Are IT mega-vendors causing concern for CIOs? IT leaders are concerned that the larger services-and-hardware suppliers will lock them into their contracts and solutions.
Mega-vendors include acquisitive companies like Cisco, HP and Oracle, but some claim they don’t lock their customers in at all.
“It’s not a concern that I have heard, and with Oracle there is no lock-in as we offer choice, open standards and best of breed solutions,” says Alan Hartwell, vice president of technology and channel at Oracle.
“CIOs that I talk with are concerned about a variety of potential downsides, including the lack of choice when it comes to products and services, a decreased ability to negotiate, reduced innovation and vendor lock-in,” says Carter Lusher — research fellow and chief analyst of enterprise application ecosystems at consulting firm Ovum.
Lock-ins prevent customers from changing suppliers, making it the number one concern of most CIOs.
Hartwell also says the term ‘mega-vendor’ is not one he’d use anyway, preferring to refer to Oracle as a consolidator.
No matter which term you prefer to use, mega-vendors expand their own portfolios and organisations by merger and acquisition.
These expansion tactics can then diversify their own services and product offerings, and it can help them to gain access to new technologies and expertise that the market is currently seeking; examples include HP’s acquisition of Autonomy.
However, it is also argued that customer choice is reduced as a direct result of market consolidation.
This too can be a worry for a most CIOs because, according to Adam Mansfield, director of UpperEdge.
The subsequent market dominance and concentration of power within just a few large suppliers will force CIOs to partner with them exclusively.
“In other words the CIO’s reliance on the vendor’s portfolio allows the vendor to steer the organisation in the direction it prefers, rather than allowing the organisation to be steered towards specific destinations or business goals,” he explains.
Their captive market-leading power also raises concerns that mega-vendors can overly influence and control the market, including its pricing levels.
What CIOs want
James Thompson, technology officer at Northern Ireland Public Service Alliance, says CIOs are looking for “competitive pricing, good service and technical support, a one-stop shop, transparency and of course we need good products”.
His company has also consolidated its telecoms and mobile communications with BT.
A number of smaller companies were approached for quotations, but the cost of their offerings was a major stumbling block and they were not able to offer the same levels of service that a mega-vendor like BT can provide.
He claims that the average SME vendor won’t meet any tender requirements to enable them to make a successful application, and thus win the business. By forming partnerships with other similarly sized companies they can compete and propose a more attractive and competitive offering.
This approach can also increase their chances of being able to fulfil the requirements of any public tender. Another strategy would involve acquiring other SME suppliers that have complementary services and solutions, and through this consolidation would emerge a larger company that might have a better chance of winning the contract.
Oracle’s Hartwell defines his organisation as a ‘consolidator’. HP is defined by many as being one.
Nick Wilson, vice-president and managing director for UK and Ireland at HP classifies a mega-vendor according to its size, geographical reach and its breadth of offering.
He adds that analysts would describe them as fitting into a tier 1 or 2 category and their product portfolio “has to be wide in terms of being worth $10-$20bn”.
His colleague, David Chalmers, technology director for HP’s Enterprise Group, also says that they have the scale and financial reach to deliver solutions, and that some take a flexible approach while others do require their customers to be locked in.
“So you see a divergence in approach; it’s not the technology but the political aspect that differentiates big vendors,” he argues before stating that the market is at a phase of rapid maturity.
This means that it is settling down to just a few vendors, but the smaller ones in his opinion will continue to exist — and the best ones will be seen as ripe for acquisition.
In contrast to traditional thinking, Chalmers claims that the larger companies can build new technology faster than anyone else.
“You now see innovation being delivered by large vendors, incorporating a more nimble response because they have the resources to adapt more quickly.”
Mega-vendors provide an end-to-end IT solutions and services for customers in the enterprise sector of the market.
“They play in a number of technology markets and act as strategy partners by providing IT solutions,” says BMC Software’s CIO Mark Settle. The ‘partnership’ that he defines is one where the mega-vendor is available to effectively run their customers’ IT infrastructures.
“A mega-vendor is a vendor that has the capability to provide a stack of hardware, operating systems, software and services to support it, and the hyper-vendor would be one that provide business advice around these services,” adds Clive Longbottom from analyst Quocirca.
