Are you familiar with the Unattainable Triangle?
You know, it’s the one which shows that if you’re planning a new project you can have the job done fast, cheap or well. It suggests that you can probably achieve two of these things at the same time. But all three all together? That just isn’t possible.
And this is a huge challenge in the VAR environment right now because COVID has thrown us into a major global recession where many large enterprises planning tech initiatives or transformations could be expecting all three.
Usually, in a recession, there’s a race to the bottom; VARs are fighting it out on price to offer the cheapest solution with many of them willing to drop their prices until their margin is non-existent. They are forced to pretty much ‘buy the business’, trapped between competitive pressure on one side and procurement on the other, who are being targeted more aggressively than ever to deliver cost savings and cost avoidance for their organizations.
The speed with which the recession has hit and the productivity challenges it’s caused means that providers have had to react to customers at an incredible pace if they want to bring real value. In my colleague Neil Dearman’s recent blog, he described that companies have accelerated 3 years’ worth of innovation and digital growth in just 3 months. All that demand needs support with a successful infrastructure and capability. So the pressure has been on VARs like HighPoint to react fast and deliver more quickly than ever before.
And finally, customers want the transformation to be done well. Many large enterprises, our clients included, were forced to make some urgent reparations to plug the gaps in their operating capability when the world shut down in March. Pandemic panic, wholescale home-working, and gigantic network demands exposed needs that initially had to be met with temporary solutions. Since the next normal means, many practices are changing for good or at least the foreseeable future, the legacy infrastructure must be replaced with something that’s fit for purpose today and tomorrow. So customers need VARs to deliver best and leading practices such as a software-defined infrastructure with zero trust-based security throughout.
At HighPoint, we believe that the Unattainable Triangle presents a trio of outcomes that the customer should never expect all together. Of course, we’re passionate about delivering legendary service (it’s one of our core Fundamentals) so we’re always focussed on completing our projects to high quality, with a great customer experience and a realistic timeline. The most challenging of the 3, therefore, is delivering cheaply. I believe that particularly in a recession where the market is contracting this is absolutely a false economy for the customer. Here’s why.
The Pricing Vortex
VARs have been in a pricing vortex for many years which is now accelerating further. The feeding frenzy over available projects and flagship customers has an unavoidable impact on price. Resale margins on ‘product’ reflect its commoditization with a race to zero, so the most aggressive providers are now removing percentage points from the ‘value-added’ portion of a project – that’s the service element. They will struggle to deliver the implementation of the project successfully without giving away professional services if they’ve reached rock bottom on price. This leaves them with a terrible dilemma: cut corners to attempt to limit the losses and risk an unhappy customer or make a giant loss on the project by giving the service away for free. Driving your VAR down on price may seem like a sensible business decision in a buyer’s market, but what service can you really expect to receive if they won the business by offering a price that removes any flexibility to absorb the inevitable goalpost moves that come with a large project in a global enterprise. No one wants to get the contract out of the drawer, asking for the non-existent additional budget in the form of change control and we don’t want to deliver a service outcome that doesn’t delight the customer.
Now here’s the irony; if you keep seeking a VAR that is primarily cheap, rather than one that’s delivering value, it’s highly likely that they’ll fail or you won’t receive the level of service that you need and expect. Spending less might actually cause you to have to spend more, in the long run, to fix what they got wrong. And it will add to the project timeline. On many occasions, we’ve been called in to ‘save’ a failing project when a VAR who ‘bought’ the business simply cannot deliver. Amazingly this also happens pre-contract when the VAR awarded the business has concluded that they can’t deliver the desired customer outcome at the successful bid price. The customer suffers an increased cost of purchase and their business suffers a delay in receiving the outcomes associated with the ‘adoption’ of the technology they’ve invested in.
It’s the ability for a VAR to deliver successfully that the customer ultimately cares about. That rarely means that they will sign-off on the cheapest or fastest quote that could be available because when their neck is on the line, they want a high-quality experience that will deliver the right outcomes. Back to the Unattainable Triangle, delivering ‘well’ is more critical to a positive customer experience than cheap or quick work. We believe that’s the reason customers choose to work with HighPoint. We deliver V in VAR – by delivering real value.
But there’s another hidden benefit to partnering with the right VAR that I want you to consider, a model that many of our customers are now asking for.
Reframing the VAR Relationship
The process of conducting a beauty parade of potential VARs for each and every project purchase takes time for the customer. Even driving half a percentage point off of the already tiny margins a VAR could expect to make on a new project’s Bill of Materials and the associated services is unlikely to be a material saving for the customer, compared to the productivity loss and cost of running the selection process.
Instead, we are increasingly seeing customers forgoing this process entirely in favor of a different approach. They realize that a little more available margin relief might sit with the OEM. So, they do the following instead.
First, they select the right VAR partner who they associate with value and trusted delivery. Second, they empower the VAR to develop strategic relationships with leading OEMs where they can negotiate the very best prices. In turn, the OEM saves themselves considerable hassle in dealing with pricing requests; as they’re just working with one VAR, they have better visibility into the customer. Their cost of sale is reduced and they have a clearer line of sight to their pipeline which isn’t clouded by different perspectives from multiple VARs all clambering over the same opportunity.
This sort of partnership is the only way customers can lower the total cost of ownership and accelerate change without expending an additional budget. It’s a win for the customer, a win for the VAR, and a win for the OEM – as all three negotiate on value, productivity, and efficiency rather than purely on price.
We are lucky enough to be working with a number of large enterprise customers who are driving this very model and have selected to work with HighPoint. They recognize that time savings and strategic discounts accessible via this route are more significant than continually managing a VAR deathmatch.
To deliver operational efficiency and productivity in sourcing, alongside the best service and delivery experience, it’s time to halt the VAR pricing vortex and move towards the elegant simplicity of a strategic VAR relationship where the quality of service matters. Reframing it towards a value exchange will halt this unsustainable and unhealthy race to the bottom and guarantee the desired business outcomes achievable from major transformation projects including the critical attainment of cost-saving and cost avoidance.
If you’re interested in talking about how a different kind of VAR relationship could transform your OEM sourcing strategy, please email me at email@example.com.
Written by Rhys Ellis-Jones, Sales Director, HighPoint, UK