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Business of IT

Buyers and Sellers Agents in IT

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When dealing with real estate purchases, we have discrete roles defined legally as to when a real estate agent represents the seller or when they represent the buyer.  Each party gets clear documentation as to how they are being represented.  In both cases, the agent is bound by honesty and ethical limitations, but beyond that their obligations are to their represented party.

Outside of the real estate world, most of us do not deal with buyer’s agents very often.  Seller’s agents are everywhere, we just call them salespeople.  We deal with them at many stores and they are especially evident when we go to buy something large, like a car.

In business, buyer’s agents are actually pretty common and actually come in some interesting and unspoken forms.  Rarely does anyone actually talk about buyer’s agents in business terms, mostly because we are not talking about buying objects but about buying solutions, services or designs.  Identifying buyer’s and seller’s agents alone can become confusing and, often, companies may not even recognize when a transaction of this nature is taking place.

We mostly see the engagement of sellers – they are the vendors with products and services that they want us to purchase.  We can pretty readily identify the seller’s agents that are involved.  These include primarily the staff of the vendor itself and the sales people (which includes pre-sales engineering and any “technical” resource that gets compensation by means of the sale rather than being explicitly engaged and remunerated to represent your own interests) of the resellers (resellers being a blanket term for any company that is compensated for selling products, services or ideas that they themselves do not produce; this commonly includes value added resellers and stores.)  The seller’s side is easy.  Are they making money by somehow getting me to buy something?  If so… seller’s agent.

Buyer’s agents are more difficult to recognize.  So much so that it is common for businesses to forget to engage them, overlook them or confuse seller’s agents for them.  Sadly, outside of real estate, the strict codes of conduct and legal oversight do not exist and ensuring that seller’s agent is not engaged mistakenly where a buyer’s agent should be is purely up to the organization engaging said parties.

Buyer’s agents come in many forms but the most common, yet hardest to recognize, is the IT department or staff, themselves.  This may seem like a strange thought, but the IT department acts as a technical representative of the business and, because they are not the business themselves directly, an emotional stop gap that can aid in reducing the effects of marketing and sales tactics while helping to ensure that technical needs are met.  The IT team is the most important buyer’s agent in the IT supply chain and the last line of defense for companies to ensure that they are engaging well and getting the services, products and advice that they need.

Commonly  IT departments will engage consulting services to aid in decision making. The paid consulting firm is the most identifiable buyer’s agent in the process and the one that is most often skipped (or a seller’s agent is mistaken for the consultant.)  A consultant is hired by, paid by and has an ethical responsibility to represent the buyer.  Consultants have an additional air gap that helps to separate them from the emotional responses common of the business itself.  The business and its internal IT staff are easily motivated by having “cool solutions” or expensive “toys” or can be easily caused to panic through good marketing, but consultants have many advantages.

Consultants have the advantage that they are often specialists in the area in question or at least spend their time dealing with many vendors, resellers, products, ideas and customer needs.  They can more easily take a broad view of needs and bring a different type of experience to the decision table.

Consultants are not the ones who, at the end of the day, get to “own” the products, services or solutions in question and are generally judged on their ability to aid the business effectively.  Because of this they have a distinct advantage in being more emotionally distant and therefore more objective in deciding on recommendations.  The coolest, newest solutions have little effect on them while cost effectiveness and business viability do.  More importantly, consultants and internal IT working together provide an important balancing of biases, experience and business understandings that combine the broad experience across many vendors and customers of the one, and the deep understanding of the individual business of the other.

One can actually think of the Buyer’s and Seller’s Agent system as a “stack”.  When a business needs to acquire new services, products or to get advice, the ideal and full stack would look something like this: Business > IT Department > ITSP/Consultants <> Value Added Reseller < Distributor < Vendor.  The <> denotes the reflection point between the buyer’s side and the seller’s side.  Of course, many transactions will not involve and should not involve the entire stack.  But this visualization can be effective in understanding how these pieces are “designed” to interface with each other.  The business should ideally get the final options from IT (IT can be outsourced, of course), IT should interface through an ITSP consultant in many cases, and so forth.  An important part of the processes is keeping actors on the left side of the stack (or the bottom) from having direct contact with those high up in the stack (or on the right) because this can short circuit the protections that the system provides allowing vendors or sales staff to influence the business without the buyer’s agents being able to vet the information.

