To IT buyers, strategic partners are vendors that have gone beyond effective delivery of systems and services to become consistently transparent, responsive and trusted collaborators in creating value for the enterprise. Vendors that do not meet this mark face commoditization and, ultimately, become an afterthought at renewal time — while competing primarily on price in a race to the bottom.
Buyers need to pick strategic partners and develop them for mutual wins. The risks of not pursuing the most strategic vendor relationships possible are profound: Buyers will be slow to market; will miss project and implementation deadlines; and will be denied potential business opportunities due to a lack of transparency and trust on both sides. Ultimately, buyers are accountable to their internal stakeholders across their respective organizations. Failure to execute on strategic partnerships represents a potential failure to execute on business objectives, with attendant professional and financial risks.
Seven out of 10 (71 percent) IT leaders state they spend up to half of their total budget on external/service providers (see Figure 1). The scale of this capital investment alone — not to mention the time, attention, and focus involved — underscores how important it is for buyers and vendors to rise above the transactional and embrace true strategic partnership.
The CIO Executive Council (CEC) and IDC 2016 Strategic Partner Index (SPI) Survey captures the traits and behaviors of strategic partners. The criteria for the survey questions were based on a previous CEC effort, in which criteria were evaluated and refined based on the direct feedback from a Research Advisory Board comprised of thirty global CIOs. For this first CEC/IDC joint effort, the questions were updated based on interviews with CIOs and sales executives alike.
Defining Behaviors: Vendors as Strategic Partners
The Research Advisory Board revealed key attributes and behaviors conducive to strategic partnerships, which were subsequently separated into five discrete categories:
- Client and market knowledge: This category reflects a vendor’s aptitude when it comes to navigating a client’s organization with relevant, informed guidance — on both market- and business-specific levels. Strategic partners do not appear only when there is a problem or when it is time to pay a bill; they are active, engaged, and market-savvy advisors who can speak confidently about the forces disrupting a buyer’s industry, and provide actionable and consultative guidance.
- Collaboration: The collaboration category reflects the extent to which a vendor is willing and able, within all ethical and legal boundaries, to blur the lines between buyer and seller, bringing in third-party niche players or directly involving buyer senior executives in the development of new offerings, products, or updates/features.
- Communication: Communication is the bedrock of any vendor relationship, and the business-enabling quality that helps drive the success of all other categories. This criteria category gauges honesty and integrity in strategic and project-specific discussions; communication continuity through change; and roadmap alignment.
- Flexible pricing and interest in shared risk/reward: Pricing is both a leading and lagging indicator of a strategic partnership: There can be no partnership at all, much less a strategic one, if a vendor prices their services outside of a buyers’ potential budget — and, once a vendor has established itself as a true strategic partner, price becomes an established cost to demonstrated value. This category focuses, then, on the specific behaviors related to pricing and joint ventures — outcome-based pricing, scope flexibility, and co-innovation — that are the hallmarks of an increasingly fluid and collaborative strategic partnership.
- Responsiveness: This category reflects a vendor’s ability to respond quickly and effectively to evolving client needs — framed by an account management structure conducive to rapid execution, and defined by an ability to eliminate ambiguity and initiate tough, but effective, conversations.
Respondents to the CEC/IDC SPI Survey were asked to rate the relative importance of these categories from 1 to 10, with 10 being the most important (see Figure 2). Unsurprisingly, every category was seen as mission-critical, with no less than 75 percent of respondents reporting a score of 7 or above for any given category. It was, however, the responsiveness category that received the most 10 scores by a two-digit margin, indicating that, in the fast-paced world of IT, technologists view highly responsive strategic partners as more equal than others.
There were far more significant fluctuations within these five categories themselves, as IT leaders stated whether their most strategic partners demonstrated specific behaviors identified by the Research Advisory Board. Because the single most strategic vendor was evaluated by each respondent respectively, the SPI in aggregate provides a summary of the “ceiling” of strategic partner behavior across industries.
While respondents generally report significant evidence of behaviors in the SPI’s client and market knowledge category, less than half of them (46 percent) confirm that their most strategic partners have “identified challenges within my business that I did not explicitly mention” (see Figure 3). This indicates that talking about general trends and responding to specific questions posed by clients are common table stakes — but proactively identifying business challenges, unexpressed by the buyer, is still relatively rare.
Additionally, one-third (31 percent) of IT leaders say that business unit leaders did not comment favorably on being brought into conversations with their most strategic vendor partner. Another 15 percent indicated that the associated behavioral statement, “My business unit leaders comment favorably on being brought into conversations with them [the vendor]” did not apply — leading to the logical conclusion that, in a significant percentage of cases, IT buyers are not bringing even their most strategic partners into conversations with their non-IT peers, or are not aware of such meetings.
More than half (54 percent) of IT leaders state that their strategic vendors bring in technology startups and/or niche players on projects (see Figure 4). Roughly half (49 percent) of IT leaders state that vendor senior executives involve them in developing new offerings, products, or updates/features. Such efforts are time-consuming and expensive, and the implications are clear: Across vendors, there is an evident high-level imperative on the part of sales to stay engaged.
