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My good friend and ESG colleague Terri McClure @esganalysttmac recently blogged about a thought leadership piece I had presented at an analyst call last week. She made a very good job of explaining it and so I thought that I would write a little more about it here:

I call the concept the “Golden Triangle” and it represents the three key influences that C-level enterprise IT buyers have when they come to make a large scale IT procurement decision.

Golden_Triangle

Quite often the buyer does not consciously consider each of the three influences but nevertheless they play a significant part in the decision process. Let’s look at them in more detail:

Cost is always an influence but is (perhaps surprisingly) rarely the most significant. Let’s look at the evidence, it is rare for a market leading product to be the least expensive (ask any EMC, VMware or Oracle salesperson). They are market leading because they sell more than everyone else – not because they are cheaper – I assure you they are not, nor would they want to be. Point made?

So actually the most compelling influences are Risk and Cycle Time. These influences can unseat an incumbent supplier or glue him firmly in place.

Cycle Time is all about BUSINESS agility – not about being able to stand up a server or roll out a new LUN faster (although they may in themselves have a positive influence on a business process). The question is, does this purchase decision help the business people to kill off their competition, serve customers better, fight off a strong competitor or be able to deliver new products faster before the competition does? If it does that is a MUCH stronger influence to buy than just being cheaper!

Risk refers to Business Risk – not much to do with ensuring that backups are taken regularly or equipment reliability of itself (although again these may have a bearing on a business risk point). Much more about business certainty, ensuring that the customer service agents are able to deal with customer order in a timely fashion or Invoices are sent out on time or even that the ambulance gets sent to the right address. Again this is a very strong influence on a buying decision.

So selling conversations that focus on technical features – mine is bigger / faster / more reliable than the other under consideration won’t play well in a world over supplied with product size, capacity, reliability and speed.

Here is the vendor lesson for the day – if you can’t define a clear BUSINESS advantage in terms of cycle time and risk reduction, you end up on a downward price spiral that only firms with deep pockets and efficient manufacturing capability can survive.

Incumbent vendors (unwittingly) leverage risk and cycle time to be sticky and maintain their customer base – why change – is it worth the risk? Why change – it is much easier and faster to stay with your current technology, process and services?

Competitors can overcome these objections if they are able to demonstrate business influencing cycle time and risk advantages.

Codicil

(Lets have another look at cost. Cost can be made up of a number of elements, the Capital Costs of acquisition, the Operational Costs of running the product or service, as well as the write off cost of any asset that is being displaced before it is fully depreciated are all well understood but the main cost can often be forgotten, the cost of doing nothing. The cost of doing nothing in replacing old equipment can be greater than all of the other costs combined. Higher energy efficiency and lower support costs can dwarf the replacement costs.)

There Are 11 Responses So Far. »

  1. Excellent post by @stephenodonnell re what CIO's really think about http://bit.ly/4GPwkq

  2. RT @stevedupe: Excellent post by @stephenodonnell re what CIO's really think about http://bit.ly/4GPwkq <- free can cost > switching vendor

  3. […] This post was mentioned on Twitter by Steve O'Donnell, Joanne Moretti. Joanne Moretti said: RT @stephenodonnell What influences IT buying decisions? http://bit.ly/4GPwkq IT is always accused of being slow-Cycle time key! […]

  4. @JoannMoretti RT @stephenodonnell What influences IT buying decisions? http://bit.ly/4GPwkq #IT

  5. Steve, you are spot on! And when a vendor wants to put all the focus on cost, downplaying risk and cycle time, it almost always means they can’t compete on those points….

  6. Hi Canda,

    Thanks for the comment. Your deep domain experience as a professional procurement executive will have exposed you to the Golden Triangle drivers and the completely unstructured discussions that we all have with salespeople. Sorry your 20% price cut just doesn’t move the needle as your offer is too high risk….

    Steve

  7. Excellent post ~ RT @JoannMoretti What influences IT buying decisions? http://bit.ly/4GPwkq #IT #CIO

  8. Risk is tricky. I would not phrase this as Business risk. It is really the perceived risk of a solution. Mostly a soft-angle to it.

    This is the only item in the golden triangle that is not quantizable and varies significantly between individual-to-individual and between Enterprise-to-Enterprise.

    Precedence of a solution or an approach in an Enterprise mitigates this.

  9. Niraj,

    I understand Technical Risk but this is absolutely not what I am trying to explain. Let me try again – if a solution can reduce the business risk of collecting payments or loosing customers – it will get bought and it will overcome cost objections and unfamiliarity objections. The Golden Triangle is a CIO decision filter – I believe that you have been thinking as a Techie – “we haven’t seen it work here…”

    Hope that helps.

    Steve

  10. Steve –

    Interesting points by Niraj – I think that while this is a CIO level triangle, there is a technocal aspect that middle to upper managers think about that mirrors the CIO triangle. In the technical one, risk = technical risk (outages, unproven vendor, new technology), cycle time = time to refresh technology, stand up new apps, provision capacity to respond to changing business needs, and cost = cost (operational overhead costs based on recent ESG survey data). Thoughts??

    Terri

  11. Terri,

    I think you have a very good point and one that we ought to explore further.

    Steve

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