Enterprise Purchasing Policies Can Inadvertently Impede Return On Investment in IT Systems

Early stage Independent Software Vendors (ISVs) planning on a customer profile typified by a larger, enterprise class business customer, should have a tactic in place to handle modern enterprise business purchasing methods, at least for the United States market. These purchasing methods usually include a simple sole source procedure to fill orders. The rationale for these methods goes like this: Sole source vendors are comfortable selling computing technology products, and even services, as commodities to their customers. So the vendor accepts lower margins in return for larger order volume.

To play the game, early stage ISVs will need to sell products to their end customers at a lower price through these sole source vendors. The sole source vendor, in turn, will sell the product to the end customer at a set price, usually directly negotiated between the ISV and the enterprise IT business customer. But internal sales teams, where compensation plans are weighted towards commission, will not have the incentive to pursue the business if they must anticipate splitting the percentage basis of the commission with the sole source vendor. In some cases the sole source vendor will get 75% of the margin, leaving sales people a mere 5 – 10 percent of normal commission.

The purchasing method, itself, is problematic. Sole sourcing results in a low cost order processing procedure, but some ISVs will simply not be able to compete for the business, especially self-financed ISVs lacking the financial resources required to compensate sales staff in lieu of commission.

Enterprise business suffers where the best solution for a requirement is manufactured by an ISV poorly equipped for the enterprise IT selling experience. Frequently this type of ISV will drop out of the competition for the business if sales teams cannot be fairly compensated for the extensive effort they must make to win the order. The result for the customer is a mediocre solution promising a limited return on investment. IT portfolio management roles should be designed to ensure enterprise business doesn’t fall into the trap of buying products, which can be procured through a sole source channel, but are, nevertheless, not well received by peers in the same market.

If your business falls into either of the roles we’ve just presented (meaning you’re either an enterprise business with a substantial need for computer products, or you’re
an early stage ISV with a product targeted for an enterprise customer profile), you need a better tactic to successfully use your strategy to attain targeted objectives. IMB Enterprises, Inc. can help you. Please contact us to learn more.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

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