At the same time, given the prime importance of data and dashboards, only half (50 percent) of IT leaders indicate that their most strategic partner works with them to develop key performance indicators (KPIs).
Only one-third (33 percent) of these IT leaders state that their key strategic partner helps them structure Requests for Proposals (RFPs), while two out of five (44 percent) indicate that their vendor did not. This stands to reason: It is likely that a good portion of IT leaders still consider such behavior to be in conflict with the competitive nature of the bidding process — and this criterion, statistically speaking, is a true “ceiling” for strategic partnership for many of them.
The SPI’s communication category, with an average yes-response percentage of 67 percent across five distinct criteria, reveals both candor and comfort with vendors. There is, however, one glaring outlier that could imperil strategic partner relationships in the long run.
Three-quarters (75 percent) of IT leaders report that their strategic partners are honest about the mistakes they make (see Figure 5). Additionally, and significantly, roughly the same percentage (74 percent) feel more comfortable sharing information about goals, challenges, and strategy with their strategic partner than one year ago.
Nonetheless, it is clear that IT leaders feel that the conversation is ultimately one-sided thanks to a statistical outlier: A minority (46 percent) of IT leaders share that their most strategic partners regularly demonstrate roadmap alignment, a two-digit-margin drop relative to all other criteria. Candor and continuity are evident on the part of strategic partners, but demonstrated congruence — of interests, roadmaps, and strategy — is an evident gap.
In the SPI’s flexible pricing and shared risk and reward category, some of the biggest opportunities for vendors reveal themselves — but vendors may, in turn, be hampered by data-deficient buyers. For example, only two out of five (40 percent) IT leaders state their strategic partners are open to agreements featuring significant outcome-based pricing or payment by results — and a full 21 percent say that this criterion is not applicable as a general rule (see Figure 6). This data indicates that vendors are ill-equipped to deal with such requests, and also that many buyers do not have the data at their disposal to manage such potential risk — a concern for vendors and buyers alike.
Openness to more minor changes is far more common among strategic partners: A full three out of five (62 percent) strategic partners, for example, are willing to adjust the scope of work without always referring to the contract.
Finally, nearly half (45 percent) of strategic partners are willing to cannibalize their own revenue to offer new, cheaper or faster solutions — a reflection of an ever more diversified, agile, and competitive market.
Across the SPI, the criteria category that received the highest average percentage of “yes” responses was the responsiveness category, with a mean “yes” response rate of 75 percent across criteria (see Figure 7).
The individual criterion that is most prevalent across strategic partners is also found in this same category: “They provide centralized account management,” at 83 percent, is the most common partnering behavior in the entire Strategic Partner Index.
Ultimately, the responsiveness category of the SPI reflects table-stakes behaviors (e.g., comfort with tough conversations and consistent delivery) that are both prevalent and vital.
Thirty-eight percent of IT leaders indicate that their most strategic partners provide cloud and/or infrastructure-related solutions (see Figure 8). There is no question that Infrastructure-as-a-Service (IaaS) is becoming more integral to more enterprises every year. According to a separate IDC CloudView study, 41 percent of US firms are currently using IaaS, 25 percent have firm plans to implement in 12 months, and 23 percent are evaluating.
According to the SPI, security, ERP, and network functionality represent some of the most widespread functionalities offered by strategic partners, respectively. This is not surprising: CIOs still need to keep the lights on. Analytics and mobility are also on the tactical short list, fulfilling basic business requirements. At the same time, social and CRM capabilities, which often grab the headlines, are not as prevalent among strategic partner offerings - only a marginal percentage of vendors offering these capabilities are seen as the most strategic.
One-third (34 percent) of IT leaders report they are not satisfied, or are marginally satisfied, with their most strategic vendors (see Figure 9). Even among the most strategic vendor relationships, there is often a demonstrable gap between expectation and perceived value — representing a risk for buyer and seller alike in the long run.
For vendors, the ability to bypass the competitive bidding process is the hallmark of strategic partnership, saving both time and money. Constantly going through “job interviews” during the bidding process has real potential to distract embedded vendor teams from delivery on other projects.
More than one-quarter (27 percent) of IT leaders state that they never allow strategic vendors to bypass competitive bids (see Figure 10). Only seven percent of survey respondents were from the government and non-profit sector — the rest of the IT leaders surveyed are not compelled to conduct competitive bids due to legal mandate, or in the interest of satisfying public scrutiny. This data demonstrates, then, that a significant portion of commercial IT buyers still employ the competitive bidding process as a testing ground, and that they believe direct competition leads to efficiencies and innovation.
At the same time, almost two-thirds of IT leaders (64 percent) allow strategic vendors to bypass the competitive bid process sometimes. While realizing the value competition can drive, buyers are pragmatic about the involved costs and selection efforts. The choice to conduct competitive bids or not depends, then, on the type of service/solution in question; the buyer’s procurement and business needs; and, to a large degree, the buyer’s perception of whether an incumbent is still being strategic or not.
Three-quarters (75 percent) of IT leaders use outside advisors in some fashion during vendor selection (see Figure 11). Perhaps unsurprisingly, most (51 percent) use them only occasionally as a sounding board. Ultimately, as the SPI demonstrates, the most credible sources when it comes to vendor value are buyers themselves.