by John Belden

5 tips for navigating supplier relationships in an economic downturn

Mar 30, 20206 mins
Digital TransformationIT LeadershipProject Management

Don't let cost-cutting derail your digital transformation; take these steps to strengthen supplier relationships.

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Credit: metamorworks / Getty Images

As hard as it is to find a silver lining right now amid the general nervousness, restructuring of portfolios, and cost-cutting, economic downturns also present opportunities that were not previously planned. As anyone who has lived through a recession like the stock market crash of 1929 or the financial bust of 2008 can tell you, plans can change a great deal pre- and post-recession.

Today, the global pandemic is shifting the dynamics of digital transformations in three primary areas: 

The business case for digital transformation.  As companies struggle to operate in the new realities of today’s world of social distancing, reaching customers to deliver goods and services will increase the opportunities for digital solutions.  Areas of opportunity that perhaps did not have a business case in the past, are now ripe prospects.  For example, restaurants that did not have a digital solution to address the carryout or delivery market are going to be rushing to put these types of opportunities in place. 

The cost to deliver.  Travel bans and border closings have forced companies to maximize the use of collaborative tools like Zoom, Go-To Meeting, and others, to enable videoconferencing.  As transformation teams learn to use these tools in a more productive manner, the demand for consultants to travel to client sites will decrease.  This will reduce the costs associated with any engagement as travel costs are removed, but it will also increase the amount of time that consultants can productively devote to client business and increase the likelihood that more consulting work will be moved offshore.    

Change enablement.  Companies often struggle with change management when implementing any transformation.  Resistance to change has forever been a blocker.  The external force of the pandemic has created a condition that will open the doors to change.  This is most evident in the fact that people’s minds will be open to variations as we all struggle to make the best of what is happening.  When people’s minds are open to change, the pace of change can be accelerated, allowing the business benefits to be achieved.   

Reducing costs while maintaining relationships

Many companies find themselves needing to adjust their spend to weather the storm, halting or slowing a large digital transformation project at this time is not a good plan.  Below are five techniques that can be applied to reduce costs and still maintain a positive working relationship with your supplier. 

1. Acknowledge it is in the interest of both parties not to look to profit from the situation. You want suppliers to be fair and not try to take advantage of you and they expect the same.  Both parties understand the magnitude of the situation and ultimately are interested in getting back to normal program operations.  Relationships built on trust will focus on working collaboratively to find appropriate near-term solutions that will position both parties to succeed when conditions turn for the better.

2. Examine the potential to bring on additional internal resources to displace consulting resources. As project portfolios are modified, you are likely going to have additional capacity.  After striking a deal with your supplier, you don’t want additional consulting resources thrust upon you, making you have to go back and renegotiate.  While you want to make sure you are fair with your supplier, you also want to take care of your own employees first.

3. Reset the scoreboard if there are going to be project delays. Reasonably agree on resetting milestone delivery bonuses and contingency bonuses.  This means baselining original costs and netting it out for the extension and calculating new levels of contingency and rewards.  Work toward splitting the cost of carrying the contingent consultant, assuming you want to retain talent.  If you don’t, there might be an opportunity to engage somebody better.  

You may be pausing the project, but you want to work on some other things during the pause, like the development of software or writing documentation.  The vendor likely would have gotten paid full value for these if the project was not on pause.  So if a vendor signed at a given price, they shouldn’t change, but if you need a different set of services to speed you up to get out of the pause, you can ask for a lower price.  For example, although your vendor didn’t sign up to help with data cleansing (it was out of scope), the vendor could offer to help you with their resources during the pause.  The vendor may make the agreement to keep these resources on project at cost, which allows you to go faster when you get out of the pause. 

4. Look to evolve the delivery model that maximizes the use of video and social technologies. This will increase the amount of actual delivery time of the consultants, increase the productivity time to deliver, reduce the amount of travel and expense, and increase the possibility of delivery of the services offshore.

5. Leverage this external event to drive change into your organization for the use of new digital technologies, etc. The lift required to facilitate change during such tumultuous times is much less because people’s minds are open to change. The is evident with project team operations but it also affects change strategies for the introduction of new technologies.

While it is a hard thing to say, financial crises are actually an accelerator for digital transformation.  While there are always certain industries and companies that are better positioned to withstand a financial crisis, it is important for any company in the midst of a digital transformation to adapt to changing circumstances by modifying their plan.