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How can you adapt to the new supplier model and maximise value from your vendors?

With a shift to as-a-Service, there’s more opportunity than ever before to unlock value from your vendors. However, to realise the full potential of your supplier relationships, you’ll need to adopt an approach that’s radically different to the traditional model.

Recently, Voco Partner Julia Dol spoke with experts on both sides of the vendor fence to ask for their take on what makes a successful modern vendor relationship. Vanessa Sorenson, General Manager Enterprise and Trans-Tasman for Spark Digital says cloud has changed the way vendors work. She gives her view on the vendors’ objectives and how they are motivated to achieve results for customers. Michael Dreyer, Programme Director, ICT Change and Transformation for Contact Energy shares his insight on strategies you need to employ to ensure your vendor relationships are successful in the future.

 

ON TODAY’S PANEL

Michael Dreyer Programme Director, ICT Change and Transformation, Contact Energy

Vanessa Sorenson General Manager Enterprise and Trans-Tasman, Spark Digital

Julia Dol Partner, ICT Market Expert, Enterprise Change Consultant and Strategist, Voco

 

Julia Dol

The vendor market is changing rapidly. Previously, when a contract was up for renewal, we saw technology companies delivering like-for-like services with some cost savings but absolutely no other value.  This was mainly due to companies not understanding what they want or what the vendor could deliver.

Today things are different. Vendors and businesses understand that they need to work together to be successful. The vendor needs to understand your business, what it is you want from an aaS model and your motivators for change. The vendor needs to be focused on your outcomes and committed to achieving success. It’s all about fulfilling the potential – being clear on the business strategy, how cloud will enable the organisation and how they, the vendor, can play a critical path in your future success. On the other hand, the vendor is expecting a certain level of commitment from customers. It’s important to share information and priorities with the vendor to get the best out of the relationship.

The business needs to understand the vendor and its services roadmap. A relationship such as this cannot be one-sided. How can the business ensure that it is consuming the vendor’s services efficiently? How does it ensure it is the customer that the vendor wants in the long run? Remember, together both businesses thrive.

Companies that are serious about aaS can achieve results through deploying Vendor Relationship Management (VRM) best practices. This is so much more than operational contract management or having governance meetings with the vendor. It means the vendor really working with and on behalf of the business. Rather than just providing the services in accordance with the contract and meeting or exceeding the SLA, results are gained by challenging vendors to go further through VRM activity. With this model, you ask vendors to work with the business to add more value over the long term, to think of new ways of doing things and embrace new technologies and innovation to improve the business process.  

It’s important to go further than just managing the contract with the vendor.

If we just manage the contract with the vendor, we’re going to get pretty much exactly what we’re paying for, and potentially miss an opportunity to ensure the vendor is really working to improve our business outcomes.

We’re looking for innovation, first mover advantage, efficiency, fine tuning and optimisation. We’re looking for how the vendor and its services can accelerate the business’ success in the marketplace. We’re looking to stay at the forefront of the market without having to continuously return to testing the market. We may be willing to invest savings in new services. Essentially we’re looking for the vendor to go further than the contract. We’re looking for them to bring ideas to the table, to tell us what else we could be doing and help us explore new ways to improve the customer outcome.

Vendor management allows you to build a relationship with your suppliers and service providers that will strengthen both businesses. Vendor management is not negotiating the lowest price possible. Vendor management is constantly working with your vendors to come to agreements that will mutually benefit both companies.

 

Vanessa Sorenson

Cloud has changed the way vendors work. As a cloud aggregator we’re different to other companies in that we’ve invested heavily in our own assets such as our Takanini data centre and through Revera and CCL, and we’ve also integrated multiple cloud services, from different providers such as Amazon and Microsoft, into different combined services.

It’s a hybrid model that enables us to deliver the best result for our customers depending on their needs, whether that be Security, Infrastructure, Unified Communications, Telecommunications, Contact Centre, Desktop and, increasingly, Platform as-a-Service.

It has meant a change for our sales team in that they have become far more commercial – starting with a business case-led discussion, not a cost-based conversation. We don’t presume what our customers want and don’t tell them which service to choose. We provide a solution that will achieve the best outcome for their business.  

Cloud has also opened up far more markets and has stimulated more work than anticipated. For example, it has taken away a few steps in the decision-making process for customers and has helped them better manage some of their pain points. Previously they might have had different teams looking at procuring data centre hosting, infrastructure, servers and storage equipment and IT maintenance. Today, we’re seeing more customers just wanting to wrap everything into one outcome and come to us to take that headache away by enabling them to consume different cloud services from one platform rather than purchasing each service separately. In addition, many are coming to the realisation that it no longer makes sense for them to manage infrastructure.  They want an outcome-based contract with cost certainty and no more lumpy charges.  