“They emerged as the likes of IBM continued their growth by taking over more technical and services companies,” he explains before adding that IBM became more than just about IT when it purchased international consulting giant PriceWaterhouseCoopers (PWC).
HP responded accordingly with its acquisition of EDS Consulting, but he believes that Oracle still has some way to go in terms of the development of better service capabilities and offerings.
Public/private sector impact
A number of factors create both a positive and negative impact on public and private sector organisation.
Choice isn’t the only issue.
“The implications can be good if you have a proposition where costs can be removed,” says Hartwell.
Integration costs are in his view something that the public sector can do without.
He claims vendors like Oracle can also provide the necessary process and IT integration, but says that CIOs may and should consider other propositions, and particularly ones that allow for a certain amount of integration to meet their business and operational needs to avoid a lock-in situation.
Speaking about SME vendors, HP’s Wilson believes that there is a positive trend at the moment.
“If you want to make big savings you need a combination of SMEs and big vendors,” he argues, explaining that SMEs can bring different ideas to the table. “These firms can add value by working with others.”
He also believes that the cloud is perfectly suited to the public sector.
HP’s Chalmers adds that the public sector is focused on the wider debate, claiming that the smaller number of vendors make life less comfortable, but “the improvement in technology delivery is very attractive”.
To contradict this, Etienne Greef, professional services director at network solutions provider SecureData, feels that most companies want to be able to deal with fewer vendors to reduce the complexity of managing a large range of relationships.
So in essence it all swings in roundabouts for most customers, but if choice is permitted to thrive customers will continue to benefit whether they are working with SME vendors, a mega-vendor or a combination of both.
To achieve these benefits Longbottom thinks that the public sector needs to change its mindset to take “responsibility for managing strategy, look at projects in smaller, inter-related pieces that can be flexibly aligned with the changing forces in the central, local and citizen space and so on”.
Speaking more generally, Lusher at Ovum believes that a mega-vendor’s total solution “could significantly reduce the amount of required investment in budget and people in maintaining the IT infrastructure, executing updates, integrating new technologies and technology support”.
By adopting such a strategy it is possible for organisations in all sectors to reallocate resources to drive business innovation.
“So instead of 70 per cent maintenance, 30 per cent or less innovation, the CIO would be focusing on 70 per cent of his or her resources on business innovation,” he says.
Trust has to play a role in any relationship, but CIOs should still do their due diligence to ensure that they have the right solution for their organisations, while also considering factors like scalability and whether the contracts offer the ability to integrate new or third party solutions as time goes forward.
With consolidation set to continue over the next five years, CIOs also need to think ahead to how this might impact on their organisations.
Mansfield at UpperEdge says that it’s natural for CIOs to become more sceptical of those promises.
“As IT mega-vendors’ market share increases, and as IT mega-vendors gain leverage through it, they will make opportunistic changes to policies and promises; they know that CIOs and their organisations have limited viable alternatives and that those are far less attractive than simply accepting the change,” he says.
SAP in 2009 sent out a letter to its customer-base to inform them of an increase in maintenance costs, and labelled it as a change in their enterprise support offerings.
Lusher reiterates the importance of undergoing a process of due diligence whether you are working with a small or large vendor.
He also believes that the vendors don’t always deliberately mislead CIOs and their staff because what the mega-vendor is trying to achieve is quite complex.
“CIOs need to develop next generation governance and procurement approaches that permit them to carefully evaluate the go-to-market messaging of each vendor, versus their actual strategies and capabilities,” he explains.
These will ensure that any relationship with particularly a mega?vendor will be successful. Business innovation and the incorporation of the most appropriate technologies are crucial to enable the CIO to be able to achieve this in a way that is suitable to his or her organisation.
Due diligence allays some of the concerns that CIOs might have about working with particular vendors, whether they are in the mega-vendor category or not.
Settle also advises that they should seek contracts that provide adjustable pricing because market conditions fluctuate in the future.
HP’s Chalmers is also right when he argues that the only lock-in that should be allowed is the one of quality.
If the vendors over-promise and under-deliver, there should be no surprise if CIOs maintain a low tolerance of those that don’t do what they promise.
Checking out a vendor’s track record and how it works with other organisations will enable CIOs to make the right choices. Given their depth and breadth of offering a mega-vendor might actually be an appropriate fit for them, but even during the relationship CIOs should constantly keep their vendors on their toes.