Newsletter Archive

"We've got a live one"

Every year, financial institutions embark on a mission to find a solution to better serve their customers, reduce costs, eliminate inefficiencies etc.. Invariably, they will rely upon a solution provided by a 3rd party to accomplish this task.  So, they initiate the process of articulating their objectives, compiling a list of desired capabilities and functionalities and begin contacting potential candidates that can help them realize their goals. 
The vendor receives contact from the potential customer and the sirens go off.  "A lead...a lead!" they shout through the hallways, stirring the sales hive into frenzy.  Meeting rooms are turned into immediate strategy centers, conference calls are initiated connecting remote operatives in from all over, complete dossiers are formed to provide details and insight into how to best capture the latest high-profile target of the sales team...You.

Now, there may be some embellishment factored into the picture that was just painted, but maybe not quite as much as you think.  The fact is that from the time you make initial contact, whether via an RFP, an online web form or a good old fashioned phone call, you are assigned to a group of individuals that are skilled in the art of doing whatever is necessary to win your business. 

In successful companies, these individuals are skilled communicators that know most people still choose to do business with someone based upon personal compatibility and verbal assurances rather than what is actually documented and tangible.  Let's face it, who wants to take the time to read all the RFP responses and product documentation when you can just have someone boil it all down into a PowerPoint and present for an hour or two?  This is why the sales team is so crucial to any company.  The ability to convince you, the prospect, to place greater weight upon the vendor's strengths and to dismiss the weaknesses as relatively insignificant is a crucial part of the vendor's mission.

"Desperate times..."

Now, take what has just been shared and place it into the context of today's economic environment.  Obviously, most every company is spending less, which causes a slowdown in all areas of business.  The financial services sector, however, has been one of the hardest hit in this downturn and as a result, the companies that rely upon this sector's health have been some of the most heavily impacted.  Not only are there fewer sales to go around due to budget cuts, project delays and the like, but every Friday as the announcements hit the wire of the latest institutions to be taken over by the FDIC, the vendors that rely on them get the equivalent of a bankruptcy notice.  The 5 year outsource contract that was signed 2 years ago is no longer valid, the big payment milestone the vendor was expecting on the recent contract is no longer on it's way.  Vendors are having a hard time finding new sources of revenue to grow their business and many have adopted a survival mentality.  In many cases this has created at least some sense of desperation, and as we all know "Desperate times call for desperate measures."

Let me be clear, this does not mean that those responsible for winning your business will resort to any means necessary, no matter how dishonest or immoral, in order to get the sale.  The truth is that most companies are made up of good, honest individuals that want to deliver on everything that is promised and to ensure that their relationship with you is built on a foundation of trust.  However, vendors and their sales teams are just people like you.  They have families, go to their kid's sporting events and church on the weekends, watch American Idol and eat at McDonalds.  However, showing up and working hard aren't good enough for their position, they have to deliver results.  From shareholders to the CEO, from the CEO to the VP of Sales and from the VP of sales to the Salespeople, the pressure is on to deliver...or else.  Unfortunately, this leads some to sacrifice a bit of integrity and long-term credibility for short-term gain. 

"But...you gave me your word"

This may come across as a little cynical and truth be told, it is.  We live in a day when CEO's can go on television and announce to the world that their company is solid, only to have them go under in a matter of weeks.  A day when people actually believed their fund manager was making a profit in the market for the last 18 months only to find out their investments were in a Ponzi scheme.  This has created a certain amount of skepticism, fear and trepidation, and rightly so.  For the most part the days of doing business based on a handshake and somebody's "word" have long since passed us by, yet it amazes me how many institutional customers are still willing to enter into critical contracts with their vendors based in large part on verbal assurances.  This is in spite of virtually every contract I have seen having a clause that states (and I'm paraphrasing) "No matter what has been discussed or promised throughout the sales process, or from this point on, if it is not written down as being part of this contract, it is not binding."  Yet so many customers gloss over that clause and chalk it up to "legal jargon".  They're correct; it is legal jargon, the only type of jargon that matters if things get real nasty.

