The goal is to identify an executive who will sponsor a project and find a budget in the absence of an evaluation.
Procurement Grows Stronger Commoditization
Another impact of the down economy is that procurement has gained more power. Procurement has always been a stakeholder, with greater strength in government than in the commercial sector. In the down economy, though, its strength has grown as efforts have increased to drive cost out of companies so that they can compete globally.
As a result, sales cycles, after the vendor-selection decision, have developed a second crucible for the approval cycle, which can be as difficult and lengthy as the process for winning the business itself. This means that after earning the business, we need to better equip our sponsors with a business case for the economic buyer.
The best practice is to become more proactive in this phase of the process rather than leaving it up to the client.
As the economy declines, companies focus on cost cutting rather than on innovation or revenue-generating activities. This has been reinforced by the global impact on prices from low-cost producers in Asia. As a result, procurement has more power, even over strategic purchases.
By nature, procurement is inclined to ignore value and focus on price. In fact, procurement managers are measured and rewarded for it. The end users are the ones who understand value. This is why procurement people try to separate you from them at the end of the sale. Commoditization is not only a sport to these people, it is also a way of life. Even when they understand strategic value, they are trained to ignore it at least in front of you.
They will say such things as, "I don't know. You all look the same to me, but you're more expensive. What can you do for us on the price?" Left unchecked, these people will drive you to the door and then catch you by the coattails.
Also remember that there is a mirror image of client relationship management (CRM) for procurement people called supplier relationship management (SRM). Also called strategic sourcing, procurement best practices call for segmenting suppliers into different categories based on the importance of their value and the availability of substitutes.
This gives them four segments:
High importance, low substitutability strategic
High importance, available substitutes preferred vendor
Low importance, low substitutability manage risk
Low importance, available substitutes commodity
Many procurement people actually know the difference between buying strategic solutions and buying commodities, but they often pretend that you have less value to their firm than you do. Moreover, ERP systems for the bigger firms now provide procurement with information about global spending with your organization, as well as prices your firm has quoted elsewhere in the world.
This is information the sales reps themselves often dont have. And information is becoming available through consultants about what prices were quoted to other firms.
While they focus on price, you must continue to refocus on value. They will argue over thousands while you may be making them millions. Where do you find this value? From the initial discovery and linking your solutions up the value chain.
At the same time, the attorneys are paid to imagine the worst possible outcome litigation and many want to prelitigate in the contract. You need the powerful executives who will be using your products and services to explain what is normal risk, what can and cannot be achieved, and your competitive differentiators and their value. Without their involvement negotiated early in the sales cycle, you will find yourself in a battle of wits with lawyers and procurementunarmed (see Figure 51).
In our negotiating classes, we teach that the best practice is to bargain early in the sales process, while you have something to trade, to get your sponsors to advocate for you with procurement. Why would they do this for you? Remind them that their future depends more on the success and risks of the project or product than on negotiated priceand that a degree of partnership will be necessary for the future give and take.
Remind them that the relationship includes the negotiation. And you cant go from partnership to abuse and back to partnershipespecially if you have taken all the margins out of the deal. If they dont agree to arbitrate value on your behalf later, you might seriously consider not investing further resources if you see a price beating coming in your future. We have a commodity buyer who has called us every year for six years. We have fired the buyer as a prospect every year. We know the company wont pay for value in the end. We spend a little time to see if the companys culture has changed or if the company representative person has enough power. If not, we move on.
Understand your value, continuously refocus the discussion around it, and never go to procurement alone. (Although you actually may have to physically go by yourself, your sponsors should have paved the way and be in the background, supporting your value.)