How to build a strategic relationship

Feature

How to build a strategic relationship

The idea of establishing a strategic partnership with an IT supplier is often greeted with a degree of scepticism.

The aim is simple enough: both supplier and user strive to work closer together on common goals, for the benefit of both organisations. Research from analyst group Gartner has found that forward-looking enterprises are moving towards a more proactive, managed relationship that provides a level of control over supplier interaction.

According to Gartner, IT directors who consistently struggle with suppliers should develop a proactive strategic supplier programme to improve efficiency and effectiveness. The benefit to the supplier is that it is included on the shortlist in requests for proposals (RFPs) whenever the user organisation is looking to procure IT.

But how can an IT director be confident that the strategic supplier will not simply push for a sale just to meet quarterly sales targets, rather than to offer real business benefits for the user company?

Unilever, the international consumer goods group whose brands include Birds Eye, Dove and Lynx, has five IT suppliers it regards as strategic: Microsoft, SAP, BT, IBM and Accenture.

Choosing a strategic supplier is a major decision for any company. At Unilever, the disciplines, tools and techniques used for a merger due diligence exercise are used to evaluate whether suppliers are in good shape and are a good fit for the business

Neil Cameron, chief information officer at Unilever, said, “There are some similarities [to a merger] in moving to a partnership.” For instance, Cameron will quiz the supplier on how it will derive value from the strategic relationship, how working with Unilever fits with its own business strategy, and its commitment to investing for success and working towards the long term.

“What we try to do is dip into our M&A organisation and use their skills, their knowledge and their expertise selectively,” he said.

With Unilever’s multimillion-pound spending power on tap for IT, one would expect Cameron to have little trouble in getting all the attention he needs. However, his main objective is to get these key suppliers to work together and he has recently begun organising meetings where they can all sit in the same room and discuss strategy.

BT might be regarded as an unusual choice of strategic partner. At the time Unilever signed a global deal with BT in 2002 to manage and develop its global network, Cameron said BT’s global footprint was relatively small. “It was a first for us and a first for BT,” he said. S

ince the two companies were working in partnership, BT would be gaining some of Unilever’s resources. In particular, among the 200 staff transferred to BT, some operated in geographic regions where BT did not have much of a presence.

It takes time to build such a strategic relationship and on top of the contracted reviews which occur quarterly, Cameron has regular meetings with Andy Green, chief executive of BT Global Services.

“Andy Green put a lot of himself in this deal. He took some risks in his own business and I respect that. He is very engaged on our account,” Cameron said. “It is about talking and reaching a point when you can both be honest with each other, but without giving too much commercial ground away.

Earlier this month, the company signed another deal with BT to operate and manage Unilever’s firewall infrastructure globally, to improve network security and to help develop deeper online links with retailers.

“We do not have the discipline and standard technologies, and frankly it is not very important to us until it goes wrong. But [firewall management] is a core business to BT,” said Cameron.

The question is whether Cameron could have got a better deal elsewhere if the managed firewall contract had gone out to tender. Possibly, but Cameron said, “I would not have had much of a clue about who to choose and in the end I would have gone for price. But I do not want to build my business on lowest-price components. It just does not work.”

He did, however, hire a research firm to assess the market to ensure that the BT rate was in line with similar deals.

Strategic partnerships are notoriously complex, so IT directors will need to accommodate errors and differences in understanding. Cameron said, “Most large companies make mistakes and sometimes the [supplier] does not fully understand what you are talking about.”

Even after a few years, when things appear to be running smoothly, there may be need for improvement and a temptation to get a better deal.

In Cameron’s experience, during the first year of a major contract, the IT director needs to work with the supplier on small issues around understanding the scope of the contract, which inevitably leads to confrontations.

Next is building trust. Three years into the project some of the original aspirations will have changed, Cameron said. It is at this time that the IT director should look at how the contract can be adapted to reflect the way the business has evolved.

Unilever has the global clout to spar with the mighty Micro¬soft, SAP, IBM, BT and Accenture, but what hope is there for smaller companies? Smaller user organisations are also looking at strategic partnerships to move beyond a purely transactional seller and buyer relationship.

High street retailer Halfords is limiting the number of main IT suppliers it deals with to a handful, including ITNet (now owned by Serco), Ciber Novasoft, Manhattan Associates and BT Expedite.

Brian Scott, head of business systems at Halfords, said, “I prefer to have a small number of trusted suppliers. I know them and they know my business. I want to be their favourite client.” Scott said he is quite limited in terms of the number of suppliers he can deal with, which means he tends to turn down IT companies trying to book appointments.

As at Unilever, the benefit of limiting the number of major suppliers to a few strategic partners is in improving the understanding of business objectives.

“The level of understanding I can get with my suppliers means we should be able to do things more efficiently,” said Scott, adding that this would not be possible if Halfords had to deal with 40 suppliers.

Being small has its benefits. It means Halfords can get all its strategic IT suppliers together at one time to present the company’s business strategy. This is something a larger organisation can find challenging because of conflicting interests among the key suppliers.

“I hold annual conferences for my partners to explain what the business is trying to achieve and what the requirements of the business systems department are,” Scott said.

A critical test for a business partner at Halfords is if they can proactively help the retailer to run the business cheaper, faster and to a better quality. “I want them to make money, because they won’t be there if they can’t. It is important there is a balance. If I am  investing my time and effort in getting close to my suppliers, it pays back both ways since the suppliers can be more efficient as they know my business better,” said Scott.

Like Cameron, Scott believes a strategic partnership is built on trust between both parties. “The difference between a supplier and partner is trust. They have earned that trust by doing great work for me. They treat my budget as if it was theirs and they seek ways of reducing my outlay.”

Part of the problem with strategic relationships in a smaller company, where IT spending is limited, is maintaining the level of interaction with the suppliers.”You do not always have huge amounts of work to do,” said Scott. To overcome this, he tries to maintain meetings with Halfords’ strategic IT partners.

“I would have dinner with Roy Tomlinson, Ciber Novasoft’s managing director, and we do not just talk about business. We try to understand each other as individuals because it helps our businesses work better together.”

Some organisations treat their suppliers with little respect, which Scott feels is unhealthy in building a strategic partnership. This, however, does not mean they have an easy ride at Halfords. “I am a tough negotiator and I will not be oversold to,” Scott said.

Within the IT industry, companies get acquired, reorganise and people constantly change jobs. This means that the account manager at the strategic IT supplier may not necessarily be the same person. Halfords has seen its fair share of IT acquisition leading to changes in its strategic suppliers.

Scott said, “We started working with Novasoft and it was acquired by Ciber. We started working with ITNet and it is now owned by Serco.”

So how does he cope? “I work harder during the time of transition to re-establish a level of confidence in that supplier.”

So when ITNet was taken over by Serco in February 2005, Scott said he hosted a session for the people from Serco to explain Halfords’ strategy. “That was the time to be very proactive,” he said.

In many ways, a strategic partnership is like a marriage, said Cameron. Once the honeymoon period is over, the supplier and user company will face contractual challenges. After a few years, the business will inevitably change and the IT director will be tempted to look elsewhere.

It is at this time that the supplier and the user business need to focus on strengthening the partnership to ensure it succeeds.

Whether a business is multi¬national or an SME, the rules of engagement with a strategic IT suppliers are the same. Key to success is trust and having confidence in the supplier’s people. Scott said, “You have to treat strategic partners as if they were your own people.”

There will always be a better deal, but a strategic partner should remain competitive, while offering suitable products and services to help the IT director deliver an IT strategy.

 

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This was first published in September 2006

 

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