Duncan Jones (Forrester) on why Strategic Relationships Go Bad – part 1

Duncan Jones of Forrester has published an excellent and very interesting research paper, titled “Transform Your Strategic Supplier Relationships From Duels Into Duets”. You can get it here if you're a Forrester subscriber - I think you have to pay if you're not.

Duncan Jones (looking very focused)

(I’d hoped from the title that maybe we were going to get some obscure music references, but unfortunately not!)

When I speak to senior procurement professionals in the IT area, it's common to hear complaints about vendors – and Jones observes the same phenomena, including through a recent Forrester survey. But, says Jones, there's a real paradox.

"In many cases, the suppliers causing the biggest problems for vendor managers are also the ones that vendor managers call “strategic partners.” They are the vendors receiving the largest shares of the client’s budget and should therefore be giving them the best possible commercial treatment and delivery service level".

But they don't. They’re reluctant to hand money back when they don't deliver; they take advantage of contract vagueness to exploit the buyers, and so on. This problem is likely to get worse, Jones thinks, as managers want to spend more of their budgets on new IT, not maintenance of old systems. Meanwhile, the large IT firms get ever more dependent on revenue from existing software (maintenance etc.)

“For instance, Oracle and SAP now get just 26% of their revenue from new license sales, whereas five years ago they got 34% and 32%, respectively”.

I found that data pretty shocking to be honest.

Much of the problem is down to a failure to communicate effectively. There’s a great table in the report that looks at what the buyer means  / what the seller means. For instance, when the buyer says they want innovation they mean: “Reduce costs. I expect my service providers to find ways to deliver their services more efficiently and pass the savings on to me”.

When the seller mentions innovation, they mean, “Increase revenue…new products that they can sell to existing customers”.

All of this leads to what Jones calls “adversarial transactional behavior”, and that means problems for strategic partnership type relationships. Traditional negotiations lead to rigid contracts that cannot adapt to changing circumstances, and to winners and losers in the deal – not a sound basis for real collaboration and communication. So what are supposed to be “partnerships” (duets) become duels, with no clear understanding of what the term means, too much emphasis on price, and a reluctance on both sides of the deal to compromise and look at the other party's needs.

This all rings true from my personal experience as a CPO in several large organizations where IT providers were amongst our most strategic - and yet most troublesome - suppliers. So given all of these issues, how can we break out of this, and look to convert the duels to duets? We’ll tell you the answers that Mr. Jones proposes in part 2 of this series .

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