Two Heads Aren’t Better Than One
One of the most common missed opportunities in negotiations is when enterprises piecemeal their efforts for the book of business they purchase from a given supplier. For example an enterprise may buy local, long distance, data and wireless services from Verizon and in many cases there will be separate contracts in place for each class of service, with differing terms and usually service specific commitments.
The problem with this piecemeal approach is that the enterprise is playing into the hands of the carrier bureaucracy and product fiefdoms. The different heads of these product groups do not necessarily think alike and have direct influence in terms of what is offered in custom negotiations with enterprise accounts. This is a big reason why the contracting and negotiation of telecom services remains separated with different contract forms and seemingly different rules of logic.
Many savvy enterprises have attempted to have their book of business viewed and acted on holistically by the large carriers. Navigating this internal minefield of fiefdoms and complexity can be very frustrating indeed but it can be done. Local account teams rarely possess the internal clout to accomplish the holistic handling and many enterprises have abandoned this pursuit and have awarded their services and contracted with the carriers on a piecemealed basis. Based upon my experience the downside of piecemealed telecom contracts include the following:
Negative Impacts of Piecemealed Sourcing Efforts
Higher prices for each suite of services and overall
Loss of contract flexibility via multiple commitments
Greater risk of internal business changes
Receiving less attention and respect from the supplier
Piecemeal approaches to telecom sourcing will almost always under-perform a holistic approach. By shopping and negotiating holistically, an enterprise’ total telecom spend or even the potential spend is the prize that garners maximum carrier attention. The issue of being piece-mealed has become more acute over the past several years with the consolidation of carriers and the integration of the acquired entities. For example, a few years back BellSouth, SBC, Cingular and AT&T were all distinct entities that primarily addressed just one segment of an enterprise’s needs. Since SBC acquired these entities and renamed the whole of the new entity AT&T, all of the services (local, IXC and wireless) and territory covered by these four companies are now rolled into one entity yet the one entity has multiple heads and they are not always connected. The same dynamic applies to Verizon and other carriers that service one or more of the industry product segments.
Because AT&T and Verizon provide the bulk of services to the enterprise market, this posts primarily applies to them, but understand the same issues apply to other carriers such as Sprint and Qwest. Carriers create the fiefdoms on purpose – it is in their regulated carrier DNA so to speak. Despite carrier integration with the non-regulated IXC and wireless segments ; the RBOC mentality of fiefdoms is dying a very slow death. The other driver is human nature and the resulting pride and ego’s the various product groups possess inside their carrier organizations. These different fiefdoms have real clout and unless negotiations occur high enough up in the carrier organization, bridging the gaps between fiefdoms can be quite challenging. If the fiefdoms are not brought under the direction of one brain, different rules of logic and responsiveness to an enterprise demands will result. There must be executive sponsorship to bring the two heads together.
Here is an example of what this means in a practical illustration. For example, if an enterprise spends $10M per year overall with Carrier X, yet purchases only $5M per year of MPLS services and the remainder in local and wireless services; the MPLS product group views them as a $5M per year customer and will respond accordingly when approving pricing. In this illustration, the other $5M per year spent on other services from Carrier X is not even considered by the MPLS product organization. In this extreme example, the enterprise will most certainly not be given MPLS pricing that reflects the whole of a $10M relationship and the wireless/local deals will similarly be decided upon independent upon the whole of the relationship.
Because local services are still subject to some regulation it is understandable the caution carriers take to not circumvent the spirit of state regulations. Requiring separate paperwork for local services is fine but hiding behind the veil of supposed regulation in denying holistic consideration of an enterprise is wrong. Even though local services carry a regulation burden, it is no excuse for a carrier to isolate local or any product group and not view their customers in a holistic fashion. Treat me holistically with the entire package of pricing and terms and I am happy to sign separate local contracts to meet the regulatory burden but look at the whole and not the pieces when addressing my needs. Creative packaging is needed to overcome the regulatory constraints and make everyone happy. Few have the energy and know how to navigate this effectively.
AT&T vs Verizon
AT&T is further along the evolutionary curve than Verizon as it pertains to thinking with one brain. This will not happen automatically, it remains an unnatural act; so it is incumbent upon the enterprise to define their strategy in any sourcing initiative to encompass the holistic approach. Verizon on the other hand has a ways to go. They remain stuck with an RBOC mentality with wireless, local and IXC services seemingly run by three different heads that do not communicate with each other. Verizon will figure this out sooner rather than later as their competition is clearly using their weakness against them in the marketplace. Verizon claims they think holistically but their actions do not support their rhetoric.
Shopping versus Awarding Business
Shopping your business holistically is not the same as awarding your business holistically. Do not be confused by the main message in this post which is:
“Always shop holistically. Make sure all business is fully considered when any decision is made for even a portion of the business.”
This does not mean to put everything including the kitchen sink into all your sourcing, RFPs and negotiation efforts. Doing so may make the process so unwieldy that the lost time factor alone could erase any benefits of a holistic package from the carrier.
Having portions of business under different contract cycles that are not coterminous can be a good thing. If handled properly, every time any contract comes up for renewal, it provides leverage that can be used to readdress the whole relationship; not just the services in the expiring agreement. Avoiding or minimizing commitments, especially product specific commitments is a key to maintaining leverage. When product specific commitments are made, it takes away from leverage and limits the options available for renegotiation’s.
TelAuthority is the industry expert to define and execute negotiation strategies to attain market leading results. If you would like to know more or have any questions, please contact us. We look forward to hearing from you.
Written By: Pete Wilson, CEO