Now, I am not suggesting that the entire vendor evaluation process be handled with a stenographer present so the transcript can be made a part of the contract.  But come to think of it, that's not such a bad idea.  It would have solved so many instances I have encountered where a customer and vendor are at odds and the customer is repeating the phrase "But you said...(insert promise here)".

Extenuating circumstances

To be fair, in many instances the fault does not lay at the feet of the sales team.  As an example, when they promised that feature was in the next release of the product or that the appropriate resources would be assigned to your project, they were most likely just repeating what they were assured by their business counterparts.  This is where our present economic situation has had more effect than anticipated.  Vendors, like the institutions they sell to, are being forced to downsize, and everyone from developers to project managers to installers are being affected.  The very resources needed to fulfill the promises of the sales team are being stretched extremely thin and for many vendors, hiring more people is just not an option right now. 

With limited resources in high demand, your project may also be at risk to "reassignment".  This happens when the vendor signs that new, big client and the choice has to be made as to which project gets priority on resources.  If your contract value is significantly less in value, or if you didn't negotiate a good contract with service level agreements and penalties, you are likely to see delays on commitments.  Just remember, "It's not personal, just business."

What to do...what to do

So what can you do to ensure you do not become a victim of this process?  Truth be told, there is no way to totally eliminate this risk.  Even if you have a rock-solid contract with service level agreements, penalties, out-clauses, etc., once you start down the path it is very difficult to turn back.  Oftentimes customers just relent because the impact to internal budgets, deadlines and commitments are to great to go to war with the vendor.  At Catalyst, we often equate the vendor-customer relationship to a marriage, and divorces are painful.  That's why the only real strategy you can employ is to pick the right "spouse".

This can only be done via thorough due diligence.  Too many customers do not take a balanced approach to the vendor due diligence process.  Most of the time their current pain determines the "weighting".  If functionality is what caused them to look for a new solution, all the focus seems to be on functionality and which vendor delivers it.  If a small company, with the latest and greatest functionality, that didn't have the resources to support them burned them, they focus too much on company size.  Again, the key is balance.

An argument can be made that in this environment the larger vendors are a safer bet.  While they may not have latest functionality, they have an established recurring revenue stream, resources in place and do not rely on the next sale to pay their bills.  This type of vendor seems like a safe haven when many of the smaller vendors are struggling to keep their doors open.  On the other hand, these large vendors have enormous overhead and rely heavily on steady growth to keep their current resource infrastructure in place.  If they are a publicly traded company, the focus tends to be on quarterly profit and oftentimes, they will delay bringing in the appropriate resources to fulfill their obligations if the sales are lagging.  Conversely, a small company needs a far less amount of revenue to keep their promises and they are very aware that damage to their reputation for not delivering is not something they can afford.

One emerging trend is institutions vetting a potential vendor's financials through their credit process.  If they wouldn't lend money to the vendor, they rule them out.  There are two issues with this.  One, when you are dealing with a large vendor, such as Fiserv, Metavante, Fidelity et al., you typically only have access to the overall company financials.  What you really need is the financials for the specific business line you will be partnering with.  If that business unit isn't adequately delivering profit to the corporation, the company will not view that business line as a good return on their investment and as a result they will see their budgets decrease.  This represents just as much of a threat to your project as a small company.  The second issue with that methodology is that the true innovative, breakthrough solutions rarely come from large companies.  Remember, at some point even Microsoft, Oracle, IBM, Fiserv, Metavante etc. were small companies that probably wouldn't have passed a credit screening.

There is no magic formula to ensure that everything you set out to achieve will be accomplished and that the vendor will deliver everything as promised, on time.  However, you can protect yourself by performing the proper due diligence.  Every vendor has pros and cons.  If they were bad at everything, they wouldn't have any customers, if they were good at everything, they wouldn't have any competitors.  Your goal should be to enter into the contract phase of your project with your eyes wide open.  A complete inventory of positives, negatives, risks, benefits, etc. should be kept for each vendor so that when the decision is made you have everything you need to negotiate a contract based upon that particular vendor's strengths and weaknesses.  Now you're the one with the dossier!

How do you translate that information into the contract?  We will cover this in next month's Newsletter.