When I write posts for this blog, I normally try not to take the supplier-side or customer-side view, but instead try to show both viewpoints and a possible way forward. I recently worked on a transaction that did not end up going through, and the positions that the supplier took struck me as being worth discussing.
The deal had to do with an outsourced managed service. The supplier was trying to structure their service as being a product offering and not subject to negotiation. For some managed services, this sort of utility model can make a great deal of sense for both the customer and the supplier. Where maintaining rigid consistency in how the service is delivered will yield cost and quality benefits, many customers will see the value in trading away flexibility or customization for a good price and reliable service. The growing number of utility models for various IT services is a boon for many of the consumers of these services, who have no trouble for fitting into the cookie cutter model. For those business consumers for whom flexibility is more important, there are plenty of more flexible solutions, which will obviously be more expensive but may be a better value.
The vendor’s rigid approach to negotiating the services and service levels was not surprising to me. This was consistent with their business model. What was puzzling was the vendor’s insistence on several positions that are, in my mind, completely inconsistent with each other and show a complete lack of interest in being fair to the customer. Specifically, the vendor’s bottom-line, walk away positions were: (i) the vendor could change the service descriptions at any time with what amounted to six months’ notice, (ii) the customer had to commit to a three year contract with very high termination costs, and (iii) the customer could not terminate for cause unless availability was below 95% for three straight months, for a mission critical service that should have 99.9% availability. I think that these positions can be translated fairly to mean: (i) the vendor can change the deal any time it wants by removing or changing services, and (ii) no matter how the vendor changes the services and how bad performance is (with only the faintest of outer boundaries), you are stuck and can only terminate by paying the balance of the contract.
For small businesses, this sort of take or leave it and customer-be-damned approach is something that is all too common. However, I was shocked to see a supplier in a competitive industry dealing with a large customer take such an astonishingly tone-deaf position.
This situation illustrates what happens when a vendor selection is made in a non-competitive procurement. The vendor we were dealing with might have been just as truculent if it were going up against other competitors. However, in a competitive process the customer would have had the option of comparing the terms, pricing and customer care exhibited by that supplier against the same factors for other suppliers. In the end, the vendor with the “my way or the highway” approach might have won because of much better pricing. If that were the case, then the customer at least would have been more satisfied with the vendor’s hard-edged terms because they were accompanied by a price that was attractive. On the other hand, the vendor with the take or leave it approach might be more cooperative (or quickly dispensed with) if the other vendors met the customer’s needs and expectations with more flexible, customer oriented terms.
If you are in a hurry to get the deal done, that is precisely when you have to go with a competitive process, unless you can afford to be told to take it or leave it.