Identifying, understanding and leveraging the buyer’s and seller’s agent system is important to getting good, solid advice and sales for any business and is widely applicable far outside of IT.

Business of IT, IT Management

Types of IT Service Providers

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A big challenge, both to IT Service Providers and to their customers, is in attempting to define exactly what an IT vendor is and how their customers should expect to interact with them.  Many people see IT Service Providers (we will call them ITSPs for short here) as a single type of animal but, in reality, ITSPs come in all shapes and sizes and need to be understood in order to leverage a relationship with them well.  Even if we lack precise or universally accepted terms, the concepts are universal.

Even within the ITSP industry there is little to no standardization of naming conventions, even though there are relatively tried and true company structures which are nearly always followed.  The really important aspect of this discussion is not to carefully define the names of service providers but to explain the competing approaches so that, when engaging a service provider, a meaningful discussion around these models can be had so that an understanding of an appropriate resultant relationship can be achieved.

It is also important to note that any given service provider many use a hybrid or combination of models.  Using one model does not preclude the use of another as well.  In fact it is most common for a few approaches to be combined as multiple approaches makes it easier to capture revenue which is quite critical and IT service provisioning is a relatively low margin business.

Resellers and VARs:  The first, largest and most important to identify category is that of a reseller.  Resellers are the easiest to identify as they, as their name indicates, resell things.  Resellers vary from pure resellers, those companies that do nothing but purchase from vendors on one side and sell to customers on the other (vendors like NewEgg and Amazon would fit into this category while not focusing on IT products) to the more popular Value Added Resellers who not only resell products but maintain some degree of skill or knowledge around products.

Value Added Resellers are a key component of the overall IT vendor ecosystem as they supply more than just a product purchasing supply chain but maintain key skills around those products.  Commonly VARs will have skills around product integration, supply chain logistics, supported configurations, common support issues, licensing and other factors.  It is common for customers and even other types of ITSPs to lean on a VAR in order to get details about product specifics or insider information.

Resellers of any type, quite obviously, earn their money through markup and margins on the goods that they resell.  This creates for an interesting relationship between customers and the vendor as the vendor is always in a position of needing to make a sale in order to produce revenue.  Resellers are often turned to for advice, but it must be understood that the relationship is one of sales and the reseller only gets compensated when a sale takes place.  This makes the use of a reseller somewhat complicated as the advice or expertise sought may come at a conflict with what is in the interest of the reseller.  The relationship with a reseller requires careful management to ensure that guidance and direction coming from the reseller is aligned with the customer’s needs and is isolated to areas in which the reseller is an expert and in ways that is mutually beneficial to both parties.

Managed Service Providers or MSPs: The MSP has probably the most well known title in this field.  In recent years the term MSP has come to be used so often that it is often simply used to denote any IT service provider, whether or not they provide something that would appropriately be deemed to be a “managed service.”  To understand what an MSP is truly meant to be we have to understand what a “managed service” is meant to be in the context of IT.

The idea of managed services is generally understood to be related to the concept of “packaging” a service.  That is producing a carefully designed and designated service or set of services that can be sold with a fixed or relatively predictable price.  MSPs typically have very well defined service offerings and can often provide very predictable pricing.  MSPs take the time up front to develop predictable service offerings allowing customers to be able to plan and budget easily.

This heavy service definition process generally means that selecting an MSP is normally done very tightly around specific products or processes and nearly always requires customers to conform to the MSPs standards.  In exchange, MSPs can provide very low cost and predictable pricing in many cases.  Some of the most famous approaches from MSPs include the concepts of “price per desktop”, “price per user” or “price per server” packages where a customer might pay one hundred dollars per desktop per month and work from a fixed price for whatever they need.  The MSP, in turn, may define what desktops will be used, what operating system is used and what software may be run on top of it.  MSPs almost universally have a software package or a set of standard software packages that are used to manage their customers.   MSPs generally rely on scaling across many customers with shared processes and procedures in order to create a cost effective structure.

