by Stephanie Overby

Outsourcing: Why CIOs Hate How You Sell IT Services

Mar 10, 2011

IT vendors spend $25 billion a year on lead generation, while CIOs have become skilled at the art of evasion. talked to xPeerient CEO Mark Hall about why the IT marketplace is broken and what he thinks could fix it.

Ask CIOs what their biggest professional frustration is and the answer might surprise you, says former CIO Mark Hall. It’s not rogue systems, shrinking budgets or network outages, says the now CEO of xPeerient, provider of an online community for CIOs. “The repeated issue every year—what keeps CIOs up at night—is the sales and marketing practices of technology vendors. It’s a cat and mouse game. It’s not efficient for buyers; it’s not efficient for sellers. The whole relationship is problematic.”

Hall recounts the story of the pharmaceutical company CIO—a marquee customer of a major software and services vendor. The CIO was holding two days of strategy meetings attended by the vendor’s very famous president. On day two, the CIO’s administrative assistant messages him that someone from the vendor company is on the phone and transfers the call to the CIO’s cell. “Hello, sir. I’m so-and-so in corporate sales,” says the voice on the line. “And I’d like to find out if you have any software needs.” The cold caller was employed by the very IT vendor whose president was sitting across the table from the CIO. “That’s the kind of disjointed approach to relationships that vendors have,” says Hall. “You’d think the vendor would have a better CRM system than that, but the right hand doesnt know what the left hand is doing. That kind of bungling happens every day.”

Hall says he wants to level the playing field between IT buyers and sellers and xPeerient has introduced a platform for CIOs to anonymously initiate the buying process with vendors. But his own sales pitch aside, Hall says somethings got to give—particularly in outsourcing, a relationship business where starting off on the right foot is critical. “The core problem is how buyers and sellers are introduced,” Halls says. “It’s fraught with friction.” talked to Hall about how much money technology vendors waste on lead generation, the trickiest techniques IT leaders have developed for evading dogged salespeople, and how to fix the broken tech services marketplace.

Tech Titans Talk: The IDG Enterprise CEO Interviews IT spending around the globe continues to grow. IT organizations spent more than $3 trillion in 2010, more than $800 million of that on outsourcing. But you say vendor sales tactics are stuck in the dark ages.

Mark Hall, CEO of xPeerient: The core problem is the way buyers and sellers are introduced. It’s inefficient. It’s built around the language of war, with sales teams talking about campaigns and ground fire. There’s friction and distrust. IT vendors spend $25 billion a year doing lead generation for internal sales, according to IDC.

I know of one tier one software and service provider whose lead generation starts in a call center in Bangalore—3,000 full-time employees with its own physical and management infrastructure. Those employees come in at night and start calling U.S. and European companies to verify contact information [for corporate IT leaders]. Once they validate the lead, it’s sent to the inside sales organization where someone else makes a follow up call to determine interest. Then it goes to the channel manager who conducts an interview with the lead. Then it goes to the channel partner for that region. The ratio they’re looking at is 1,000 to 1: 1,000 phone calls for one opportunity. And the IT buyer community is doing a better and better job of disguising themselves to avoid the whole process.

It’s all based on consumer advertising models originally conceived in the 19th century. It’s the demand generation model. You put juicy hamburger on the TV screen and you load it up with cheese and bacon. You make it look really good, and put a lot of sex behind it, and people will say, ‘Wow, I want that!’ and go to Burger King and buy it. But that doesn’t work in corporate IT. You don’t have a CIO in the enterprise saying, ‘I didn’t think I needed storage. But, wow; now I do!’ The process, you note, breeds discontent and distrust. Can that work its way into the day-to-day outsourcing relationship that results?

Hall: I think that everyone knows to differentiate between sales and the ongoing relationship. Salespeople are their own breed.

One thing I think it does make a difference in is the outsourcing decision. A good salesperson—one that’s good at building relationships—can sell you a bad service. And a bad salesperson may actually have the better service. What wins the day is the best salesperson rather than the best outsourcer. If you’re looking for better outcomes, you have to cut through the noise and make a decision based on rational assessment. What about after you sign a contract—does the hard selling continue?

Hall: If it’s an IT services relationship, there’s always the question of renewal. The salespeople love you for two months prior to the purchase decision. Then they may go away for ten months. Then two months before renewal, you get a new salesperson calling you. That’s the way accounts are managed.

If you’re already in relationship with an IT services company, the switching costs can be enormous. The vendor’s goal is to get ingrained as much as possible so the switching costs are even higher. What’s the best way to handle the upsell or renewal calls from an outsourcer?

Hall: Just to keep the company honest, I’d have a competitive bid process to bring things back to a head. Create a policy to review every vendor relationship every two years. Look at the financials and force them to go through the bid process. The vendors don’t like it, but it’s effective. How do CIOs deal with the barrage of vendor sales calls today?

Hall: They develop evasion techniques. A lot of them set up vendor relations portal. When the salesperson calls, the admin tells them to go there and enter their name in the queue. Others have developed solutions that are very tricky. If a call from an IT vendor comes in, they tell them they’re transferring them to Dan Heller in the procurement office. The salesperson gets a voice mail greeting, ‘Hi, this is Dan Heller, leave a message.’ Only there is no Dan Heller. If the IT sales process is so inefficient—and even drives customers into hiding—aren’t the vendors working on new techniques themselves?

Hall: What could they do that they haven’t already tried? What they need to do is build relationships. What we’re trying to do is change the hunted into the hunter. Rather than the vendor pursuing the buyer, why not have the buyer who has a need pursue the vendor. Then you say to the vendor, ‘Here’s an active buyer that’s doing a project that needs you because they said so.’ But isn’t that how the traditional outsourcing RFP process works—I tell you what I need and you give me your best proposal?

Hall: It is. But the model Im proposing is one in which the IT buyer remains anonymous. The identity of the user organization is not revealed until they want it to be. This gives the buyer more control over that early stage of the relationship. Say, a CIO wants to outsource a help desk. He does early stage discovery on the service providers, talks to his peers, and then engages the service companies and asks questions—anonymously.

As soon as you reveal your name or your company, it’s like throwing blood in the water. Once you express the slightest bit of interest, you’re suddenly surrounded by sharks. Every potential vendor—even those not in IT services, those that want to sell you office products or real estate—is circling. It’s frustrating, and that’s why CIOs are loathe to give up their identity.

I went to the Taj Mahal recently, and as soon as the local vendors saw me in the back seat of the car, they started swarming—one, two, then 15, 20 of them following the car until I got out. They started a barrage of sales pitches—postcards, photos, guides, trinkets. And they followed me until I looked each on in the eye and said, ‘I’m not going to buy anything today.’ It was humiliating for me, and it was humiliating for them. That’s analogous to the IT marketplace.

Compare that to a typical shopping mall. No one is jumping out or grabbing you. They typically leave you alone to wander around. You enter a store and someone may greet you and ask you if you need help. If you say no, they go away. What should IT service providers do to fix the broken outsourcing marketplace?

Hall: They need to do a better job leveraging the CIO peer network. The number one decision criteria for the IT buyer is peer feedback. More than anything, they want to talk to a customer of that IT services provider. But they want the whole story. Thats hard to get to right now. If they’re lucky, they get three or four references selected by the service provider as they approach their final decision. And even then they don’t get the full story.

Vendors need to pay attention to the relationship. Don’t treat they IT buyer like a database entry. Don’t assume they’ll all respond the same way. The person on the other end of the line is not just account; theyre not just a customer ID number. There’s a living, breathing person on the other side.

Update: xPeerient is in part owned by IDG Enterprise.