A customer downsizing its MIS operation can become a VAR's opportunity--with a little planning.
By Matthew Peterson
You are president of a midsize VAR firm. Your account manager just burst in to tell you that your best customer is about to undergo a dramatic downsizing. Worse yet, MIS is rumored to be a priority target. What do you do?
I know what I would do first. I would fire the account manager. No one in touch with his client should be caught by surprise like that. There are always signs of impending restructuring--within the customer, in the industry, on the golf course and everywhere else.
Of course, I would also have to fire myself, since I obviously had not been conducting key account reviews effectively. Someone in the organization usually has a clue to what is happening with a customer. A service person may have overheard gossip while on site. A financial person may have noted warning signs in the customer's financial statements. Lackluster stock performance, a merger or acquisition, a change in senior management or IS management: The public signs of potential downsizing are many. A good key account review process can capture and analyze these indicators on a regular basis.
The point of this little scenario is that a solid VAR/customer relationship is critical if a VAR is going to be part of the restructuring process, rather than a casualty of it. Downsizing is usually a painful emotional experience. As in any relationship, a crisis will often make or break the relationship between the IS manager and the VAR.
The best defense is a good offense. VARs and IS managers should always be working on cost reduction, outsourcing and reengineering options, particularly when it appears that an organization is poised for change. Mutual delusions between VARs and IS managers about the realities of the business are guarantees of mutual unemployment. There are several ways for VARs and IS managers to find opportunities in restructuring. Here are some steps for locating them.
Identify potential investments that increase productivity and reduce costs. Companies having a tough year are often willing to make investments if those investments will clearly contribute to the bottom line in future years. The VAR/IS team must have a strong financial case and be focused on critical operations if the investment proposal is to succeed. VARs should also be willing to structure the purchase transactions to meet the objectives of the customer's financial restructuring. This is a good time for a VAR to put its CFO on the sales team. I have seen some amazingly creative transactions occur when financial people look for the win-win solution in troubled times.
Identify outsourcing opportunities. Downsizing is often a good way for IS managers to reduce their fixed costs and for VARs to expand their services business. Many VARs report that services are twice as profitable as equipment sales. What innovative service concepts have VARs developed?
This list grows daily. The point is that VARs need to develop a credible services business in advance of customer downsizing. Smart IS managers can tell the difference between a VAR that has serious service competencies and a VAR responding opportunistically to a customer crisis.
Identify insourcing opportunities. The latest wrinkle in business partnerships puts employees and equipment from a vendor inside the premises of the customer. This is a twist on the facilities and asset management concepts. Sometimes the vendor will even acquire the staff and equipment of the department being outsourced and rent their space back from the customer as an independent business.
VARs considering a move into the insourcing business should do so carefully. Is this really a win-win situation or a way for the customer to dump obsolete equipment and unnecessary staff? Can the VAR meld the new business with its existing one to operate the service more effectively and efficiently, or will it just drain resources from current operations? Do the VAR and its owners thoroughly understand the impact on the value of the business, or will the insourcing venture be later regarded as a liability rather than an asset? Again, this is a business that should be developed over time, not thrown together as a response to a customer crisis.
Of course, there is one other response a VAR can have to a customer going through dramatic downsizing: Fire the customer! I recommend this step only as a last resort, but I have seen too many organizations continue to invest time and effort into customers that are never again going to justify the attention that they once deserved. Wherever there is a loser, somewhere else there is a winner. Is it not better to refocus the business than lament what used to be?
Firing the customer must be done with grace and subtlety. Any experienced VAR will tell you that faltering businesses do come back and that old IS managers resurface at new companies. A VAR who is thinking too quickly about dropping troubled customers is not thinking too creatively about the upside in the downsize.
Matthew Peterson is president of Scenic Wonders in Madison, WI, which provides business information and services to enterprises involved with advanced media applications. He can be reached at email@example.com or www.swonders.com.