IT Executive Insights on Cloud Vendor Relationship Strategies

Many companies have had long-standing relationships with their cloud vendors, and their experiences garner lessons to be learned. Regardless of how long they have been doing business together, the size of the organization or the size of the investments made, there are certain ways cloud vendors can help differentiate themselves as true strategic partners.

I recently had a conversation with four leading IT executives:

• Lance Martel, Senior VP & Chief Information Officer, Staples Canada
• Ross Gilbertson, Senior Vice President Information Technology, Northern Tool
• Wanda Catoe, Vice President, IT Applications, National Life
• Steve Tharp, Director, Information Technology Business Services, Love’s Travel Stops & Country Stores

We discussed our various perspectives on balancing the pros and cons of the cloud, key elements of successful relationships with cloud vendors, and cloud negotiations.

The Pros and Cons of the Cloud

What are the top business and IT benefits you have realized with the cloud?

The cloud offers a simplification that is extremely beneficial, as your company no longer must worry about various infrastructure solutions to support these applications.  This lends itself to much more cost predictability for these vendors.  You no longer have to worry about upgrades of these systems over time.

Cloud infrastructure also allows companies to be able to look at a much bigger pool of talent, because they can hire from anywhere compared to the past when you had to hire those who could access the physical equipment.  Now that it is all software provisions, it makes it a lot simpler to be able to tap into a larger workforce.  Cloud attracts talent.

Scalability is another key facet for businesses to take advantage of, as it allows the ability to improve your time to market.  Your business can therefore become a lot faster in responding to demand, so that ability to ramp up and ramp down in IT resources allows agility.

Lastly, there is high availability. They’ve got availability zones, or multiple regions, or they are in multiple data centers, and architecting whether it’s infrastructure or it’s different workloads or platforms with cloud.  You can get the added benefit of either high availability (HA) or disaster recovery (DR) for next to nothing, certainly not even touching the cost of traditional DR programs, so that is a real benefit.

Does cloud foster a greater degree of vendor lock-in than more traditional perpetual license models? 

Cloud lock-ins are not really any different than being locked into on-premise applications, because they are so tight to your business execution and processes.  On the infrastructure side, the degree of vendor lock-in does not differ so much anymore because of the sophistication around automation.  Investing in automation up front around build up and tear downs, some of those things are transportable, at least in concept across vendors.

Are you concerned with vendor lock-in? 

There is a level of concern about renewals.  Your company tried to negotiate the best possible agreement for the right term for your business based on whatever the product or service might be.  But there is always a renewal, and the vendors know that change is not easy.  You know you can get cloud applications, for example, that are straightforward, and the dataset associated with them is not complicated, so they’re not as sticky.  But if you’re talking about ERP, that’s a different story.  And it’s the same either way, whether you’re perpetual or cloud — it’s hard to change ERP.

Over time, what I’ve observed on the infrastructure side is that the technology, virtual technology in particular, has evolved to the point where there is less.  There are more open-source solutions out there that are transportable across these platforms, and some vendors have even written ways to be able to operate, such as multi-platform and/or moving between them very easily, so it is less of a concern than it used to be.  In the end, it ultimately comes down to what is the complexity of either the infrastructure you’re running or the application you’re running and the associated datasets with it, but I find a lot of those things are similar for the physical world as well.

How can companies mitigate the leverage or stronghold cloud providers may have? 

You never want to start a marriage with a divorce in mind.  So doing your due diligence during the courtship phase and then, making sure you have the prenup for exit clauses, transition assistance, any of that, is crucial.  It is important to go in with eyes wide open.

Key Elements of Successful Relationships with Cloud Vendors

For those relationships that are your most successful, what was the secret sauce? 

First and foremost, really investing in the relationships and making sure that there’s ongoing continuous feedback in terms of how they are performing is important.  Are they aligned to our outcomes versus their profits?  Making sure that you are driving two consistent outcomes is critical.  Make sure that you are having governance meetings, quarterly reviews, and ongoing check-ins to make sure that they are invested, and you are invested in the relationship.  You yourself must put effort into the process and be a part of it.

I have found that the relationships that are the most successful are the ones where they need me as much as I need them.  And you know that that isn’t always the case, especially for some of the well-established providers out there, and if you are not a large company, that could be true.  It can be hard to find where that mutual value occurs, but I think if you can find that, it helps with that relationship and understanding that we are after mutual goals.