MSPs typically focus on internal efficiencies to maximize profits.  The idea being that a set price service offering can be made to be more and more effective by adding more nearly identical customers and improving processes and tooling in order to reduce the cost of delivering the service.  This can be a great model with a high degree of alignment between the needs of the vendor and the customer as both benefit from an improvement in service delivery and the MSP is encouraged to undertake the investments to improve operational efficiency in order to improve profits.  The customer benefits from set pricing and improved services while the vendor benefits from improved margins.  The caveat here is that there is a risk that the MSP will seek to skirt responsibilities or to lean towards slow response or corner cutting since the prices are fixed and only the services are flexible.

IT Outsourcers & Consultants: IT Outsourcing may seen like the most obvious form of ITSP but it is actually a rather uncommon approach.  I lump together the ideas of IT Outsourcing and consulting because, in general, they are actually the same thing but simply handled at two different scales.  The behaviours are essentially the same between them.  In contrast with MSPs, we could also think of this group as Unmanaged Service Providers.  IT Outsourcers do not develop heavily defined service packages but instead rely on flexibility and a behaviour much more akin to that of an internal IT department.  IT Outsourcers literally act like an external IT department or portion thereof.  An IT Outsourcer will typically have a technological specialty or a range of specialties but many are also very generalized and will handle nearly any technological need.

This category can act in a number of different ways when interacting with a business.  When brought in for a small project or a single technological issue they are normally thought of as a consultancy – providing expertise and advice around a single issue or set of issues.  Outsourcing can also mean using the provider as a replacement for the entire IT department allowing a company to exist without any IT staff of their own.  And there is a lot of middle ground where the IT Outsourcer might be brought in only to handle specific roles within the larger IT organization such as only running and manning the help desk, only doing network engineering or providing continuous management and oversight but not doing hands on technical work.  IT Outsources are very hard to define because they are so flexible and can exist in so many different ways.  Each IT Outsourcer is unique as is, in most cases, every client engagement.

IT Outsourcing is far more common, and almost ubiquitous, within the large business and enterprise spaces.  It is a very rare enterprise that does not turn to outsourcing for at least some role within the organization.  Small businesses use IT Outsourcers heavily but are more likely to use the more well defined MSP model than their larger counterparts.  The MSP market is focused primarily on the small and medium business space.

It is imperative, of course, that the concept of outsourcing not be conflated with off-shoring which is the practice of sending IT jobs overseas.  These two things are completely unrelated.  Outsourcing often means sending work to a company down the street or at least in the same country or region.  Off-shoring means going to a distant country, presumably across the ocean.  It is off-shoring that has the bad reputation but sadly people often use the term outsourcing to incorrectly refer to it which leads to much confusion.  Many companies use internal staff in foreign markets to off-shore while being able to say that no jobs are outsourced.  The misuse of this term has made it easy for companies to hide off-shoring of labor and given the local use of outsourced experts a bad reputation without cause.

It is common for IT Outsourcing relationships to be based around a cost per hour or per “man day” or on something akin to a time and materials relationship.  These arrangements come in all shapes and sizes, to be sure, but generally the alignment of an IT Outsourcer to a business is the most like the relationship that a business has with its own internal IT department.  Unlike MSPs who generally have a contractual leaning towards pushing for efficiency and cutting corners to add to profits, Outsourcers have a contractual leaning towards doing more work and having more billable hours.  Understanding how each organization makes its money and where it is likely to “pad” or where cost is likely to creep is critical in managing the relationships.

Professional Services: Professional Services firms overlap heavily with the more focused consulting role within IT Outsourcing and this makes both of these roles rather hard to define.  Professional Services tend to be much more focused, however, on very specific markets whether horizontal, vertical or both.  Professional Services firms generally do not offer full IT department or fully flexible arrangements like the IT Outsourcer does but are not packaged services like the MSP model.  Typically a Professional Services firm might be centered around a small group of products that compete for a specific internal function and invest heavily in the expertise around those functions.  Professional Services tend to be brought in more on a project basis than Outsourcers who, in turn are more likely to be project based than MSPs.

