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Beware of Vendors Bearing Solutions

Written By: Dave Stein
Published On: April 30 2005

Introduction

Hype. Years ago we called it "leaning into the wind." It was a philosophy—maybe even an art—that enabled software companies to be competitive, to build market share, and to sell sufficient product in a timely enough fashion to fund ongoing development. If you leaned too far into the wind, you fell on your face. If you didn't lean far enough, you would watch their backs as your competition took the market share upon which you built your dreams.

Leaning into the wind is a metaphor that used to mean announcing, marketing, demonstrating—even selling—something that you calculate will be ready by the time the customer is prepared to actually use it. It was a complicated calculation back then. Not quite the "square root of development effectiveness times the standard deviation of sales aggressiveness divided by the total number of competitors in your market minus the pressure from the venture capitalists," but close.

Ten years ago business was done aggressively, but ethically. The intent with most vendors was to deliver to the customer what they needed when they needed it, however close to the deadline it was. Once in a while you were late, but you always made it up to the customer. Always.

During the last five years, leaning into the wind has transmogrified itself into a level of hype in the enterprise solutions marketplace that would make the aluminum siding salesmen of the 1950s hide their wallets and run for cover. That hype has been a major factor in the recent downfall of some of the enterprise application industry's most illustrious players.

Were lie detector tests available to IT management today, fewer of them would have to leave their former jobs in embarrassment, fewer companies would be at the brink of survival due to new system implementation "snafus", and far fewer vendors would be out there PowerPointing their way to the next quarter's sales goal or the big IPO.

Two of the reasons for that hype are the vast number of competitors that are transforming what were differentiated solutions into commodities and the pressures felt by the publicly held companies to deliver numbers aligning to Wall Street expectations. Consider these examples of how serious the hype has become that IT management is facing:

  • A sales team employed by a publicly held ERP provider surreptitiously coded an application prototype matching customer-required functional capabilities, and then represented that as standard product to win the deal. When the customer found out what happened, they sued the vendor. It was not the first time this happened with that vendor.


    A well-known solutions provider's sales teams routinely "forgot" to tell prospects that an additional (and expensive) piece of hardware was required in order to run that vendor's next generation version of their product. Even after the requirement was mentioned in a Gartner group report, the practice reportedly continued.

  • Some vendors routinely announce partnerships with other vendors. In many cases, this is not strategic, but rather slapped together to win an individual sales campaign where the prospect requires integration of both products. A press release is issued, the deal is signed, and three months later the customer is left without the answers to such questions as, "what happens to me when there is a new release of either product." By the way, most often the names of those partners remain on the web sites of both vendors as proof that they are offering a "broad footprint." Prospective buyers are left with the mistaken impression that something more valuable than the distribution of a press release was accomplished. This too is hype.

  • Some of the vendors who have failed to turn a profit for the past number of quarters and whose very survival is at risk today are the same vendors who cut their prices far below profitable levels to win deals out of desperation because none of their other questionable selling tactics worked. (And they managed to convince those buyers they were getting a good deal.)

  • Some vendors who claim hundreds or thousands of customers have trouble producing five good references when pressed by a prospective customer.

  • By now we are familiar with how the "Big Five" and other consulting firms steer ERP evaluations to the vendors with whom they have partnerships. At the same time the fact that those very consultants have trained, in some cases, thousands of their own people on those vendors' products is not hidden from those who would look on the vendors' and consultants' web sites. Is it possible that the consultants steer the customer not toward the best solution, but toward the consultant's partner's solution to keep that consultant's thousands of employee's utilization rates high? If you believe that this is possible, you understand hype.

  • As the tier one ERP players drive downward into the mid-market, pictures are painted and visions are portrayed of the benefits of Fortune 500-like systems in those $80 million companies. It just doesn't work that way. More hype. The people implementing and using the systems are different and the cultures are different. Smaller companies generally have very limited experience managing complex projects and most importantly, the financial and personnel tolerance for mistakes is dangerously low. A mid-market company is not a small Fortune 500 company.

