IBM has gone from selling TCO to selling "outcomes." What does the change in IT sales tactics mean for enterprise applications customers?
Recently, the real news for IT, business intelligence and enterprise applications buyers has often been vendors' new selling proposition, not just the solutions offered. Examples might include new cloud pricing models, new ways of combining hosted and on-premises implementations, and new methods of fast deployment by auto-discovery of the customer's data. To these, IBM (NYSE: IBM) has just added what I call the "outcome-led sell."
As I understand it, IBM aims to change its approach from meeting customers' demands for functionality to providing solutions that achieve a desired outcome. In other words, the metric for success is less TCO or speeds and feeds, and more helping clients realize specific goals such as 5 percent reductions in operating margin or 8 percent increases in revenues year-over-year. IBM says that it perceives the outcome-driven sell as eventually their main engagement strategy with customers and prospects — whatever the final sale, IBM leads with promising an outcome.
What The Outcome-Driven Sell Means to IT Vendors
This is not necessarily a radical departure from traditional vendor approaches — after all, it is pretty similar to selling services with an SLA (service-level agreement) — but it does have a couple of interesting implications. In the first place, "outcome" is more future-oriented than "functionality," and therefore more potentially risky for any vendor. It takes an uncommon degree of confidence to commit to a customer that a particular mix of hardware, software and services will indeed provide a specific improvement in book-to-bill speed a year from now. In the case of IBM, part of that confidence is certainly justified: IBM has a highly comprehensive set of piece parts, its own and its partners, to fit together into highly customized solutions that cover an extraordinary range of customer situations. Part of the confidence, however, is yet to be proven: Whether thousands of engagements will yield enough "best practices" data to give IBM a competitive advantage by economies of scale.
In the second place, outcomes and business metrics in general are necessarily fuzzier than IT requests for proposals (RFPs). Yes, this approach lets a vendor such as IBM sell "higher up the food chain" and therefore increase revenues per project. However, there is often less direct control over the success of the project as it begins to involve higher-ups at the customer, and the risk of potential misunderstandings between the parties often grows as well. Again, even IBM must have extremely high confidence in its ability to mesh IT and business consulting in order to take this approach.
Already, IBM has noted some interesting tactics to go with this strategy. IBM is talking about a sales process that may include multiple companies in an industry — apparently, the ability to sell the same industry-specific platform or appliance to multiple CTOs or CFOs at once, not as part of "keeping up with the Joneses," but as allowing those companies to focus on their core competencies and "cloudify" the rest of their tasks. Moreover, IBM is "doubling down" on its customization of solutions, aiming to tailor each solution to a particular industry and/or company, and then collect ongoing data that will allow "best practices" patterns to emerge from the bottom up.
Wayne Kernochan of Infostructure Associates has been an IT industry analyst focused on infrastructure software for more than 20 years.
The Outcome-Led Sell: The Customer's Viewpoint
What kind of customer should feel most attracted to this new model of vendor sales? I believe that this approach best suits a large-company buyer that is already quite comfortable with the vendor delivering the outcome-led sell, and already a bit leading-edge in meshing business with IT and outsourcing functions. Because such a customer has the internal knowledge to pre-define strategic objectives and translate them into business and IT deliverables, that enterprise can move rapidly to define and implement a truly effective solution, not just one that is on some executive's wish list. Whether it be ERP, sales force automation, CRM, or analytics, these outcome-led solutions will be add-ons to existing solutions, and therefore such a large-company buyer can also assess the ability of the proposed solution to integrate with existing solutions — the key to comparing the proposed solution to competitors.
At the same time, not being the perfect customer should not prevent most medium-to-large-scale enterprises from preparing themselves for an outcome-led sell experience — and this interaction should involve major changes from traditional procurement. Let me list the ways:
- The customer should be prepared to define a business outcome that the solution will achieve at the start of the process.
- The customer should typically project the result of the solution, not by TCO, but rather by ROI or some such measure of benefits as well as costs. To matter to the business, an outcome should increase revenues, reduce costs, or both — that is, it should increase margins. To be able to compare vendors and compare this investment to others, the customer needs to consider both revenue and cost effects at a business level, and TCO doesn't do this well.
- The customer should bake an "outcome level agreement" into the contract. That is, in a similar fashion to a service-level agreement, the vendor agrees to deliver at least a certain level of outcome, with ways to measure the outcome and penalties for failure. This allows the customer to leverage a tried-and-true way of setting up the contract, and especially since services are likely to be involved.
- Both the customer and vendor should avoid as much as possible outcomes vulnerable to "unforeseen consequences." Thus, for example, if a solution increases margin by 1 percent and economic factors increase margin by 1 percent, while the agreement calls for 2 percent improvement, the customer is overpaying for what was actually achieved.
- The customer should anticipate more difficulty in determining how the vendor's solution stacks up against those of competitors. Unless competitors agree to a similar outcome-led sell and the same outcome, the complexity of the solutions involved make it extremely difficult to compare apples to apples to determine the relative performance of two solutions. In particular, there are now so many software products involved in a typical solution that traditional apples-to-apples comparisons of piece parts, and deducing how these will work together, is much harder for a customer, or for an analyst focused on one particular software market. In the end, customers will have to take some things inside the "black box" on trust — or not.
In the particular case of business intelligence, the outcome-led sell can be particularly tricky. BI is famous for its unanticipated business benefits, for the wide range of ways that a solution can be architected, and for the ways that solutions become more and more complex over time. At the same time, BI and analytics themselves are directly focused on improving business outcomes at the strategic level, so it is much more likely that the CFO and the vendor are talking the same "business outcome" language from the start.
Advantage: IT Customer
Despite the new customer tasks during the outcome-led sell, it should be a net plus for many large and medium-sized companies. It means greater choice of solution for the customer, as well as a better ability to fine-tune the solution for greater cost-effectiveness and to provide greater flexibility once the solution is in place. Above all, it improves the ability of IT to connect with corporate.
One way of looking at the outcome-led sell seems to summarize its advantages: The question for prospective customers, in many cases, moves from "Does IBM [or another vendor] have the right solution at the right price point for me?" to "What type of IBM solution can I use most effectively to deliver on my company's long-term strategy?" For an IT customer, this kind of buying power is so rarely seen and so valuable as to be worth celebrating.