Professional Services firms tend to bill based on project scope.  This means that the relationship with a PS firm requires careful scope management.  Many IT Outsourcers will do project based work as well and when billing in this way this would apply equally to them and some PS firms will be billing by the hour and so the IT Outsourcing relationship would apply.  In a project it is important that everyone be acutely aware of the scope and how it is defined.  A large amount of overhead must go into the scoping by both sides as it is the scope document that will define the ability for profits and cost.  PS firms are by necessity experts at ensuring that scopes are well defined and profitable to them.  It is very easy for a naive IT department to improperly scope a project and be left with a project that they feel is incomplete.  If scope management is, and you will excuse the pun, out of scope for your organization then it is wise to pursue Professional Services arrangements via a more flexible term such as hourly or time and materials.

All of these types of firms have an important role to play in the IT ecosystem.  Rarely can an internal IT department have all of the skills necessary to handle every situation on their own, it requires the careful selection and management of outside firms to help to round out the needs of a business to cover what is needed in the best ways possible.  At a minimum, internal IT must work with vendors and resellers to acquire the gear that they need for IT to exist.  Rarely does it stop there.  Whether an IT department needs advice on a project, extra hands when things get busy, oversight on something that has not been done before, support during holidays or off hours or just peers off of whom ideas can be bounced, IT departments of all sizes and types turn to IT Service Providers to fill in gaps both big and small.

Any IT role or function can be moved from internal to external staff.  The only role that ultimately can never be moved to an external team is the top level of vendor management.  At some point, someone internal to the business in question must oversee the relationship with at least one vendor (or else there must be a full internal IT staff fulfilling all roles.)  In many modern companies it may make sense for a single internal person to the company, often a highly trusted senior manager, be assigned to oversee vendor relationships but allow a vendor or a group of vendors to actually handle all aspects of IT.  Some vendors specialize in vendor relationship management and may bring experience with and quality management of other vendors with them as part of their skill set.  Often these are MSPs or IT Outsources who are bringing IT Management as part of their core skill set.  This can be a very valuable component as often these vendors work with other vendors a great deal and have a better understanding of performance expectations, cost expectations and leverage more scale and reputation than the end customer will.

Just as an internal IT department is filled with variety, so are IT service and product vendors.  Your vendor and support ecosystem is likely to be large and unique and will play a significant role in defining how you function as an IT department.  The key to working well with this ecosystem is understanding what kind of organization it is that you are working with, considering their needs and motivations and working to establish relationships based on mutual business respect coupled with relational guidelines that promote mutual success.

Remember that as the customer you drive the relationship with the vendor; they are stuck in the position of delivering the service requested or declining to do so.  But as the customer, you are in a position to push for a good working relationship that makes everyone able to work together in a healthy way.  Not every relationship is going to work out for the best, but there are ways to encourage good outcomes and to put the best foot forward in starting a new relationship.

Best Practices, Business of IT

Never Get Advice from a Reseller (or Vendor)

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This is general business advice that often applies to IT but is certainly not limited to that realm alone.  Outside support in IT comes from two main sources: firms who are paid (by you) to advise you and firms paid (by you) to sell you something.  The first are what we generally consider consultants.  The second are what we call resellers.

The simple rule of thumb is – never, ever get advice from a reseller.  At least not general advice, at best very specific advice centered purely around only the products that that reseller sells.  This isn’t to say that resellers are bad, far from it.  In fact, the reason that you can’t get advice from a reseller is not because of them but is because of you – let me explain.

When we go to a company to get advice we must pay for that advice.  One way or another, nothing is ever free.  Resellers traditionally earn their money by providing whatever free advice we desire and then making their money by selling us a product that has been marked up to cover their costs and to provide for their profit.  This is fine, but as the customer we need to understand that we are only compensating that reseller if they convince us to buy a product or a service that they sell and we compensate them better the more of that product that they convince us to buy.  The reseller isn’t at fault here, we need resellers and we need them to make money in this manner.  The issue is going to them and attempting to get free, general advice – we are forcing them to either work for us for free or to sell us something whether it is the right thing for us or not.  We’ve backed them into the proverbial corner and the only reasonable response is for them to attempt to sell us what they offer.  That is, after all, their job.