What are the implications?

When these systems fail to do what was promised there is always a hefty price to pay: reduced profits, lost customers, angry shareholders, unpaid suppliers, erosion of market share, out of control budgets, damaged careers, and in some cases, such as FoxMeyer Corporation, bankruptcy court.

As people responsible for some of these unfortunate decisions move on to other jobs in other companies, only now are we beginning to see the impact of the hyper-marketing and -selling trend of the past five years: software that has never been implemented, where companies are still paying annual license fees, as well as past due bills for all the consultants who were part of the "solution;" aborted projects where replacement packages were quickly found driving the cost as high as two to ten times the original project projections; companies missing critical IT deadlines for the openings of new plants, acquisitions of new divisions, and meeting requirements of key customers, leaving those companies' personnel and executives severely exposed from a financial and personal perspective; and the very companies that did the hyping are losing money, or in some cases out of business, leaving their customers in an understandable state of fear.

With news about the latest IT disaster coming every week, evaluation committees are trying desperately to figure out how to assure themselves and the companies for whom they work that every risk is at least recognized, if not eliminated.

In many cases they are going about it the wrong way. The elimination of risk is not the result of a thicker RFP.

Recommendations

Without intending to outline a comprehensive evaluation process, there are some very simple things that you can do to prevent yourself and your company from being tomorrow's lead story in the industry trades:

  • If you are going to hire a consulting firm to assist you with your requirements, consider using a different firm to manage the implementation, so there is no conflict of interest.

  • If you use an RFP as a tool, warn each vendor that you will be spot-checking the answers. Then spot-check the answers. If any vendor is found misrepresenting their capabilities in any way, eliminate them from competition.

  • Require a minimum of 15 to 20 references from each vendor who makes your shortlist. They should be in your general industry, of your size, and with similar requirements. If the vendor claims they have hundreds of customers and can't produce 15, eliminate them. They have a sales ethics or customer service problem. Call every reference and speak to at least two people at each company. That will likely eliminate the "friend of the sales rep" effect.

  • Carefully measure how well the vendor understands how their solution will impact your business. If the sales team doesn't take the time and effort to understand your business and has no knowledge of or experience in your industry, history suggests you will lose.

  • Check on the employment longevity of the sales and services teams. If attrition is high, there are likely problems.

  • Make absolutely sure that you go to a user group meeting and don't let the vendor restrict your movements. If they try to control your access to other customers, they have something to hide. There are certainly vendors who have great products and services that don't oversell and overmarket.

They have happy customers who have been more successful since implementing those vendors' products. But ironically, those vendors are often not included on long lists because of lack of market presence. That is most often due to relatively small marketing budgets, and a generally unwillingness to play the hype card.

Summary

The burden remains on IT management to understand and minimize the risk involved with evaluating and selecting business solutions.

Once the risks posed by the negative trends affecting the enterprise solutions marketplace are internalized, IT management will likely search out a greater number of potential solutions, not just the obvious ones. IT management must relentlessly qualify all of them. Tough questions must be asked and answered. In some evaluations, for example, one vendor's integrity (validated by their current customers) must have more weight than another vendor's future product announcements, long list of partners, or the number of buzzwords embedded in their latest press release.

In this vortex of hype, when it comes to new ways of evaluating potential suppliers, an open mind is definitely required.

About The Author

Dave Stein, an expert in selling and marketing enterprise software and services, has over 20 years executive management and consulting experience in technology. He provides vendors with insights and strategies around ethically positioning the business value that their offerings provide, especially in fiercely competitive situations.

On the user side, Stein guides buyers through the specific vendor-caused risks associated with the acquisition of enterprise software and services in today's environment of hypermarketing and hyperselling. He assists user companies in effectively mitigating those risks.

Dave Stein has sold to and consulted with companies from $10 million in sales to the Fortune 100—in 48 of the 50 states as well as more than 20 countries.

He can be reached at dave@thesteinadvantage.com

 
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