Is this “big deal” the right move?

Every company is being offered a “big deal” every now and then. Whether it is the move into a new central warehouse, the introduction of a new Finance software or the acquisition of another company.

To find out whether it is the right move, you can decide to rely on your gut-feeling (aka “decades of experience”), you can ask data, or you can go for a combination of both.

If you neglect the data part (or if you simply instrumentalise it to confirm what you want to hear) your suppliers will jump in and complement (and influence) your gut-feeling with their advice. Guess what? They are biased.

A lot of trends notably in tech were advocated by those who had the right technology to support them. "We have developed a fantastic solution - now let's jointly search for a problem to solve..." Their trick is to make companies think they are behind the curve if they don’t join the masses here. Example? “You are still dispatching by hand??” – “Yes, it is cheaper in Vietnam.” – “I fear you are one of the few companies stuck in the 20th century here…”. I don’t claim manual dispatch is better – but your figures should tell you, not the supplier who wants to sell a dispatch system.

My four recommendations:

1)   Use data

I am not primarily talking about your BI solutions and your data lake. Your internal data allows for a retrospective view. You rather need a comprehensive perspective, joining all three sources of data: Your Masterdata (telling you what you have configured about your customers, your product offering, your operating model etc), your transactional data and external market data.

The latter is probably the most important part. It will help you discover trends before you read them in magazines (and before your competition follows them). It is a good idea to work with partners if you don’t have the reach or expertise to broadly gather and assess external data yourself.

2)   Regain the authority over the demand process

Firstly, start with your true business needs or benefits. A new solution must either fix a broken process, improve an existing process or introduce a new process that adds tangible value. Otherwise it is probably not required. A supplier must be able to explain (and to substantiate) the concrete cause-action relationship.

Depending on the industry they are in, vendors love to share “neutral” evidence of their excellence. You will have been shown Gartner's latest "Magic Quadrant" more than once. This kind of evidence can indeed be helpful - but only after you have fully understood your problem (and whether it is indeed a problem), and if you know that you are lacking the right technology. It doesn't help to know that your vendor is the most visionary one in a certain segment, or that it is the one with the best implemented solution – if you don't have the right problem.

Imagine someone proving to you in a credible way they build the best sports car on earth – while you actually need a vehicle to transport goods from A to B. They may admit that payload is low but, man, is it fast! In subsequent negotiations (after you have already fallen in love with that sports car), they may generously offer to add a tow coupling and a trailer. This makes you lose the key advantages of a sports car while still not obtaining the right answer to your transport problem.

Secondly, ask the right questions. If being asked "Does your solution solve my problem?", a provider will always say yes. Please ask "HOW does your solution solve my problem?" Sounds obvious? Have you really done this? Or has it been a standard question, and you were subsequently happy with a ten-slide PowerPoint deck explaining the WHY on one slide, with the rest being full of "industry trends", reference customers and out-of-the-air business cases.

Thirdly, be clear about your suppliers’ motives. How to judge? First of all, ask yourself what's in it for them. A supplier usually benefits from one option more than from another option. The plant manufacturer may prefer their very latest technology, to finally have an installed base. The bank that supports your acquisition of another company may not want to jeopardise its fee by recommending to cancel the acquisition, no matter what they may have found out.

Or, on a smaller scale, an XYZ-as-a-Service offering may not be the best choice four you but for your supplier - who can turn a once-off deal into a subscription model with permanent revenue generation. Or the purported advantage of "everything out of one hand" turns out to be vendor-locking in disguise. And a promise that the vendor's solution "takes care" may mean that you cannot take care of certain aspects yourself anymore, even if you wanted. There goes your flexibility and agility…

3)   Don’t take a top-down approach

At a certain point in any acquisition process, you need a decision at the top. But you should never ever run the entire decision process in a top-down manner. I have seen too many cases of a vendor's CEO inviting the target customer's CEO (NOT the Head of Purchasing, for good reasons...) to a round of Golf, just to agree in principle on the big deal - to be sorted out by the experts in subsequent talks. Believe me, none of your experts will dare make critical statements on a project that started like this.

No doubt, every company benefits from excellent relationships with its suppliers. However, all the facts that you will base your decisions on should have been gathered and evaluated by your own organisation.

As a first step, watch yourself. Do you already like the idea so much that it would be hard to give it up in the light of strong counter-arguments? Would you personally consider it a defeat to stop a process that you have started yourself? Don’t block the way back, neither towards your organization nor towards yourself.

It is definitely also a matter of how you sell an initiative in the first place. If you say “We are looking into doing…”, you already suggest that the need to act has been determined, so that a later “We have stopped the review” will easily sound like a failure. If, instead, you say “We want to find out whether the current setup is still the best, or whether a new setup could be better”, you keep both a positive and a negative result as valid outcomes. At the same time, you demonstrate that you don’t rest on your laurels.

Equally importantly, your internal experts must be confident that the Board is not in favour of the deal upfront. In other words, a recommendation against the deal must be valued as high as a supporting result, to encourage unbiased due diligence with an open outcome.

4)   Be straight

The same suppliers that are trying to talk you into “following the industry trend” will tell your customers and your supervisory board the same story, until everyone believes it. At a certain point, you may be forced to go that way, against your convictions.

Unfortunately, suppliers often have a relatively easy job here. After all, it is THEM who are considered the experts whereas the rest of the world cannot judge. We all seem to have to rely on their expertise.

This mechanism may put your company under pressure from multiple sides. To prevent your company from getting remote-controlled, you may wish to share the results of your business case publicly (not the logic behind – which is your competitive advantage), and as soon as it is available. This helps move the justification pressure from your company to your supplier.

Summary: Be honest to yourself. How many of these points have you heard before? Probably most of them. How many have you consciously and consistently followed? Your call!