There are two phrases vendors use that raise hackles of scepticism on Jonathon Potter's neck. The first is: "I want to be your partner." When vendors say those words, what Potter hears is: "We want to gouge as much money as possible out of you." The second is: "We're losing money on this deal." That he never believes at all.
Nonetheless, CSIRO's general manager, IT services has forged strong partnership relationships with numbers of core vendors, including Microsoft, Cisco, Dell, Sun and Ericsson. Despite his natural cynicism, Potter accepts the value of alliances that may help CSIRO avoid making strategic, conceptual and possibly even developmental mistakes as it continues exploring the bounds of technology. "At CSIRO we try to push the envelope to what's a little bit on the bleeding edge occasionally, and that means that you have to work very closely with your key suppliers and make certain that you're aware of what they're doing in advance of what they're doing," Potter says.
As CIOs increasingly face up to the threats to their organisations' ongoing competitiveness posed by globalisation, new markets and the rapid march of technology, new forms of partnerships and alliances with vendors have suddenly become compelling. For some companies it's primarily about addressing the skills crisis in e-commerce delivery or getting vendors to share the risk. Others use it as a way to make the transition more quickly from a legacy environment or to satisfy delivery deadlines.
"Business executives are worried," writes e-business application delivery editor Jim Highsmith in The Cutter Edge. "The cover story of the 28 June 1999 issue of Business Week, 'Internet Anxiety', chronicled the fear in corporate America as 'e-everything' explodes and traditional business models lie in ruins. The rising frenzy about e-business and the rush to outsource are parallel, interconnected trends."
Highsmith says shortages of e-business application development skills and pressing time-to-delivery needs are pushing outsourcing arrangements into new territory at a time when many of the carefully crafted deals of the past few years have proven less than satisfactory. Not that outsourcing is about to plunge into obscurity: the business initiative and economic reasons for outsourcing are too compelling. However, Highsmith says the newest trends in outsourcing - application service providers (ASPs) and specialised, boutique systems integrators - may prove better options and become alliance models for the future.
While many remain sceptical about any model that relies on an ASP to host valuable and proprietary data over a public IP network, the ASP model does highlight a significant trend. The concept sees software suppliers and service providers getting together to come up with complex solutions embracing applications software and hardware software, which business can adopt as a rentable solution. That gives business the flexibility to change with evolving business needs, rather than being forced to make a long-term strategic commitment to any one vendor.
It's only one model CIOs are looking to as they seek for new forms of partnerships to replace the outsourcing models of the past few years.
"Outsourcers are from Venus, solution integrators are from Mars, and very few outsourcing deals deliver satisfaction," wrote Susan Scrupski-Miranda, outsourcing pundit and president of IT Services Advisory, in a January 1998 column in Solutions Integrator. "Outsourcing's dirty little secret is that very, very few customers are happy. It's not that outsourcing vendors are all that bad, but the deals themselves are often unmanageable."
There are suggestions the newer partnerships and the other forms of alliances being forged today and designed to address those problems can be potent stuff. According to Smart Alliances, a Booz, Allen & Hamilton Strategy and Business book by John R Harbison and Peter Pekar Jr, successful partners expect about 35 per cent of their revenue to come from alliances by 2002. Strategic alliances over the past 10 years have yielded an ROI of almost 17 per cent among the world's top 2000 companies, while the 25 companies most active in alliances achieved a 17.2 per cent return on equity Ñ 40 per cent more than the average of the Fortune 500.
One effect of the boom in activity is that the boundaries between friend and foe are constantly blurring. Bob Kahan, chief operating officer for EDS Australia, says as more companies look to alliances or partnerships with specialised suppliers, situations are arising where organisations are partnering with a vendor on one piece of business while competing with them on another. "It's a very, very different world today," Kahan says. "It used to be clear who your competitors were and who your suppliers or potential partners were, and it's not nearly so clear any more."
Another effect, according to TPI Australia managing director David McGee, is that organisations are increasingly relying on more than one alliance partner or outsourcer to help them stay on top. McGee's parent company has helped hundreds of clients around the world to get together with suppliers in alliances or outsourcing deals. "Companies a lot of times will outsource and ask any IT provider to worry about the legacy environment and then either contract with that outsourcer or contract with somebody else, like a systems integrator, to help them migrate their legacy environment to the new and online environment," he says.
Partnering for Profit
Profit is the one best business reason for going into partnership with a vendor, says CSC managing director George Bell. "An excellent partnership is one in which you're able to change things," he says. "You're able to move flexibly, you're able to explore new ideas, you're able to change the way the business model works; and you both gain. If you're a supplier, it gives you a chance of having a more profitable relationship. If you're a customer, you may well find you have opportunities to gain more than you would have thought because you can be flexible."