Cloud has made it easier to help customers see what is possible by being able to quickly spin up development and test environments so they can try the service. It should be simple to turn this service on and off to contain customer costs. Unfortunately this doesn’t always happen if businesses trial a bespoke service that takes time to stand up and turn off.  This can result in costs being incurred after the trial that could go unnoticed.

For the customer, cloud has taken the mystery out of where the margin lies for the vendor.  Today, pricing is catalogued and transparent and customers know what to expect and can plan accordingly. When it comes to vendor profitability, you look at the whole deal, and for us it has actually stimulated more IT margin because we’ve invested in the kit, Datacentres, and hold the risk. This means a shift from the low margin procurement deals for kit to more services margin overall when looking at the full term of the contract. Additionally, with any vendor, it should also be clear that the service wrap is separate (if this is the case) as it can be a dark art with some vendors pricing low cost for the consumption and making it up on the service support.

For Spark to be successful in this cloud-first world we need to be at the forefront in shaping cloud strategy. We’re seeing the best results when we get closer to our customer’s business issues and really work together to leverage technology to solve those problems. When we crack that and work up an architecture roadmap to meet those needs, then we are successful. We’re not as successful when we’re responding to an RFP where the mandate is simply to achieve the cheapest price. We’re seeing less of these, but they definitely still exist in some industries.

 

Michael Dreyer

When you’re looking at as-a-Service offerings, there are dozens of vendors that can broadly meet most needs when it comes to technical offering and costs, but at the end of the day what is more important than both of those is a partner that is the right fit for the business now, and in the future.

Business requirements are going to evolve over time. It’s important that you look beyond just buying a set of tin or data centre services with a five year life cycle, rather you need to look for a vendor that can work with the business day in-and-out, and can manage an evolving relationship which maximises the benefits of moving to an as-a-Service model.

Contact Energy wanted a hybrid private and public cloud to replace our data centres but at the same time we had specific requirements around security and support for remote power plant sites that needed to be accommodated. So we wanted a vendor that had an ability to aggregate some specialist services within a broader, leveraged commodity services model. In our most recent major IT change programme, Spark worked with us to understand our business requirements and where they needed to offer tailored solutions to meet our needs. They worked with a couple of third parties they brought to the table to create the right solutions for our security and remote sites, while aggregating other services from their normal service offerings, then they’ve put a service wrapper around the whole lot. This meant that we got the best outcome for the business without overcomplicating the process with various vendors requiring us as the middleman.

In moving to as-a-Service it is important to look beyond selecting on cost. What’s important to you? System availability, or price? Or, is it most important that the vendor is able to help your business innovate? It’s all very well having high system availability, but what happens if you want to make change or stand up a few projects? Is it easy or is it a long and slow process? Is the vendor there working in your best interest and looking to your future needs?  You need clarity on what flexibility and agility the vendor can bring you in two, three years, and beyond.  It’s very easy to get caught up in the run costs but you need to look at the end-to-end life cycle in terms of both cost and capability. What is their vision for their services over time? The vendor needs a compelling vision for the future tech stack and services and a roadmap of how and when they will get there. Inevitably for IT vendors in New Zealand to play the long game, they must be prepared to embrace global services like public cloud and offer their customers relevant expertise alongside their own service offerings.

Personally, I think there’s a gap in the market that is highlighted by the traditional tender processes. There’s plenty of low-cost cloud or Software-as-a-Service offerings out there that won’t ever respond to an RFP because they don’t have expensive teams of sales consultants on the ground in New Zealand or local delivery teams. You’ll need your internal techies doing good research, or business users, to point you at great solutions. Or preferably your IT vendors are prepared to cannibalise their own services at times by bringing these solutions to the table. This can only increase trust and strengthen the vendor’s relationship with your business.

Making the move to a consumption based hosting model should not be underestimated as there are upsides and downsides. We’ve moved from a situation where we effectively owned hardware for a five year lifecycle to a new world where we can turn it on or off or make it bigger and smaller. To drive value from this flexibility we’ve had to create a new way of working and we are learning how we can use it to drive cost and efficiency – but the operational savings opportunities are significant. At the same time you really have to watch out for those projects where someone spins up lots of additional servers and storage (because it’s now easy!) then doesn’t bother turning it off in a hurry.

For more on the topic of how to unlock value from your suppliers, contact Julia Dol, 021 458 452

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