Analysis: Manage or Be Managed

By CIOinsight  |  Posted 12-15-2006

Analysis: Manage or Be Managed

Devin Jopp still remembers his worst IT experience. he was implementingsome new software for a former employer, and within a month it was clear he had been given the software vendor's B-team. "It was a terrible implementation team," says Jopp, who is now the chief operating officer at the Small Business Administration's SCORE counseling service. "They would set milestones and not meet them, and they didn't have the technical ability to perform." Jopp desperately needed a better team, but as a small shop he wasn't likely to get it.

Unfortunately, Jopp's dilemma is a familiar story for IT executives at many midsize businesses, who often struggle to get the full attention of their vendors. And when they do, they're lucky if the service they receive is acceptable.

But working for a midsize business doesn't mean you have to let technology vendors wipe their feet on you. Preventing sub-par service boils down to three things: knowing what you want, getting it in writing from the vendor, and keeping on top of ongoing projects. Market researchers say that smaller businesses usually slip on one, or all, of these golden rules.

Also, the balance of power may be shifting. Small businesses now have more clout than in the past, because the big enterprise markets are becoming saturated. Gartner Inc. expects IT spending in 2006 to have increased by only 2.5 percent at big companies, but by 6 percent in the small and midsize business market. And according to AMI, that SMB market is pegged at about $228 billion, nearly half of all IT spending.

Ultimately, Jopp did find a way to coerce his vendor into upping its service quality, by adding contract provisions—before the contract was signed—that would force the vendor to replace its team if certain milestones were not met. Because Jopp was keeping a close eye on the project, he collected the data he needed to trigger the provision just weeks into the project. When he presented his data, the vendor was contractually obligated to give him a better team. "They wanted to charge me for putting in a new team, but I stuck to my guns," Jopp says. The project was on time and under budget.

Not all vendor management stories have such happy results. But as technology vendors get serious about courting the mid-market, it's incumbent upon midsize firms to take more control.

Look in the Mirror

Look in the Mirror

"A lot of smaller companies don't have the structure to manage vendors well," says Rand Spusta, managing director of financial services at Robbins-Gioia, a management consultancy based in Alexandria, Va. But Spusta says smaller firms can set up program offices just like the big companies do: Find a manager with knowledge of what needs to be done, and put him or her in charge of setting job requirements and keeping tabs on vendor progress. And for some midsize company CIOs, their lives might be a bit easier if they find a vendor that is relatively small.

Sticking with smaller technology vendors has worked well for Paul Hollen, executive vice president and chief operating officer at Southcoast Community Bank in Mt. Pleasant, S.C. Hollen is very tech savvy, and he builds a lot of in-house technology for Southcoast, an eight-year old bank with $500 million in assets, 113 employees and 5 IT staffers. But he's also comfortable buying the latest software and networking equipment from startups and small firms, reasoning that, as an early adopter and client of small shops, he will get extra attention if he needs it.

Hollen also serves as a reference for the tech vendors he likes, talking them up to both potential customers and the press. He goes to user conferences and speaks regularly with vendor account representatives. By doing so, he has become an even more important customer. "Sometimes you really, really, really need them now, and if vendors don't know you, you're just another voice on the end of the line," Hollen says.

Analysis: Manage or Be Managed - 3

Signing the Dotted Line

Contract management, though, can be much trickier than managing an ongoing relationship. "If you're a small-company CIO and you're sitting across the table with Oracle, they have negotiation expertise that you don't," says Jim Browning, a Gartner analyst. He says that vendors will frequently offer large discounts, up to 80 percent off the license price of a piece of software, if a business buys all the add-ons. Then, two years later, most of the add-ons sit unused while maintenance costs wipe out the upfront savings.

For a CIO at a smaller business, enlisting help in structuring the contract to your advantage is key, preferably from as many sources as possible. Some assistance comes with a price tag, such as ­hiring a Gartner analyst or an attorney to review contract language. But SCORE, the Service Corps of Retired Executives and an affiliate of the Small Business Administration, has more than 11,000 consultants on tap to offer free advice to small businesses. The Web site, www.score.org, lists counselors by expertise and geography. You can meet with them in person or send them e-mail. And it's all free.

There are also growing numbers of managed-service providers, or outsourcers, who will take over and run entire aspects of a midsize business. Managed providers can do a lot of the dirty work on contracts. And by pooling the needs of many midsize businesses together, managed providers can achieve some leverage with the big technology providers. CenterBeam Inc., a managed-service provider based in San Jose, Calif., represents 15,000 Windows XP licenses. That makes CenterBeam roughly equivalent to a Fortune 100 company as far as Microsoft Corp. is concerned, and gives it real influence with most vendors for pricing and attention.

Despite CenterBeam's size advantages, CTO and Senior Vice President Shahin Pirooz must still work hard to get attention from Microsoft—even though he says that Microsoft is an original CenterBeam investor. For midsize companies looking to go it alone, Pirooz says the biggest challenge in dealing with a large vendor is "staying in touch with the multiple silos in a large organization." Big companies have multiple divisions, with their own revenue goals and styles, and often the divisions aren't well integrated.

At Microsoft, Pirooz has excellent relationships with its support and consulting organizations, but he has to work much harder at being visible to the software division. To enhance that visibility, he religiously attends Microsoft conferences and pinpoints executives he wants to develop relationships with, and makes his top architects do the same. CenterBeam also stays on the radar by developing new twists on Microsoft software, which it then shares with the Redmond behemoth.

Most CIOs at smbs won't develop such close relationships with gigantic vendors such as Microsoft or IBM Corp. But smbs are the fastest-growing market for IT, which means there are options for gaining control of your vendor relationships. The choice is simple: Manage or be managed.