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A defining moment for relational contracting? IBM and The Cloud

January 22, 2015

As businesses struggle with managing their diverse and volatile trading relationships, is increased use of relational contracting almost inevitable?

Extensive data points to the fact that businesses are becoming more inter-dependent. On average, external spend as a percentage of revenue is growing. The extent – and volatility – of partnering and teaming is also increasing, as is the diversity of sales channels and routes to market.

All of this leads to growing complexity and a shifting risk profile for business management. Cloud computing is an excellent example of this. In the past, the enterprise bought or leased hardware and then developed or licensed software. The IT department was large and relatively autonomous. Cloud services fundamentally altered this dynamic. Hardware needs are slashed; licensing transforms to use-based charging; and ease of acquisition means that just about anyone in the business can start using external programs or apps.

The challenge for the CIO is very different. They need to develop an overall strategy and plan for technology services and they need to institute some form of control over internal policies and purchases. In addition to this, they become far more dependent on managing external relationships and integrating those relationships to ensure coherent service delivery.

That is where a big player like IBM tries to step into the scene. If they can “create an ecosystem of technology partners”, they offer to simplify the world for the CIO – and of course establish IBM as the partner of choice. Commenting on this strategy, Colin Cram wonders how IBM will manage this ecosystem and asks whether it may lead to the creation of a Relationship Management Office.

Certainly Colin is right to highlight the key challenge that relationship management represents to businesses as their inter-dependency grows. While corporations like IBM have some outstanding relationship managers (and accompanying tools and processes), they operate for a selected group of customers and ‘relational competence’ is an evolving discipline. IBM’s strategy with regard to ‘ecosystem development’ is not new. I recall in the 1990s a similar approach to the application development market. At that time, it was Hewlett-Packard (and the now disappeared DEC) that managed to ‘surround’ IBM through its strategy of partnering with application developers. IBM raced to catch up with a diverse range of agent and remarketer programs targeting especially the application development community.

I recall the excitement that many small providers felt when they signed a partnering agreement with one of these technology giants. They believed their break-through moment had come. The problem was, for around 90%, nothing ever happened. There was no effective way to integrate or promote their software to a global Salesforce. The central program owners at IBM or at HP had few levers to create awareness and lacked resources to offer any meaningful ‘relationship management’.

Has anything changed today? Certainly the networked technology now available will increase the chances of visibility and success. But I somehow doubt that IBM will be investing a whole lot of money in developing a ‘relationship management office’. I also suspect that they are providing this approach as a customer convenience and that they are careful to limit their liability for the quality or results achieved from these third party offerings.

While sharing Colin’s enthusiasm for relational contracting, I rather doubt that IBM’s approach to selling cloud services represents the break-through moment.

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