I recently listened to the episode of CHAOS Tuesday podcast by The Standish Group called “Trustworthy Vendors.” In this episode, several panels of IT executives discuss their experience with trustworthy and untrustworthy vendors of software, hardware, and services and the tricks and traps used by the latter. Actually, if you are interested in the subject, go ahead and listen to this podcast once you’re done with this post.
The discussion in the panels focused on the three top traps named by a survey of 300 CIOs performed by The Standish Group. And the figures discovered by the survey—how often these bad tactics are used by vendors—are shocking. You’ll see these figures below.
Beware of These Traps
Here are the top three traps that untrustworthy vendors set for their clients:
First is “The X-Factor” named as a common practice by 75% of surveyed CIOs. This refers to a significant difference between the initial bid of a vendor and what is eventually delivered. We have all heard of cases in which a vendor bids aggressively to win a project knowing that they will not be able to complete it within the required timeframe, budget, or both without sacrificing scope or quality.
But by the time it is found out, they will not be able to switch to another vendor easily because of all the time and money already invested in this project and us. So they will give us more time and/or money to finish, thinks the vendor, and they keep overpromising beyond any reasonable risk margins. I’ve seen too many competitors using this dirty trick (more on that below), so I’m not surprised to see it as the #1 in this list. What’s still shocking is how widespread the practice is according to the survey.
The Bait & Switch Game
The next item on the list is “The Bait & Switch Game.” Two-thirds of the CIOs named it as a common practice. The vendor puts his Team A in front of the client while competing for the contract. But one month after the project starts, the client sees Team B or Team C instead.
It is the most hated trick on my personal list, because it’s the hardest to fight as an honest vendor. While you can almost always find some arguments when one of the other bidders tries to use “The X-Factor” trap (e.g., why doing something in some insanely tight timeframe promised by the other vendor seems too risky to be true), it’s hard to do something in this case. After all, here is their “Team A,” and it may indeed be even slightly better than the team you provide (or cheaper, or both). But how can you prove that it’s just bait?
One of the panelists said that he always insists on a named list of specialists in the contract. Then it’s impossible to substitute them with Team C. But even that doesn’t help. First, any reasonable agreement should allow for some team turnover—promising zero turnover for any period longer than a few months is just unrealistic. It may not happen for much longer if you are doing the right things in the team/people management area (a topic for another post; some thoughts are already provided here), but promising zero is just irresponsible. But even if we set this aside, I have some anecdotal evidence that some vendors just always find a way to do the bait & switch. I won’t name names, but the stories were told by some clients that had had experience with other vendors before (or in parallel to) us.
In the first case, they did just as was prescribed on the panel: They got a named list. In a couple months, they were surprised to see lower performance from the team than expected given the level of the specialists they interviewed and selected for the team. When they looked closer, they found out that one of the leading experts on the team was some engineer whose long and foreign last name was almost (but not exactly) the same as that of the best expert they had selected for their team. The vendor had put that engineer on the team hoping that nobody would notice that one syllable was different—that was their only selection criterion. And for two months, nobody did.
In the second case, I frankly don’t know if they had a named list. But it wouldn’t have made the difference in any case. After working for some time with the vendor, they also were not satisfied with the performance. At some point, not related to performance issues, they asked the vendor to install security software on their team workstations and servers that could detect and prevent attempts to steal their IP (i.e., their code). The vendor complied. What neither side paid much attention to initially was the fact that the software could actually detect what the team members did on their computers in general. When the client checked the reports of the installed IP protection system, instead of a potential security problem, they discovered that, in reality, the size of the team that worked for them was half that of the one for which they were billed. Half of the team covered for the other half, which didn’t work on that project (and either didn’t exist or was simply assigned to some other project).
The Emperor’s New Clothes
The third trick is called “The Emperor’s New Clothes” and was commonly seen by over 50% of the respondents of the CIO survey. It’s when the vendor sells the illusion of the features instead of the actual features. In order to win the contract, the vendor misinforms the client about what features their product actually has, hoping that the client will eventually survive without these features or that, by the time they check the next version, they will already have the requested functionality. It’s not always a direct lie; sometimes they just say “yes” while not being completely sure and without trying to verify the information.
I’m in the services business, and for our segment, “The Emperor’s New Clothes” seems to be just a variation of “The X-Factor” trap from the top of the list. But for software and hardware product vendors and for the clients who procure services and products, these are probably two very distinct situations.
The suggestion given during the podcast, with which I wholeheartedly agree, was the following: Ask questions, and listen to answers. If you see a vague answer to a direct question, or the answer doesn’t make sense, dig deeper. If you get an answer that you don’t understand, don’t be afraid to show your incompetence. Ask for explanations. They may simply try to hide the limitations of the product or service behind the technical jargon that they hope you don’t quite understand.
How It Harms Clients and Good Vendors
(More on why you should care about the harm to good vendors below)
I won’t go into discussing the obvious harm—the late (or over-budget, or canceled) projects, the low-quality and under-featured resulting products, the dissatisfied end users of the client’s products and services, the eventual loss of business for the clients, and the worse quality of life for everybody. That’s all clear.
