) did not warrant it (there were also a number of other soft factors, cultural fit, people development etc ..), but also because they wanted to be assured that in the event of there being a problem, or if they needed to ramp up to deliver a regulatory driven project, they would be the focus of attention of the Supplier rather than being the last one in the queue. They wanted to be on the radar screen of the Supplier senior management team – for the right reasons. So they ended up signing a contract with a smallish (circa 500 employee IT services company), knowing that they would instantly become a key client and therefore would receive the attention that their brand warranted.
One CIO said to me many years ago that in the event of getting into problems on a project, it is so important that the supplier has the necessary skills, capability and bandwidth to ‘get you out of trouble’ – that is so true – all of that is relative to the size of the deal and the project - so it does prove the old adage that ‘Size Does Matter’ but for that to hold true, the problem must be visible to the supplier in the first place and the Client account valued …
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