With Smaller Providers, Software and Services Can be Hard to Mix (Part 2)
In the first installment of this column examining the plight of smaller and mid-size vendors attempting to pursue software and services together, I examined a bit of Pittsburgh history -- a yinzer's guide to sourcing services if you want to put on the local label 'n'at -- by looking at FreeMarkets' attempt to be all things to all procurement organizations from a sourcing perspective. In the continuation of this post, I'll examine what CombineNet and FreeMarkets' experiences can tell us about how customers should think about leveraging technology and services from the same provider.
On a high level, I think there are a few key lessons that procurement organizations should take away from these observations. The first is that it's important to understand exactly what you're buying from a smaller to medium-size provider. If the vendor has attempted to build a competency in both software and services delivery -- versus emphasizing one to help drive the other -- it's a near certain supply risk sign in my view, if for any reason that they'll under deliver and overcharge in at least one of the areas. It is possible to do software and services together (procurement BPO is a good example here) but you need an industrial scale behind the operation to pull it off and have a serious competency in both areas.
The second lesson is to decide what you really need. Let's take optimization as an example. On the surface, the concept of buying powerful optimization capabilities to bring transportation and freight decisions in-house may sound like a smart move after paying hundreds of thousands or millions of dollars to CombineNet or another competitive solutions provider like Trade Extensions, AT Kearney, Emptoris or BravoSolution over the years, but is it in reality (incidentally, many of these other providers will also sell software as well)? The complexity of data collection, not to mention the rigor involved in good analysis, suggests to me that paying ten to fifty basis points -- maybe more under some circumstances -- when eight or nine figures of spend is on the line is almost a no-brainer under most circumstances, unless you really want to hire the A-team to do it in-house.
The final lesson customers should take away from the example of working with a provider that tries to do both is the importance of negotiating contractual agreements in your favor. By properly structuring software contracts, you can put your organization in a safe position when change of control, bankruptcy or other unexpected vendor events transpire. Moreover, you can also negotiate similar clauses around resources and dedicated account team members as well (e.g., exceptions for non-hire and non-solicit clauses).
In the end, many providers during the downturn have become precipitously close to hitting the financial brink (and some have gone over the edge). While it's great CombineNet is one that will survive and hopefully thrive -- and at least part of FreeMarkets still lives on inside Ariba in solution delivery capacity if not in ethos -- given all the capabilities and innovation they can bring to customers, we should still treat the situation as an opportunity to learn a number of lessons and early warning signs to protect ourselves from a supply risk perspective when buying software, services and solutions.
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That is completely useless advice. How is an end user supposed to know whether a vendor offering both services and software is "emphasizing one to help drive the other?" Because that's the only exception to your "risk" rule.
I guess this means I should be deeply worried about 99% of the providers in the space. Thanks, I guess. Now what?
I'm no expert on CombineNet and I don't care about them in the slightest, but in theory there are dozens of things a company can mishandle, as well as dozens of events that can occur over which a company has little or no control, such that the company ends up in a poor position. To try to claim that CombineNet's current situation is entirely due to them trying to supply both services and product is absurd.
I can only imagine the impact that your silly "risk" statement is having on small and mid-size vendors who provide both services and software. Congratulations on joining the Gartner School of Bizarre And Unjustifiable Claims.
BTW ... I'm not saying don't buy services from a software company (or vice versa). My point is to understand the role that both elements are playing in the provider's overall strategy in working with you and others. Doing both well is possible in my view, but it's the overall emphasis on one over the other that I think that matters (or focusing entirely on delivering an integrated solution combining both).
Rather than me attempting to prove a negative, what you need to do is to prove your positive assertion that there is "risk" with "small and medium-size vendors" who provide both services and support. You're the one making the assertion. Your FreeMarkets example is just too old to be relevant, sorry, plus FreeMarkets stumbled in so many areas I can't even count them all (that is not a pejorative statement: hindsight is 20-20 and FreeMarkets was forging new ground). CombineNet is your other example, but there are plenty of other things they did that could be the cause of their current situation.
What we have out there at present is your unsupported "risk" assertion that deeply damages every small to medium-sized company in the space that performs both software and services. Everyone is paranoid about "risk" right now, so you've single-handedly lengthened the sales cycle for every one of those companies; and, in the worst case, lost them deals.
You underestimate your influence. You need to be more careful with your claims.
Regarding the past, don't relegate history. I've got a graduate degree in it. I think there's an awful lot we can learn from the missteps of others (and some of the missteps I contributed to at my former employer).