Take Back Enterprise Technology from the Vendors

Business in the enterprise technology arena is getting nasty. Vendors in the mature markets, facing declining new license revenue, are doing everything they can to generate additional income and drive efficiencies. Meanwhile smaller enterprise technology vendors operate under the threat of extinction.

CIOs believe that many of the large enterprise vendors have crossed over the line to customer abuse. Because their customers are captive, big vendors are taking every opportunity to exploit poorly negotiated or ambiguous contract terms. For example, they continue to charge maintenance fees for modules never implemented, increase maintenance fees regardless of support history, broaden the definition of seats to include Internet hits, and force upgrades even though additional functionality is of no value to their customers.

These tactics result in invoices that generate shock and awe in the vendors’ customers. CIOs scramble to get legal opinions and try to define effective negotiation strategies when, in fact, vendors are contractually within their rights. Even though vendors often eventually reduce the original demands by as much as 75 percent, memories of acrimonious e-mails and negotiation meetings remain (along with substantial cost increases that contribute to the enterprise technology financial hangover borne largely on the shoulders of CIOs). In retrospect, a lot of contracts out there favor the vendor due to the relative lack of sophistication of the customer a decade ago. (The customer’s technological knowledge bordered on ignorance compared to its vendor and systems integrator counterparts who, at times, advised clients while fostering strategic relationships with the technology vendors.)

Unfortunately, CIOs have few, if any, real options to restore some equity into the vendor-user relationship. They can’t subject their organizations (or careers) to replacing enterprise technologies. And even if a few CIOs were willing to martyr themselves, there would be little point. What well-established vendor in its right mind would redefine its business model and risk incurring the wrath of Wall Street, just to satisfy what it perceives as a few errant CIOs?

If wholesale replacement is untenable for any rational CIO, what can we do? First of all, we have to keep the end goal in mind: We want component-based architectures that we pay for based on usage. Even if we don’t achieve the open source-Web services Holy Grail, at the very least we need to break through the “all or nothing” model of integration and support offered by the large enterprise players. Consider the following actions to reshape the marketplace and protect your long-term interests.

Do it yourself. If you haven’t already made big investments in enterprise technologies, you have great leverage and options. Understand your real requirements. If your industry business processes have not been addressed by the big guys, you may be better served by following the lead of one of CIO’s 2004 Enterprise Value Award winners, Worldspan, which was able to realize substantial supply chain improvements at dramatically reduced costs by leveraging its existing systems.

Support the small guys. You may not need all the functionality offered by the larger, mature players. Smaller vendors’ solutions, in combination with some in-house efforts, provide benefits that justify the additional risk. Smaller vendors may offer architectural, and service and support advantages. And they may be willing to work within a “pay for use” deal. (The benefits for the vendors are exclusivity, higher initial payments and walk-away penalties.)

Don’t buy more than you need. Anything you buy today reduces your future leverage. When the phone rings at the end of the month, quarter or year, don’t be lulled by volume discounts and capitalization rules into buying more than your organization really needs or can effectively use in the foreseeable time frame. Besides, anything you save today is just a fraction of the overall cost of implementation. If it makes sense to buy, it also makes sense to reexamine and renegotiate some of the terms of your existing contract.

Utilize good counsel. Get a state-of-the-art contract. Go outside your organization (if necessary) to acquire the support of experienced IT negotiators and legal counsel. Be sure to clarify critical definitions and cap increases, minimize up-front payments, and get the most out of the warranty periods by specifying start dates and longer terms.

After all, we gave the large enterprise technology vendors the chains that bind us: poorly negotiated contracts, big up-front payments, and business customers who are tired and want to just move on. It’s now time to break those chains, link by link. Eventually, we will be treated like real customers, able to buy what we need, when we need it, from anybody we choose.