This leads to an additional problem, of course, which is that resellers don’t have skilled, professional, general-consultants on staff – at least not as a rule.  So if you go to a reseller and ask for advice, that reseller is almost assuredly only trained and knowledgeable on the products that they sell themselves.  They may not even be aware of what other solutions are on the market or, if they do, they do not know them to the same depth as their own products and may be unaware of advantages and caveats that you might need to know to make a truly informed decision.  Even if they did, it is not in their interest to tell you about them – you are only going to compensate them if they sell you something.

This is not to say that resellers are not good, honest, hard-working folk with value for our industry.  They are, but they aren’t magically free consultants like many people expect them to be.  Resellers are there to add consulting and selection assistance, as well as warehousing, repair, logistics and other value-adds, solely around the products that they represent.  Trying to get general consulting from a reseller is like asking your Chevy dealer to advise you as to what vehicle to buy and hoping that they equally consider all major makes, models and types of transportation as well as the regulations and limitations of all of these and are able to apply this to your unique situation – including knowing when to tell you that you don’t need to buy anything at all.  Of course, all they will do is try to sell you the best Chevy that meets your needs whether the best option for you is to just walk, buy an Impala, take a cab or to buy a fifty foot deep-sea fishing trawler.  Even if they did have the expertise to look at the big scope of your transportation needs you aren’t willing to pay them unless they give a specific answer.  So we can expect that the answer we pay for is the one that we will get.

Resellers are useful only after the decision to buy the products that they sell has already been made.  A reseller can then help you choose the right product from the range that they have.  For example, if you are buying a server from a reseller, that reseller can help you to choose which options like drive types and sizes, out of band management and other add-ons you might want.  But even then, be wary that they are likely earning more to upsell you and will recommend unneeded extras or may advise making configuration changes without understanding the entire scope of the project and how those changes from your original requirements might affect you.

Attempt to limit the advice that you receive to very concrete items such as “does this particular model offer this particular feature that I am seeking?” and avoid subjective valuations between products “is this one fast enough or should I buy the bigger one?” or “how does this compare to your competitor’s product?”

When asking subjective questions you are actually pressuring the reseller into either making more money overselling to you or losing money while trying to find the most appropriate product.  Not only do they make more money (generally) selling you the more expensive item but it also mitigates their risk that they didn’t get you what you needed.  There is no reason for them to take on risk, they’ll just try to sell you as much as possible and, if you come back unhappy, they can say “well, we tried to convince you to get a bigger, faster model but you wanted to save money and this is what happens.”  So it is not in their interest in any way to size to your needs but always to pad for safety and profit.  A position that they are put in, again, by their customers.

In most cases, principal vendors are themselves a reseller so can be considered in exactly the same way.  If you call Dell to buy a product, they will sell you a Dell no matter what your needs are.  This is not their fault, they only have one job, to sell you Dell products and if you call them for advice they can only assume that you did so because you wanted to buy a Dell.  They are no more going to consult on what IBM product to buy as they are on what car to drive or if its a good time to sell your house and move to Florida.  But they are very helpful in making sure that the Dell product that you order is going to be the one that you wanted and that the extra parts that you are getting will work with that model.  That’s what they are there for.  They will figure out how long it will take to arrive, go over warranty terms as well as give you pricing and financing options.  These are all things that your general consultant cannot do.  The two roles are complimentary, not competitive.

A perfect example of this entire scenario is one that I see happen in the real world time and time again.  With the recent explosion in virtualization businesses are turning, en masse, to vendors to find out what they need in order to dip their toes into the world of virtualization.  What I see, over and over, is instead of being sold a reasonable virtualization setup they are often sold entire systems including storage and software that in no way meets their needs and, often, actually works against their needs while costing as much as ten to twenty times what a better performing, more reliable system would have cost.  Often they are upsold into a completely unreasonable category of product for their project and then caught by budget limitations and stuck skimping – leaving them with a crippled virtualization project that could have been completed successfully for a fraction of the money spent and leaving good room for growth over time as needed.

The issue, of course, is that turning to a vendor and asking for advice on virtualization products is exactly like saying “I have no idea what I’m doing, let’s see what you can sell me on.”  And honestly, once the vendor knows you don’t even have your architectural elements worked out before contacting them, they know that the sky is the limit.  The goose has arrived and all they have to do is wait for that golden egg to be delivered.

