Doing Business in Times of Corona: Defense or Dialogue?
The Corona-crisis has a great impact on almost every individual and each business. The immediate shock of being confronted with a pandemic, and government’s responses to protect the health of their citizens, slowly are getting behind us. Now, attention is turning to the economic crisis that is rapidly unfolding.
Surprisingly, it is apparent that the pandemic is not all bad for business. Manufacturing for the health industry is blooming, of course, but also some IT products and services are in high demand. First and foremost, anything that is needed to make it possible to work from home; laptops, webcams, cloud services, video conferencing, etc. Besides that, companies feel the need to cut cost and are looking at IT to contribute to that. Some are looking to IT to replace costly internal systems with cheaper and cost-wise more flexible outside solutions. IT suppliers that can fulfill these demands in a cash-positive way for their customers are to be congratulated.
Sadly, there are also IT customers that ask their incumbent suppliers simply to cut down spend on their operational contracts, or postpone payment for services. For suppliers it is easy to respond in a reflex; stick to contractual obligations of both parties, refuse to help out their customers if it would seem to have a negative impact on their own short term results.
We believe that such a response is not the best one for doing business in times of Corona. Rather we think there are hidden opportunities to be found in customers in distress.
Of course, there are opportunities to supply services and products needed to cope with the short-term health crisis difficulties. These could be related to social isolation, work-from-home, heightened security risks and so on.
But, if it comes to customers demanding financial support, typically by asking for discounts or otherwise reducing the monetary value of contracts, we believe there are better options than to defend your own turf by all means.
Being uncompromisingly defensive typically generates conflict with the customer – supplier relationship getting into a negative spiral. The bottom of that spiral often is seeing each other in court, which often leads to the end of the relationship, loss of mutual business, lots of unproductive hassle and a heap of extra cost for legal support. Better not to go that way.
So, what is the alternative for doing business in times of Corona? We believe the answer is to go the other way and jointly respond to financial pressures, in good and constructive collaboration between customer and supplier. Here are a couple of examples of where to look for opportunities.
First, if the supplier can afford to postpone revenue, he could consider shrinking the current contract in exchange for business later on. An example: any service that is not incurring direct cost for the supplier. Think of services that do not need loads of human labor. Why not postpone or reduce payments for licenses or other IP?
Alternatively, shift a T&M development project into a longer term subscription or SaaS based deal, thus preserving cash in the short term for the customer and safeguarding long term business for the supplier. One could even consider to shift some supplier and customer staff to work on joint research and product development. The fruits would later be shared between customer and supplier, possibly in a joint venture.
Secondly, supplier and customer might seek and eliminate any risks that are priced into the deal which could be taken out. For example, if a project has been sold with a contingency of 10% priced in, and the project in the meantime is past some risky hurdles, why not reduce the contingency margin? Looking for risks to take out of the cost of a service would of course apply to both the customer and supplier side. Generally reviewing and re-allocating risks may be an avenue to a more fitting arrangement in the new circumstances.
Another opportunity may be found in expanding the business between a particular customer and its supplier into services or products that bring more added value. It might be in broader engagements, more volume. This would require a collaborative supplier consolidation rather than the traditional one in which volume is used to exert price pressure.
Another way to expand into more business and more added value might be in deeper, more complex services or products. For example, a telecoms operator delivering basic connectivity (telephony, internet), might want to expand into security services or bespoke social platforms.
A supplier doing more business may do that at a lower overhead and share the advantage with his customer through a lower margin. We assume that additional services or products represent real extra value for the customer, part of which may feed back to the supplier.
“This sounds all fine”, suppliers may say, “but is this feasible?”. After all, the alternative way requires close collaboration. Many suppliers and customers are rather used to work together in a kind of love/hate relationship. How to change the direction of the relationship spiral, and get to a good collaborative relationship?
The shortest possible answer is “think them – us – me”, in that order. This is about understanding and respecting the challenges and interests of the other party. And then taking action to define, design and implement the type of collaboration that is fit for purpose for both parties. But that is another topic, which we like to discuss later on.