The Big Blue Dilemma: Why Companies Overpay for IBM Solutions

Spend Matters welcomes another guest post from Jon Winsett of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom and shipping.

For the last decade, IBM has found itself in a tight position. Despite an aggressive growth-by-acquisition business strategy, the vendor has found itself falling further behind in the race to the cloud and inheriting an ever-growing number of competitors. The heat recently reached white-hot levels when Credit Suisse downgraded the vendor’s stock under the assumption that the company’s lack of organic growth puts it  “effectively in decline.” With more than a third of its gross profit dollars coming from mainframe and UNIX hardware and software (cash cow, but declining market), it’s clear that IBM is at a crossroads.

But “Big Blue” has been here before, and it’s no stranger to doing what it takes to hold its ground and embed its solutions in the enterprise. Recent acquisitions, including the purchase of cyber-security leader Trusteer and innovations in cognitive computing and artificial intelligence, demonstrate the company’s ability to be aggressive when the conditions are ripe. Their specialized industry knowledge, especially in areas like public sector, healthcare, and finance, has been around for longer than most vendors have been in existence.

The fact is that nearly 95 percent of the Fortune 1000 still rely on IBM’s IT solutions to conduct business. They are entrenched in organizations across the globe, and while their customer loyalty has been hard-won, it doesn’t mean customers should pay more than fair market value for IBM’s products and services.

And they do. Here’s why:

  • Not making IBM privy to future IT needs. IBM is renowned for giving big discounts once they see potential business opportunities in a customer’s long-term IT strategy.
  • Getting too comfortable. Most of IBM’s customers have been working with the vendor for a decade or longer. Things like agreement renewals and annual support cost increases may happen on autopilot – and almost always to the benefit of the vendor. IBM customers need to put pressure on the vendor by regularly benchmarking pricing and terms and bringing in competition.
  • Failure to understand IBM’s hot buttons. IBM will go to great lengths to unseat an incumbent or establish a beachhead in areas like server, storage, and cloud. Customers who don’t leverage this knowledge in their negotiations may miss out on significant discounts and savings.

First Voice

  1. Market Dojo:

    Lori Steele, general manager of IBM Global Process Services recently said that “their focus is on growing our software and cloud-based CRM solutions as part of continuing shift to high value and innovative spaces.” However I must admit that that aim has not come across very well in their marketing and they are facing some very strong competition here. Maybe it is the end of “No One Ever Got Fired for Buying IBM”. It will be interesting to see the innovative side and also the direction they take with Emptoris and whether it will be much of the same or something new and easier to adopt.

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