I’ve heard this exact scenario so many times, I can’t count.  Your vendor is not your friend.  They have one job to do – sell you as many products as possible.  If you ask them what you should buy they will tell you whatever you want to hear.  They will cut corners on safety items or management items that they feel you will not find flashy or cool and will sell you what they think you will get excited about or confused about.  They know their jobs well – they have to, it is a tough market.  A great example is vendors cutting storage costs by selling smaller than appropriate storage arrays and using risky array configurations to make the capacity cost less.  That the client is at heightened risk to a failing array doesn’t impact the vendor and is a very hard issue to quantify, so once the product is sold it is the customer’s concern not the vendor’s.

The answer to this is to leverage a general consultant.  A general consultant gets compensated by delivering good advice and not for selling you a product.  In theory a general consultant will earn a similar amount regardless of whether they convince you to install millions of dollars of products or to do nothing and use what you currently own.  A general consultant should be far more intimate with your environment than a vendor or reseller could ever be and should be able to speak to your technical staff, make presentations to the business and put their advice into the proper context for your business with insight into how the costs, risks and other factors will impact you specifically and advise on what they feel is more appropriate for your specific needs.

In reality you still have to consider the complete role of your general consultant.  Most often a general consulting firm will also offer broad support and implementation services.  These are loosely tied to their recommendations so caveat emptor applies as always, but since they are compensated in a far more direct manner (paid for their effort) they have a very real reason to deliver you what you are buying.  Even general consultants who have some ties to reselling often make a very small fraction on the resold goods as they do on the consulting so anything that puts their consulting work at risk is a major liability to them.  Make sure that any general consultant, if offering resold services, is not tied to them and works with other resellers or vendors as well.  Sometimes general consultants offer low cost reseller services as a loss leader or at minimal profit just to keep customers from feeling that they must turn to another company but would prefer if their customers did not use  that service – profits are often higher not reselling.

Your general consultant should be able to interface with your resellers or vendors directly or allow you to do so.  Having a consultant handle the transaction can be beneficial because it provides an integrated procedure and consultants are very unlikely to be persuaded to make snap decisions based on sales, “special deals” or to be sold on a different approach by a salesperson who has a specific product to push that month.  The consultant has little emotional tie to the purchasing process and so can be much more methodical and calculating.

Of course we must consider the opposite situation as well – how do we treat our service providers?  For example, if we go to a reseller over and over again asking for advice, making them generate quotes and generally spin their wheels and then buy nothing from them or very little we will, sooner or later, force them to either refuse to work with us at all or do something drastic like supplying less than accurate data or raising prices.  A good vendor or reseller will provide you with the best value when you treat them well.  Loyalty may seem to be dead in business transactions today, but this is not at all true.  Good relationships still pay off.

With consultants the need to treat them well is somewhat built into the equation – you generally pay for what you get so other than being friendly and respectful you don’t normally have too much to worry about as far as how you are structuring your relationship.  But even with a consultant there are still concerns.  If you pay for an “unlimited” service plan, use it well but don’t abuse it, for example.  Always make your consultant happy that you are their customer and, most likely, they will work hard to make sure that you are happy to be their customer too.

The most important concept to take away from this is that with any company with whom you do business, you should have some empathy for them.  Put yourself in their shoes and think about how your relationship with them is structured.  Are your goals mutually aligned?  Is it in both companies’ interests to act in the interest of the other?  Or have you arranged for an adversarial relationship where they can only win at your expense?

Keep in mind that you are the customer so, very likely, your consultant or reseller is, to some degree, at your mercy to make sure that your relationship is a healthy one.  In order to obtain clients they are often pressured into a position of accepting a less than ideal arrangement.  As the client, you have the opportunity to be the client that that consultant or reseller is excited to work for and will go out of their way to make happy.  The choice is very much yours to make in most cases.  Choose well because good relationships can work wonders for your business.

Ask a jeweler what to get your wife for your anniversary and he will say: “You can’t go wrong with jewelry.”

Ask a florist what to get your wife and he will tell you: “Women always love flowers.”

Ask a chocolatier and he will tell you that nothing makes a woman happier than chocolate.

Ask a consultant he will ask you: “What does your wife like?”