What Do You Mean When You Call A Supplier A “Strategic Partner”?

I handle many inquiry calls from clients asking for help negotiating with large suppliers, and often they claim the supplier is a strategic partner. I’ve noticed that many clients use that term, but when I ask them what it actually means in practice, I get varying responses. So Forrester recently surveyed over 150 sourcing and vendor management (SVM) professionals to ask them what they expect to get from strategic partners, and what they offer in return. I was bit disappointed with the results. For instance, while 68% said they would always expect partners to give them the best possible discount, only 6% said they would always make the partner their sole source for specific technology categories.

What’s wrong with this picture? Well, to quote Godfather 2, when explaining Hyman Roth’s longevity, Johnnie Ola says, “He always made money for his partners.” That concept doesn’t seem to apply in the technology world. On the one hand, buyers complain about vendors’ unfair policies (see my recent report Buyers Should Reject Unfair Licensing Rules) and transactional sales approach. Yet OTOH they want to squeeze their partners’ margins while still expecting them to sell their wares site-by-site and product-by-product around their enterprise. As one senior software executive told me the other day, “Sure, I’ll waive my usual policies for partners, but only if they let me off the huge cost of supporting individual, small product buying decisions.”

The situation reminds me of those self-help relationship books that explain how couples fail to communicate effectively. For example, I remember learning very early in my marriage that when I asked my wife if I could go to play golf instead of spending time with her, and she said, "You do what you want," what she actually meant was, "This is a test of how much you love me, so you better pick the right option." Similarly, when buyers talk about wanting "innovation," they mean "enhancements in return for my maintenance spend," but the seller hears "additional products that I can sell you."

Does this mean you should consolidate your supply base into a small number of partners with category-specific monopolies? Absolutely not, at least not yet! The problem is that very few of the major technology providers can actually be trusted with such favored status because their corporate targets, sales incentives, processes, culture, etc. drive them to take advantage of any lack of competition, to overcharge and under-deliver. No, we first need to define more clearly what we need from our strategic partners, and pick companies that can meet our criteria. We also need to understand what we need to do to deliver on our side of the bargain, and help our partners make money too. And this may mean downgrading some of the firms we currently call partners to "expensive incumbents," and reducing our dependence on them.

I’ll be expanding on these themes in my keynote speeches at our upcoming forums in Miami and the United Kingdom. I’ll be suggesting some criteria to assess suppliers’ ability to be partners, and giving Forrester’s assessments of how the existing giants measure up. The speech will be interesting, controversial, and also fun. So I hope to see you there. In the meantime, I'd love to hear from people who have established strong, mutually beneficial partnerships with technology suppliers. What were the keys to establishing this relationship, and what are the benefits?

Comments

Can't wait to see what the audience says

In my experience running the Sourcing & Vendor Management council, members often wind up using the term "strategic partner" as code for "suppliers we give the most money to annually." Although many mature SVM execs are working to redefine how their classify suppliers and create truly valuable (strategic!) relationships with a small number of their suppliers.

As part of that effort, they look to give the supplier more insight into their business and future plans, while expecting the supplier to give more proactive recommendations and value for money.