Whatever
happened to the big IT spending recovery that was supposed to make 2004
such a huge year for the IT industry?
The
theory was that Y2K’s record spending in every area of IT, which
was followed by a significant drop in spending following the non-event
and the subsequent economic down turn in North America, was due for
a cyclical resurgence.
Supporting the IT resurgence argument was the fact that modern technology
has a typical useful life of four to five years and the fourth quarter
of 2004 marked the end of the fifth year. Yet an Ipsos-Reid report (1)
published in June of 2004 revealed that Canadian companies do not expect
to spend any more on IT in 2004 or 2005 than they did in 2003.
The
Ipsos-Reid survey predicts that compared to the $46.7B spent in 2003,
there will actually be a drop of 5.6% in the planned spend for 2005
in Canada, and that the strategies vendors use to counter this trend
will determine their revenues for the next two years.
The
Landscape is Changing
So
how are vendors reacting to the dismal news?
Consolidation
seems to be the current answer to diminished revenues. HP and Compaq
changed the hardware landscape, PeopleSoft and J.D. Edwards have eliminated
a powerful ERP software alternative, and IBM and PWC, KPMG Consulting
and Bearing Point and others, have eliminated a number of competitive
service options.
A
Gartner Group report (2) published in 2003 predicted that massive vendor
consolidation was inevitable and that in many sectors, power would shift
back to the vendor. Gartner went on to claim that of the 2,300+ publicly
traded SW companies, there were 50% to 60% too many and that consolidation
would create an oligopoly of fewer vendors by 2005.
So
IT spend is dropping, the vendors are consolidating, and it’s
obviously going to affect the future of IT deals. Where product lines
overlap, alternatives are being eliminated. Where they don’t overlap
additional services are being added and bundled among fewer vendors,
creating more complex deals.
Buyers
Need a Measurable, Repeatable, and Improvable Strategy
As
a strategic negotiator and an alumnus of the IBM sales school, I was
keenly aware not only of IBM’s formal, written and well-defined
sales strategy, but also of their step-by-step process for executing
that strategy. In fact, it was knowledge of vendor strategy and process
that enabled me, post-IBM, to assist many clients in defining a proactive
strategy and process for dealing with vendors in a manner that was fair
and beneficial to both parties.
Do
shifting trends in the IT marketplace have an effect on the vendor’s
sales strategy? If so, a change in purchasing strategy is needed. According
to a survey conducted in August 2002 by Think! Inc. (3), of all vendor
organizations polled 95% had a written and formally communicated sales
strategy and 85% had a step-by-step process to execute that strategy.
However,
when it came to a negotiation strategy, I was astonished to read that,
“82% had no written and formally communicated negotiations strategy
and 81% had no step-by-step process to execute that strategy.
“Despite
the tremendous impact negotiation has on how an organization is viewed
by the market, as well as on the bottom line, more often than not it
is seen as tactical and reactive rather than process-oriented and proactive.”
Time
to “Tweak” the Strategy
To
counter an effective sales strategy, common sense would suggest that
one should have an effective purchasing strategy. Since they published
in 1981, many professional purchasers have followed the teachings of
Fisher and Ury (4). From them we learned to focus on issues, not positions,
to insist on the use of objective criteria, and always to have a BATNA
(Best Alternative To a Negotiated Agreement).
Can
the same strategy have as much effect today, in an environment where
the IT spend is dropping, the deals are more complex, and the vendors
are consolidating their power, and using a repeatable, measurable and
improvable sales process while most buyers do not have a parallel strategy?
Unfortunately,
that doesn’t appear to be the case. The vendors have a highly
evolved sales strategy and professional purchasers need to be prepared
to address it. The latest and most relevant work I’ve come across
is “Strategic Negotiation” (5), by Brian J. Dietmeyer with
Rob Kaplan and just released this summer. It is a follow-up to Dietmeyer’s
previous work and adds immeasurable value to any negotiation.