Meanwhile, Kahan says that just as they did when the drive to outsourcing first began, most companies today look to partnerships to give them access to specific skills, knowledge, expertise or technology. Companies want to focus on their core business, he says, and they know just how difficult it is for non-technical organisations to keep up with rapid shifts in technology.
That analysis resonates with Mathew Sylvester's, who is project director, Corporate Systems Redevelopment Project with the Federal Department of Family and Community Services (FACS). Sylvester says that right across the public sector, managers are recognising not only that it's impossible to be an expert in everything but that there's a strong need to see things from the partner's perspective, as well as your own. As a result their entire approach to partnering has changed over recent times.
"It's nice to have a conceptual understanding of every role, but you can't be an expert in everything." Therefore, "rather than taking ownership of something, employing people and trying to get the skill sets within house", Sylvester says, the focus is more on partnering with somebody else to achieve the result more efficiently.
The difference today is that where once public sector agencies would draw a clear demarcation line between their responsibilities and those of an outsourcing partner, these days they are more willing both to give a bit more to the outsourcer and take a little more responsibility. "In this department in the last couple of years there's been a big emphasis not to take total ownership of the thing but to take enough knowledge that we can still drive the components and understand the risks involved," Sylvester says.
"We have partnered with SAP; we partnered with Scitec in Brisbane, which holds our systems in a network management service; and both of those are long-term strategic partnerships. They're not a contract for one function. It is an agreement that there will be continued change that will have an impact on us. The reason we took the SAP tool was because we want them actually to understand our business requirements and our changing requirements, so they can assist us in maximising our use of their functionality," Sylvester says.
But FACS' partnership with SAP is breaking new ground. Sylvester says a common complaint with SAP has been that all it does is sell you the systems, tell you which of its implementation partners to use, then only come on site when it's time to do quality assurance tests. With FACS facing a tight, five-and-a-half-month timetable to implement and roll out SAP, that wasn't a deal he was prepared to countenance.
After some foot-stamping and tantrum-throwing he got SAP to agree to assign two of their consultants to work with FACS throughout the project on specific functions. The same consultants would do ongoing quality assurance rather than coming in at regular intervals and putting progress on hold while quality assurance went on.
"SAP took an awful long time to come away from their standard model and it took a little bit of raising voices," Sylvester says. "We started to say: 'If you want us to pay you the money, you will have to bend and compromise a little bit.' To their credit they understood what we were trying to achieve. They provided us with a couple of good consultants, who worked with their implementation partner and worked with us."
One thing public sector agencies can't readily do is to take equity in partnering companies. The Commonwealth Bank of Australia has no such restraints. Two years ago the bank sold its networking infrastructure to EDS when the two companies forged a $5 billion, 10-year partnership for the delivery of IT services. That deal was so successful the bank may hand ownership of telecommunications operations to a telecommunications partner before the end of the financial year, in a $1 billion-plus deal under which it may make a similar equity arrangement.
General manager, group technology Howard Morris says the bank sees itself working in alliances or partnerships with a variety of organisations in the future. "Some of those will be other organisations, which, together with EDS, will bring forward particular solutions to meet the bank's business needs," he says. For instance, the Bank, EDS and Microsoft have entered into a three-year enterprise licensing agreement which provides the Bank and EDS with the right to run the most current Microsoft products. These include Windows NT Server, Windows 95, Office Professional and the BackOffice suite.
EDS is also instrumental in the development of technology to support the alliance between the Bank and Woolworths, designed to let both companies introduce their customers to each other. EDS is creating the world-first Ezy Banking solution, which will deliver limited banking capabilities to 640 Woolworths and Big W stores around Australia.
Morris says one of the strengths of the partnering arrangement with EDS is that by buying equity in EDS, the bank shares in the success of EDS through its investment in EDS' growth. Not only does this give both parties powerful motivation to make sure the deal works well, says Morris, "it also provides the executive and management framework whereby you have a board structure with representatives from the bank and EDS on the board looking at how they might grow EDS' business. We found that not only unique but innovative in terms of the technology relationship."
In this way the Commonwealth Bank seems to be pointing firmly to at least one common partnership model of the future.
"The best relationships end up being multiparty relationships rather than one-to-one relationships between a customer and a single entity," Mincom CEO David Merson says. Based in Brisbane, Mincom has direct experience with another trend in partnering - the practice of vendor companies forming alliances with other suppliers to help meet customer demand. Merson says the company increasingly finds itself forming alliances with other organisations, because what today's customer organisations are looking for is beyond the capacity of any single organisation to deliver.
