By: Jeff Seabloom
We often see large global enterprises whose brands are household names single-sourced to a provider of commodity services and products. Given their size and prestige, client executives expect star treatment (and they should). They also expect that vendors will bend over backwards to give them the best deal, price and service delivery possible, simply because having them for a customer is a real feather in their cap. When providers say they’re offering the best deal possible, clients take those assurances at face value.
That’s a mistake. In reality, client complacency and lack of competitive tension in the sourcing portfolio is a license for the service provider to print money.
Focusing on contractual terms and existing pricing can expose opportunities to drive significant savings. The starting point should be comparison against market standards: how does pricing stack up against what peers, competitors and top performers are paying? When executives see the variance, they’re often shocked to learn that brand prestige has no impact on the competitiveness of hardware pricing. And even clients who have done recent competitive assessments are surprised by how quickly market pricing moves.
Recent shifts in virtualization and converged infrastructure, for example, are providing significant competitive options, and providers of those services need to be held to a higher competitive position. The technology shifts companies expect are becoming earthquakes, and are happening in shorter intervals and with more impact (can you spell O365?) To respond to these fundamental changes, large companies need to better utilize third-party expertise, benchmarking data and industry best practices to drive cost out and add value.
Regulatory mechanisms should also be explored. The fact is, many service providers – especially those that do business with the government – are subject to market-defined pricing guidelines. Clients should ask questions regarding these types of arrangements, and expose the hidden opportunities that can be found there.
If a rigorous analysis finds that the pricing variance from market standards is minimal, the ability to negotiate a reduction of even 2-3 points is significantly material, given the size of many contracts – when millions of dollars in fees are involved, large savings should be expected in return.
The takeaway here is that, while size, scale and name recognition can be a plus at the negotiating table, they don’t add up to a free pass that justifies abdication of responsibility for due diligence and contractual oversight.