What often goes unnoticed is that these tricks and traps are hurting not only clients, but good vendors as well. Why should you as a client care about somebody else’s business? Well, the harm done to good vendors by the tactics employed by “bad guys” in turn comes down on the clients again as the second wave of damage. Because of these dirty tactics, honest vendors also don’t get the new business (as it is hijacked by those offering bargain prices without a real plan to reach the project goal); don’t grow as fast as they could; and don’t get enough money to develop their internal innovation programs, advertise, and add more new talent to their teams.
How is that bad for you as a client? Read the next section.
Meanwhile, let’s stay on the subject. So, how are the good vendors hurt? There is not only damage to the image of a typical supplier—and you should hear what those IT execs said during the panels. They recommended that everybody constantly watch their wallets when dealing with vendors. This is in a metaphorical sense, of course; but in any case, the ethics of a typical vendor are not seen to be much better than those of a street merchant in Tortuga.
But besides the reputation losses, there is also direct damage to the businesses of honest vendors—lost business that leads to slowed growth. I know because Auriga, as one of the good guys, had its own share of bids lost to vendors who used those tricks to get the business instead of us (and then failed). And I understand that everybody says they are good guys. But at least we have some proof of our dedication to staying honest and reliable among vendors, as much proof as you can get of something as intangible as trustworthiness. Now, if you know Auriga, skip to the next paragraph. If you don’t, I’ll try to sum up our standing in this field in three bullet points:
- There is no long line of unsatisfied customers that we desert as soon as we hear coins jingling from new deals—something that one of the panelists graphically described based on an actual experience. On the contrary, our clients stay with us for years (some for about 20 years) despite having contracts that allow breaking up on a very short notice without penalties.
- You should hear what our clients actually say about their experience working with us (especially those who had worked with other vendors before finding us). No, seriously, follow the link, and watch the videos.
- The only time we have received an award that said that we were the #1 provider in the world in our segment, it was the result of a survey of over 30,000 clients of outsourcing providers. Auriga came first in its segment, beating such companies as IBM, Siemens, and Wipro. And this first place was won primarily due to our high scores in categories very relevant to this discussion: understanding of clients’ needs and business goals, customer approach, and client orientation. Because we can’t compete with those giants in terms of sheer size or such things as worldwide “corporate reputation.”
In Search of a Way Out of this Downward Spiral
(Why good vendors and clients are in the same boat and what (not) to do about the problem)
The damaged image of vendors also leads to unexpected consequences. One of the panelists from the podcast described the practice that he uses to separate the trustworthy from the untrustworthy: Give them a shorter proof-of-concept task, and check the results. Now, I wholeheartedly support this approach, but the next part of the discussion made me stop. When asked if he pays for those proofs of concept, he said “no.” And the reason is that these vendors, in this panelist’s opinion, are incentivized enough by winning the following bigger project.
Well, yes, I agree: Winning a big project is a good incentive in itself. But whatever you think, vendors do spend money while working on those pilot projects. And they need to get money from somewhere. They may try to include it in the price of the next big project, but assuming that the buyer is checking every step and every budget estimate as they should (remember “watch your wallet at all times”) and they already explicitly refused to pay for these extra expenses of the initial project, that won’t be easy to do—without some little tricks, of course… Like those three that this whole discussion was devoted to.
Instead of preventing bad practices, we are pushing vendors toward using them. And that’s assuming that the good vendor won the project and the bad vendors lost. What if there was more than one good vendor in that bid? I know; you’ll say that the vendor should spread the expenses across all the projects they are working on. But it’s not a high-margin business; they can’t just decrease margins. Even if they do, it would further penalize them—remember how they are already not growing as fast as they could have and should have. And they can’t increase prices either. Good vendors are already outbid on pure costs by bad vendors almost every time; they can’t increase prices more and lose more business because of that.
Now, don’t get me wrong. Although, coming from the vendor side, I’m clearly biased; I don’t suggest paying every competing vendor for the pilot project … until they finish that project. No, really, if your goal was to check if they are trustworthy and they proved that and reached the project goal, they deserve to be paid—at a lower rate, at zero margin if you wish, but paid. That would incentivize reaching goals, give you an inexpensive way to check if they can “walk the talk” (if they can’t, you don’t pay), and keep the good vendors competitive.
You may not agree with this. If so, I would love to have a further discussion with you. I have my share of stories, facts, and arguments. Other people have theirs. Let’s look for the optimal solution by combining our knowledge. So if you have something to say, please reach me through the comments section of this post. I’d be happy to continue the discussion and find a good way out.
Meanwhile, I don’t have a clear-cut solution to the problem. But here are some ideas. Unfortunately, there doesn’t seem to be a good way to objectively measure the level of trustworthiness across different vendors (often all over the globe). And a thing that can’t be measured reliably doesn’t give you points in bidding. So the good guys lose again.
The only way we found we can at least somehow demonstrate that maybe we are better than other competing vendors is by showing references and survey results. So my current recommendations are to ask for references, check these references, and talk to people who have worked with the company to better understand their behavior patterns (i.e., Are they focused on building long-term partnerships or on getting as much profit as possible as quickly as possible?). If there is other, more objective, data, like customer satisfaction surveys, use this data, and give some extra points in your selection process to those companies that show signs of consistent good behavior. You won’t regret it even if you don’t pick the lowest bidder or the fastest promised completion as a result.
– Andrey Pronin, SVP, Strategy, Technology, Marketing, Auriga