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.
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.
(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.)