It is also important that the vendor knows that you know what is in it for them and the account team that’s supporting you.  Understanding how they can win on the deal and making sure that you’re able to talk openly about that without revealing all of your cards in that process is important.  You need to make it clear that you are not afraid to ask for a different contract if you are not gelling with someone.  Do not be afraid to go up the chain and build those contacts at a higher level to be able to say that you need someone else that understands you better before you move forward.

What are some of your biggest challenges with cloud vendors? 

Vendors often expand where they manage to build.  They build relationships with every C-level executive at the company and they’re selling not just to me, but to them as well.  When you’re going to non-technology folks who are not worried about data migration and integration, you may end up in a situation where the solution seems much easier than it actually is across the organization.  You must think about the following: How do you stay aligned with your peers in the company to make sure that you’re not falling for the tactic of the vendor contacting everyone and ensure you’re all on the same page internally.

Also make sure that you’re taking a unified view to how you’re dealing with these vendors as they come into the company.  Going off this, another challenge is to get the vendors to stop talking about sales dollars and start talking about value that they are creating for you.  Oftentimes, products are also bundled and although you may only need a small piece of a suite, they tell you you must buy the whole suite, so those are some challenges to try to work through.

Cloud Negotiations

When it comes to cloud negotiations, what would you say are the keys to success? 

One of the keys to success in cloud negotiations is making sure the vendor thinks they are up against another vendor, so they feel like they have to really sharpen their pencils to be successful.  Some of the things that have worked well on the vendor side is when they bring in more of their senior team.  The senior team is much more engaged in the success of the outcomes than the sales team might be.  The more they can bring in the leaders of the organization to look us in the eye and tell us how they’re going to help us be successful, the more it helps to strengthen that relationship.  It also brings a certain degree of comfort to me that they actually are in it as a partner versus just completing a transaction.

Something that works really well is really focusing on the flexibility in our contracts.  No one has a crystal ball, so what are those things that we can get in the contract that allow us to be flexible as our business changes or our requirements change that allow us to move and be more successful?  One example is swap rights when their new products come out.  How could we leverage those?

Make sure to have a timeline associated with your negotiations.  There are certain events, like prep and vendor grooming.  Even in some cases there’s creating the competitiveness, or at least the aspect of competitiveness.  It’s understanding again what’s hot for them and where they’re at on their sales cycles.  There’s a lot of prep work to that.  But having a plan going in, in some cases, has been super helpful.  We had a six-month plan just to position them and groom them to where we want the outcome to be in the end.   But part of that is understanding what you really want to achieve, whether it is swap rights or that flexibility, or if it’s a price.  But I’d say the biggest success is really having a plan and being intentional, treating it very much like a project, not just a contract.

The negotiation doesn’t start at the end when you’re ready to figure out the cost, it starts at the beginning in terms of setting the stage for how the conversations are going to go.  Let them know that you have alternatives and you’re serious about the alternatives.  You also need to know where you can be flexible with your business partners.  Understanding that the flexibility may not be always where you think it is from an IT perspective, whether it’s cost or technical.

Are there tactics that cloud vendors try, that frustrate you?  What would you tell them if you could? 

I would tell them to stop trying so hard. If they are helping my company be successful and I see them as a trusted partner, more business will come their way.  It is obvious when they are treating you as strategic.  Know your customer and stop trying to sell me something that you don’t know whether I need or not.  Or, if I’ve said that I need it, understand how I need it and how I am going to use it and factor that into how you are selling it to me.

Don’t sell me quantities now, don’t make the only deal with the option for me now is to buy product that I’m not going to use for a year or two appear to be better than it is for me.  If that’s the only discount you can offer me, just say, “I realize this isn’t the ideal scenario for you,” rather than trying to convince me that it is.  That is the thing that frustrates me the most and they lose all credibility with me if they don’t demonstrate that they understand my perspective around the situation.

Wasting time in the beginning stages of the process is something else that is very frustrating. Dealing with the sales guy for two weeks and then figuring out that you’ve got to go up three levels to get something done at the last minute is frustrating.  I’ll go to my President or my CFO if we need to.  Let’s cut through that wasteful time and get right to it.  And the thing about that too is they often know that that’s where ultimately it needs to go.  But they guard it because they’re hoping they don’t have to get pushed there.  Let’s get this done.

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