"One solution to that used to be to go and find yourself a major partner and contract with them and rely on them to bring the appropriate parties to deliver a solution over time," Merson says. "But I think increasingly what the customers are expecting and what industry is doing is pre-forming some of those relationships," Merson says. "We're working with a lot of major consulting organisations, major outsourcing organisations like the IBMs and so forth, to find relationships between ourselves where we have pre-thought out how we can bring our respective skills to bear to provide a complete solution to a customer."
The deals extend beyond IT organisations. For instance, Mincom has formed a strategic alliance with Caterpillar, the world's largest supplier of equipment to the mining industry, and is working with it to try to build a complete industry solution for the mining industry.
"Increasingly, as IT becomes more important not just to IT departments but to the overall value equation which anyone operating in industry is involved in, you're going to see much more of these what may at first blush seem unlikely alliances between IT companies and other people who operate in industry," Merson says.
That value equation is of vital significance to Centrelink, a federal government agency which services nine other government agencies as clients. Centrelink receives its entire revenue from payments made by its client agencies for work done.
CIO Jane Treadwell says the agency is currently working on a significant alliance which will see Andersen Consulting become Centrelink's systems integrator. "We have a major interest in Centrelink from a business perspective of establishing a platform for electronic service delivery as well as pursuing call centre automation in a steady fashion," Treadwell says.
Centrelink had nothing like the resources to do the work on either Centrelink Online or call centre automation internally, but Treadwell says it was also looking for the world-class capability that would let the agency "plant that footprint into the future". After a tight RFP process, Centrelink narrowed the choice to just two companies and invited both to spend around six weeks with the agency to prepare a project proposal.
Treadwell says the process, which illustrates the differences in expectation between an alliance partner and an outsourcer, and which involved numbers of round-table discussions, proved sound. On the prospective alliance partner's side, it was a chance to discover Centrelink's level of technical and business expertise and to discover the main issues. For Centrelink, it was a chance to learn whether it could expect to draw on the prospective partner's thought leadership as well as its competencies, and whether Centrelink could expect to work well with the partner's staff. Treadwell says the model is one Centrelink will increasingly follow in the future.
"More and more, the capacity of Centrelink to satisfy our customers, who are the citizens of Australia, as well as the client agencies, means that we have to respond quickly and we will need to draw on resources and expertise that we don't have here," Treadwell says. "It's understood that that will be the way of the business, and it's equally important that the IT area follow that model."
And it's that ability to satisfy customers, keep pace with technology and drive cost benefits that will continue to drive the partnerships of the future, as long as the arrangements can stay win-win deals for both sides.
As CSIRO's Potter puts it: "It's typical of IT people to say Microsoft is too big, and I've heard IT people say: 'My goal in life is to stop Bill Gates making another dollar'. My goal in life is to make CSIRO's IT as cost-effective and good as it could be, and if Bill Gates makes dollars out of that, I don't actually care."
Next month: Making Alliances Work
Sizing Them Up
Twenty things to say to every suitor
Feeling bombarded by vendors that want your business and will stop at nothing to catch your eye and win you over? Don't get annoyed with all those calls, letters and invitations. Start dancing.
With every request for your attention comes a new opportunity to scope out the best offers on the floor. What's more, the mad rush to win your favour couldn't have come at a better time - without those hungry-eyed, technology-partner wannabes, you'd have an awful hard time keeping current with the latest steps.
There must be 50,000 ways to pick your partner, but our space is limited so instead we're offering 20 indispensable queries and comments, culled from conversations with IT executives and vendor-market analysts, to run past all your potential partners. You may want to change the wording to suit your situation, but you don't want to skip these points - unless you're satisfied with second-rate. After all, when the music stops, you don't want to be left standing with aching feet and wilting expectations.
1. You wouldn't happen to have your competitors' phone numbers handy, would you?
No matter how impressive a product, person or presentation, be sure to look at others for comparison's sake - or you set yourself up to be taken on price, short-changed on perks or blinded to even better alternatives. The rule of three works for most. Another benefit of shopping around: If your favourite falls through, you've got a backup waiting in the wings.
2. Are you merger-minded?
Things could change in a hurry should your prospective vendor be gobbled up by another company during the course of your relationship.
3. Can't you read the sign? Blowing smoke isn't allowed here.
Adjust your antennae for overstatement-of-capabilities detection. Look for vendors that present a clear road map of the project under consideration. Another sure sign of puffery: grand plans for tomorrow juxtaposed with an unexceptional product set today.
4. This is a big project, but don't get any big ideas: you won't own it.
If you're accepting bids for a large project, budget it and parse it off one phase at a time. No matter what kind of project you've got, chunk it down so you can deliver pieces in short windows, where everyone can stay focused and engaged. Then launch and fund another phase of the project, if needed. Sounds like milestones in the contract? Not quite. Milestones tend to slip, along with motivation levels. When the contract has a finite budget - a defined beginning and end Ñ and the vendor has to satisfy you to get the next contract, it puts a very different light on the project.
