05 April 2024
Topics in this article
  • Technology Sourcing

Why look to your mega-vendors?

A common misconception exists amongst organizations that deal with mega-vendors. With many implementing long-term deals with monopolistic players, it is often thought that not much can be done post-agreement. That the deal is ‘the deal’ for three or five years or more. But this isn’t the case. 

The reality is that you should be renegotiating agreements with your mega-vendors at least annually. Your needs and their product offerings are ever-changing from the day the agreements are signed. The longer those deals are left, the more out-of-synch from your true ‘now’ they become, and the more value is left on the table. 

In an era led by innovation, mega-vendors are often at the helm of what’s new and make up the core product stack of many organizations. These players experience significant revenues and market share and are increasingly expanding into new offerings in response to trends like AI and digital buying. Ultimately, these providers are too strategic for a business to ‘ignore.’ Proactive engagement and effective management, in our experience, can lead to great opportunity realization.  

Framing and delivering value

While we have seen increasing global prices from mega-vendors, across products and services, the focus turns to how to limit those increases, optimize value, and mitigate future risks to protect your organization. 

Suppose we accept that prices are going up. Further, we accept that most firms are unable or unwilling to make the switch away from leading-provider product lines (in a long list of CIO priorities, this is unlikely to rank high). In that case, we must conclude that getting value from the existing deals will mean figuring out how to stay on top, if not ahead of these opportunities and risks as they emerge. 

This requires time, effort, and a good blend of technical and commercial nous. In our experience, those who achieve the best value from their mega-vendor deals do the following 5 things effectively. 

1. don’t wait. Take a proactive approach to renegotiation

Often, mega-vendors will represent the majority share of an organization’s third-party technology spend, and the amount spent is increasing as overall technology spend grows in response to greater digitization globally. Just as your company’s roadmap and requirements may change annually, so too do the mega-vendors. Ensuring you dynamically renegotiate annually to maintain control of the value you are receiving becomes essential. Be bold and intentional, interrupt your term, and keep the relationship strategic. 

Broaden your view of value, too. In addition to targeting cost out, target ways to limit the increases (some of which are unavoidable through subscription) and seek additional concessions for less overall cost. 

2. Keep the wider landscape in mind AND drive greater value at a portfolio level

Some products might present a higher price point in isolation, however, taken in the round could reduce your overall enterprise application value and drive a total saving. To access this value, you need a thorough understanding of your mega-vendor estate and the wider market impacts on its products. It is only through a robust understanding that value and risk can be effectively balanced by activities such as: 

  • Considering “Hero products.” Certain products have disproportionate negotiation value when dealing with mega-vendors. Look at other products in its suite to replace your current solutions. 
  • Exploring cross-functional deals through cross-over with products and services to drive a better overall deal. 
  • Choosing your reseller wisely. Do they have the right accreditation and credentials? How independent are they? What are pass through costs and benefits to them? Run a selection process based on their capabilities. 

3. Take a joined-up approach and leverage your purchasing position

Not involving the right people for the total deal value or not consolidating requirements will leave value on the table – this needs C-suite engagement. Many fall into the trap of engaging with mega-vendors on a piecemeal basis at a brand or regional level. You will be treated as multiple smaller clients if you don’t act like a big client. 
 
Deal scale dictates who can get you the best results. Act if you feel undervalued by your account manager; escalate or request a change to the right fit for you. To re-iterate, a thorough understanding of your estate is key here. Showing you have a high level of insight into your relationship will strengthen your negotiating position. It will encourage proactive management of the relationship from both sides. 

4. Learn from past deals to mitigate future risks

Identify where you have lost value through underutilized support and slower than anticipated rollouts from your previous deal. Did the mega-vendor help you drive full value from the previous deal? Leverage your negotiation, build in relationship and performance management to mitigate future risk. 

5. Spend time on your forecasts to optimize volume vs. rate dynamics

Under-forecasting demand will lead to lower committed volumes and higher unit rates. This is often the most value-reducing mistake that we see. Based on a trend of increased usage, capping the discount tier at year three volumes leaves value on the table if the forecast continues to increase. This is another reason to keep your mega-vendor deals fresh and reopen them if you are tracking above or below your original forecasts. Be realistic, not cautious. 

Get in touch

Working alongside technology leadership and their teams we have a strong track record in driving material value from deals and relationships with technology mega-vendors. If you are interested to understand what you could do and what you could save, contact us.

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