Working with service providers: what is the best strategy for surviving in today's financial crisis?
The possible choices may be:
To refrain from project investments;
To go on developing the product with your current service provider and build a common strategy for this period; To find a new (cheaper?) provider and do your best to finish the project on a lower budget.
What do you think? What other strategies can you suggest?
Good Answers (2)
Nick K.
Information Technology Executive
Best Answers in: Offshoring and Outsourcing (7), Software Development (4), Corporate Governance (1), Project Management (1), Small Business (1), Computers and Software (1)
I agree with Oleg – it's not a good idea to change horses in midstream. I guess the best solution is never to make it to the midstream with weak horses. Easier sad than done, no matter how well you do with vendor selection, how well you plan, etc. things such as the current crisis are inevitable. The organization that do not react / change fast enough pay huge penalty. When Cash is getting low and/or P&L is looking grim organization must rationalize its R&D and Project portfolio. Having been though this situation a few times I developed metrics and weighing system that helps me to decide what to keep and what not to for all aspects of my portfolio – projects, initiatives, providers, and sorry to say staff. When it comes to rationalization of service providers there are typically a few dimensions to consider:
* How essential is the service provided? For example, I use remote DBA and Managed Security Monitoring services; these are absolutely essential and the things need to get really bad for me to drop them.
* Is the quality of service sufficient? The changing situation changes my tolerance / risk aversion. What was good awhile ago may not be good any more.
* Is the price performance satisfactory? BTW, here is an area for vendors to consider – by reducing your margins in advance of my decision you can increase your chances for survival.
* What is my alternative to using current provider? In many cases the only alternative is to delay some projects (not necessary those delivered by the vendor) till better times – what is the real cost to the company?
* What is my relationship with the vendor? Not very high on a relative scale but still essential.
There are also some specific circumstances which one need to consider related to losing the vendor. Can the relationship be suspended till better times? Is knowledge retention in place? Does it mean loosing access to key resources? Are there contractual items that could become costly? Do we have infrastructure or other investments that would be jeopardized / lost? Etc.
In ideal case – and I have been fortunate enough see those – you can work out something with the partner on a basis. The bottom line is clear: ”desperate times call for desperate measures”. Not recognizing it on any side of the vendor-consumer relationship is lethal for the relationship and possibly for both parties. Dealing with the issue in time, considering “win-win” style negotiations is likely to keep both sides relatively happy.
Links:
- http://www.pragmaticoutsourcing.com
- http://pragmaticoutsourcing.com/2008/10/23/downfall-impact-do-you-keep-your...
Clarification added October 23, 2008:
Michael, see more thoughts in my recent post. thanks again for the question good / thought provoking. Nick
Anis M.
Institution Development,, People Change Consultant-PAKISTAN
Best Answers in: Change Management (10), Organizational Development (3), Staffing and Recruiting (2), Planning (2), Career Management (2), Business Development (1), Business Analytics (1), Engineering (1), Small Business (1)
Hi Michael
Financial crisis when it comes hits everybody. We sometimes do not realize being too involved in our own pains that it has hit equally badly the next door operator and perhaps worse those who are downstream – your vendors. I am not in favor of becoming reclusive or defensive, I am in favor of making best use of the crisis and capitalize on its positives to the maximum. I am also not in favor of going out of the existing network and relationship bonds that you have. I need not emphasize that relationships are built at a lot of cost and energy. Staying closer is the need of the hour. It is the time when you huddle together rather than start looking for new partners. Comfort each other when you are marooned and find the land together. You can have your instinctive me-for-me once you are all on land metaphorically speaking.
First priority: share the concerns with your vendors, at least those 20% who matter 80% on your ROI. Invite them to meet and discuss not YOUR problem but a COMMON predicament that has hit you and them both. The supply chain under the financial crises is also feeling insecure probably worse than you. They are also equally concerned about their business survival. Team up I would say. Innovate deals. Make Joint efforts to sail through the crunch together. These critical times sometimes prove to be the best times for making enduring relationships and make the future brighter.
Second priority: share the information with vendors of your cost structures and make them share theirs with you. Together then, strive to see how costs can be cut at your end as well as in their operations. Technology? Process improvement? Training? Etc. hire consultants for them if needed and help them out becoming more efficient, which will in turn provide you their services assuredly and at cheaper rates. Bonding of stronger relationship will be a bonus.
Third priority: rework your strategy and business plans to a more realistic (obviously downward) ROI for a predictable short term. I could have said this was priority one but the input from the two above is required in this one. With good survival instincts you can sail through this period still making profits even if less than normal times, but there will be many others who would be lost and drown – attitudes count in crises.
Good luck.
More Answers (6)
In financial crisis as with financial good-times the critical point is the rigor and timeliness of your ROI basis numbers. Hard times are the greatest opportunity to grab opportunity. Grab it with confidence.
A discussion with my brother who works in the "Oil Patch" went something like this: We agreed that right now is a time for a restructuring of price points on services and products. While this means a number of jobs will be lost through attrition, the benefits of working with creative freelance suppliers can be managed better because of the lower prices.
Now is a great time to get your priorities in order. Filter your providers for their ability to do what it is you need accomplished at a great price because you'll need to lower your budgets to make earnings.
The quickest way to the bottom line is by creating new ways to find interactions with various "new" providers who are willing to go the extra mile for your "new" business.
The fight is on for who will recover first. The first ones there get to enjoy the benefit of growth the longest.
I hope this helped!
Francis
Links:
Oleg U.
Technology and business development professional
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I think in the crisis conditions it is better to work collaboratively with your current provider to make your relationships more effective and survive the crisis together, because the crisis affects both you and the service provider too. Do not forget that searching for the new service provider tied up with additional expenses and risk for the project: you need to spend your money to find the new provider, you need to spend the time to transfer the project knowledge, you need to invest time and money into building relationships with the new provider and so on. So, in the crisis situation the best you have is your current service provider - you invested money, time and nerves in building the relationships, provider knows your business and learned to manage your expectations. And you learned to manage the process and relationships with the provider and its team. It is better continue improving and continue investing into your current relationships, then searching new ones. No one changes horses on the bridge.
Richard L.
Agile Coach at Humanizing Work
Best Answers in: Computers and Software (1), Software Development (1)
Find ways to start ROI sooner by releasing the outputs of your projects incrementally. This can improve both cash flow and overall ROI. When cash is tight, making large project investments that don't return anything until the end doesn't make sense. If your service provider can't help you accelerate ROI in this way, you may need to find another service provider who can. (Note that the new provider need not be cheaper overall.)
Links:
Avneet J.
Entrepreneur & Management Consultant
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I don't think # 3 is a good idea. Cheaper provider can end up being a lot more expensive due to errors, overruns, lower productivity etc.
Nishanth R.
Manager - Presales (Bid Management) - Media at Tata Consultancy Services
Best Answers in: Offshoring and Outsourcing (2), Economics (1)
Michael, at times of a financial crisis you may find cheaper options around with suppliers ready to negotiate and lower prices to secure business. But does anyone here really know that if we are really in a recession how many years of a crisis do we really see before we see things improve. Lets assume you sign a new 3 year deal and the market recovers in a year where this so called new vendor of yours does find easy business coming in you would automatically fall down the priority list, have your best resources moved out and be of least interest any longer. Where as assuming you have an already good working relation with this particular supplier you may be the last account he cuts corners to reduce costs and the realtion would be stronger in the long run.
Having said that its always good to let him know that you did have options rather than him treating it as a free lunch.
Ofcourse we are going with the assumption that all the options you have as service providers are financially stable, we all thought most of the wall street banks were strong enough