5. Looking to advance your bleeding edge? Don't look at us.
If the vendor hasn't provided you with the name and number of a reference whose size and situation resemble yours, you're being asked to serve as a test subject. Don't do it.
6. If you're not prepared, I will be - to prevent you from wasting my time, that is.
It's not hard to spot the vendors that didn't do their homework on you, your company and your industry prior to making their presentation. They're the ones with more questions than answers. Open the trap door and let them fall.
7. Nice bells and whistles, but where is what I asked for?
Have a clear idea what you're looking for before entertaining pitches. If you don't know what it is you want and you're not able to communicate specific ideas of what you're looking to accomplish, vendors will often interpret your hazy ways as an invitation to pad the pitch with unnecessary trimmings.
8. Where are you headed and how are you going to get there?
Mission and vision matter. Beyond the vendor's current position vis-a-vis its competitors, what are the signs it'll be in good shape three to five years from now? Along with the standard financial-health checking you need to do, ask about staff turnover and, for product suppliers, investment in R&D as a percentage of overall budget. In the case of a potential long-term partnership, ask to see the vendor's business plan.
9. Will you stick to the sheet music or sit in on extended jam sessions?
In other words, what's the vendor's interest in you and your company? Team spirit alone may not be enough to determine who gets the contract and who gets left behind, but it can be all that separates two or more identically qualified vendors.
10. This is delicious, but I don't make decisions over dinner.
Friendly phone calls, e-mails and lunches with executives are pleasant, but chances are you don't. Get the organisation to introduce you to those people who will actually be working with you sooner rather than later.
Also, beware baiting and switching - introductions to superstar staffers who could fade from sight once the work is under way. There's no sure way to ensure that you won't be set up for that little scam, which may well be unintentional in today's staff-short environment, but you can ask to meet several layers of talent to make sure the firm has sufficient depth - to which you can demand access later.
11. Ve haf vays . . .
See how vendors' stories hold up under pressure. Grilling can be as simple as playing devil's advocate. Make it as difficult for them as possible without being uncivil. Ask a lot of hard questions. If they're good, they'll appreciate the opportunity to show just how prepared they really are.
12. Who says?
A few pointers on checking references. First, do it. Second, don't rely on the vendor's own references. Usually they'll give you only screened customers. Finally, be as tough with the references as you are with the vendors.
13. It's very nice to grill you virtually.
If you can't make it to the presentation, make sure to compile your questions and give them to a manager who can. You have to live with the results, whether you attended the presentation or not.
14. Shiny baubles are always tempting, but we'll pass for now.
Shy away from technologies in their first 'model' year.
15. Slow down or you'll oversell me.
If you're buying instead of building, and you probably are, look past the claims of off-the-shelf capabilities to what you will need to do to glean competitive advantage from the purchase.
16. How well do you play with others?
There can be a lot of finger-pointing as you try to integrate parts, especially with operational products and services. This process is a tough one to gauge up front - be sure to lay out the ground rules for the communications practices you expect. You have to be ready to take responsibility to define clearly where their work ends and someone else's begins, where they may need to stretch, and what role they can expect you as the general contractor to play.
17. How happy are your employees?
Make sure vendors are not just throwing bodies at projects and letting them learn on your time. They need to hire qualified people and train them through their own methodologies and processes before they ever show up at your doorstep. Make sure your project team has a mix of senior people with long track records of on-time, on-budget projects, plus some junior people to keep costs down and provide turnover insurance.
In addition, ask every potential vendor to explain how the employees in the project will be compensated for doing a good job. Find out the compensation structure of both the line staff and the senior management of the project. If they won't tell you, move on to someone who will.
18. No company is an island. Is yours?
Make sure all software and hardware products are interoperable with most other vendors' products and the vendor has a solid strategy to enable further interoperability via the Internet.
19. Mind if we stop by?
A tour of the vendor's plants and operations will give you a lot more insight than even the slickest presentation in your office. If at all possible, observe them in their natural habitat prior to letting them into your company.
20. Ever put on hip waders?
If possible, plan a weekend away at a lodge or camp with high-level people from the major vendors - it helps to establish the relationship. Not everyone has access to a screening tool on that scale, but anyone can feel a person out for compatibility in personal styles and values. After a formal presentation, replay the session in your mind and ask yourself if the dialogue seemed to develop into a natural rapport.
In most cases it doesn't take a weekend of fly fishing to get people to ease out of their professional roles and show their true colours. Your aim is to figure out if a prospective vendor would make a good match for you over the long haul. And you'll be able to start doing that after you've said yes to the simple proposition, "May we have this dance?" Just make sure you get all your questions answered before the music stops.
- David Pearson