Updated: Sep 4
Last month, 49 members of ClearEdge’s Executive Advisory Board convened online for 6 hours of meetings to discuss current trends and acute challenges facing IT deal leaders, and how to best address them. This is a summary of five main topics that were identified as most pressing by the group. We plan to focus our efforts on these subject areas as we shape and refine our client services in the months ahead:
Continuing Shift to a Consumption-based IT, or what we call “SaaSification”
Acceleration of IT Transformation with the Advent of COVID-19
Stakeholder Engagement and Skill Building
Best Practice Implementation
Spend Optimization and Reduction
The benefits of the cloud are real, but too often hampered by insufficient governance, contractual lock-in, and a lack of leverage at renewal time.
Cloud service providers use contract language to limit customer flexibility and guarantee future revenue increases. As a result, many customers find themselves entrenched with their cloud vendors as they become reliant on the hosted solutions. This dependency translates to a lack of leverage, leaving customers vulnerable to hefty price hikes during renewals, and locked-in annual costs.
Legacy providers are adopting consumption-based models, regardless if they offer cloud solutions or not, due to the long-term cost and leverage benefits.
As companies see how costly cloud solutions can become over time, many are conducting extensive total cost of ownership exercises to justify go-forward cloud purchases.
Customers are now feeling the impact of recurring shelf-ware costs due to over-buying.
Long-term deals do not offer protection when there is a material change to the business. Conversely, companies with short-term and one-year deals were able to pivot spends during the pandemic.
2. IT Transformation Acceleration
The pandemic is causing many companies to cut costs and furlough workers, but they still need to keep up with their evolving digital needs. CEOs know that to stay competitive, new investments in digital technology need to be made quickly. As a result, we are observing companies moving with urgency to adopt new technology to bolster their remote business capabilities. Specifically:
COVID-19 is accelerating adoption of digital tools that were being slowly implemented.
There is a massive demand for telecom and remote productivity tools as business shift to all-remote workforces.
With rapid shifts in IT environments, there is a higher risk of software non-compliance, leaving buyers vulnerable to audits and compliance fees.
Many organizations are attempting to swap unused licenses for new priorities based on new requirements.
Besides all-remote capabilities, recent business transformations have included unified communications, remote customer experience and support capabilities.
3. Stakeholder Engagement and Skill Building
Our Executive Advisory Board revealed that there is a huge variance in skills and capabilities among key business stakeholders, creating inconsistencies in best practices for deal making. A staggering 90% of those surveyed admitted that their IT deal makers lack the time needed to properly prepare and execute strategic deals with suppliers. We also learned that only 30% of business stakeholders were aware of best practices for deal leaders, and just 20% of organizations have processes in place to educate and train stakeholders about best practices. In addition, 80% of all stakeholders surveyed lacked any supplier experience or knowledge of supplier sales processes.
In response to this dire situation, deal leaders are turning to training and new processes to boost stakeholder knowledge and convey the high impact of competitive contract terms and pricing on risk mitigation. Also, a cultural push is underway to centralize buying activity through one main entity, such as procurement, sourcing, or IT, to ensure that each deal is judged and graded on the same criteria.
4. Implementing Best Practices
Disjointed or conflicting processes in deal making are common, especially where there are different values and priorities within an organization. But the pandemic has forced stakeholders and business units to quickly unite around goals, priorities, and values to keep the organization running. As a result, it is now easier to align staff behind a common strategy. For example:
Heightened emphasis is being placed on risk identification and minimization, accurate demand forecasting, and the organization’s ability to “exit” and agreement with minimal cost impact.
A more systematic approach to deal making is being developed at organizations, and processes are being put in place that call for 9 to 12 months of planning to provide enough time to complete all deal making activities.
Contract assessment is no longer the sole responsibility of the legal team; business units and procurement teams are being involved
5. Spend Optimization and Reduction
Although many organizations are seeking ways to cut costs, the current business climate is proving to be a very good time to buy. Sales reps are hard-pressed to achieve quotas, creating a “honeymoon” period for deal makers. Many suppliers are suddenly willing to be more flexible on pricing and terms in order to secure net new revenue during this time of “low demand”. Organizations can leverage this situation to their advantage and optimize current spend, while re-writing contracts to include more competitive terms. Additional observations from our Board included:
Professional service providers are facing the brunt of IT cost cutting, as many organizations are putting a halt to these engagements.
Some service providers are offering free resources, change orders, and 15 to 20% rate reductions to win new business.
Flexibility surrounding terms is now available from even some of the toughest vendors to maintain business relationships.
Companies are placing new emphasis on maintenance fee reduction, and third-party maintenance suppliers are being added to the mix.
Some vendors are offering free licensing to drive adoption.
During the past five years, CleareEdge has used the Executive Advisory Board’s semi-annual meetings to identify and create services to improve alignment and drive more consistent adoption of deal-making practices among client deal leaders, their teams and their business partners. For more information, please contact your ClearEdge representative.
This document represents a summary of discussions at ClearEdge’s Executive Advisory Board Meeting in May 2020. The Board is comprised of senior IT executives from ClearEdge client companies, and discussion were led by ClearEdge senior executives. This was our first virtual meeting, and our largest gathering of voices.