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Is Your Vendor Really Your Partner?
Vendors, providers, and suppliers (“vendors”) often incorporate the term partner into their sales processes and terminology. You’ve probably heard phrases like, “We want to be your business partner…,” “We want to partner with you on this project…,” or “We’re uniquely positioned to be your strategic partner…” Is there anything wrong with referring to your third-party relationships as partners? The debate by customers has been going on for decades with great passion in both camps: Yes, it’s okay vs. No, it’s not!
This note will delve into the issues we have witnessed over our combined 80 years of experience related to the use of partner, define the various characteristics of a partner from multiple perspectives, explore ways to use the term partner strategically, and suggest alternatives.
History
In the early 1990s, the term partner came into vogue, created by vendors to change the relationship dynamic. As part of their marketing, sales, and relationship-building processes, vendors commonly referred to themselves as the customer’s partner. The vendors’ goal was to turn the transactional relationship into something more – something long term and beneficial to the vendors. Unfortunately, the term became widely misused and overapplied. It was not uncommon for the authors of this note (who at the time worked for Fortune 500 companies) to receive requests for meetings to discuss partnerships with vendors we had no current relationship with.
As the term became a marketing buzzword, an oxymoron wrapped in irony was created. Partner was being used to differentiate the relationship by each vendor, but all of the vendors were using the same tactic and the differentiation was non-existent.
As time passed, vendors found that procurement and sourcing departments were not receptive to the term. As a result, the vendors focused on selling the term to the business units, stakeholders, and departments influencing the purchasing decision.
Definitions
There are numerous definitions of partner. Here are some examples and characteristics:
Legal (from Cornell Law School). “A partnership is […] comprised of two or more persons (entities). Each partner shares directly in the organization's profits and shares control of the business operation. The consequence of this profit sharing is that partners are jointly and severally liable for the partnership’s debts.
“A partner relationship is generally the result of a contract either express or implied. To determine whether a partnership exists courts look at: (1) intention of the parties, (2) sharing of profits and losses (3) joint administration and control of business operation, (4) capital investment by each partner, and (5) common ownership of property.”
General (from Merriam-Webster). “A relationship resembling a legal partnership and usually involving close cooperation between parties having specified and joint rights and responsibilities.”
Vendor (from Awecomm). Your IT partner should "focus on your business and how you advance," "support and accelerate your business objectives," "simplify technology," "walk you through the potential business impacts for each solution," and "be held accountable for what they deliver."
Partner From a Vendor Perspective
Why do vendors want to partner with customers rather than sell to customers? Vendors are strategic in their approach to selling, and using the term partner often provides them with psychological advantages that result in tangible benefits:
- Using partner allows vendors to divert the customer's attention away from risk allocation, requiring the customer to assume more risk than the vendors.
- A partnership implies shared values and goals – that the vendor will be there with the customer at each step of the journey.
- A partnership raises the relationship to higher levels of trust and shared confidences from the customer.
- Accountability is perceived to be shared, especially when the vendors are at fault.
- Vendors want to build a relationship that lasts a lifetime. There is a saying in sales, "Once in, always in."
- The vendors will leverage the partner mindset to minimize price concessions and discounts because being a partner is worth more to the customer than just a mere vendor.
Consider a statement from ServiceNow’s President and CEO Bill McDermott during a recent earnings call (Q2 2021):
“…So they become a design partner. And that’s really what we want. We don’t want sales. We want partnerships. So if we have design partnerships that go three to five years, we’re buying into the roadmap and we’re doing that giving the customer all the benefits of scale and innovation that they deserve from ServiceNow. And at the same time, we’re investing less calories in selling things and more calories on building relationships that last a lifetime.”
Partner From a Customer Perspective
For customers, the term partner creates an inherent conflict. Short of a joint venture with a vendor or entering into a formal partnership agreement, customers aren’t partners with vendors. Most vendor contracts include a clause similar to this: “Vendor and Customer are independent contractors, and nothing in this Agreement shall be construed as making them partners or creating the relationships of principal and agent between them, for any purpose whatsoever.” The vendors’ legal departments recognize the situation, but the salespeople continue to push partnership. This often leads to confusion within the customer organization and a favorable situation for the vendor.
We have seen firsthand how referring to the vendor as a partner can have the following impact:
- Negotiation opportunities and leverage are lost.
- Confidences are disclosed unnecessarily.
- Value erodes over time since contracts are renewed without being competitively sourced.
- Vendor accountability is missing due to shared responsibilities.
- Competent skilled resources are assigned to other accounts.
- Vendors no longer have to earn the customer’s business.
- One-sided relationships are established, and false assurances are provided at the highest levels within the customer organization.
Recommendation
- As part of your vendor management initiative (no matter how informal it may be), proactively manage your vendor relationships. Understand the implications of using partner and partnership, and use them strategically to your advantage:
- Parrot the term back to the vendor when you need/want something: “Since we’re partners, we need you to help us by…”
- Refer to the term when negotiating: “Since we’re partners, I’m sure you won’t have a problem sharing the risk on this…”
- Call out poor performance and behavior: “Is this how you treat a partner?”
Don’t forget to educate people internally about the pitfalls of referring to vendors as partners. By raising awareness, you can avoid many of the pitfalls highlighted in this note and strive for uniformity with your vendor interactions.
- Consider using a different phrase such as strategic alliance and using it or partner only when the following characteristics are present:
- There is parity in the peer-to-peer relationships between the organizations (e.g. C-Level to C-Level).
- You have input into the vendor’s roadmap for products and services.
- You and the vendor work together to make each party better, providing constructive feedback on a regular basis.
- The vendor provides transparency in pricing models and proactively suggests ways for you to reduce costs.
- The vendor provides innovative suggestions for you to improve your processes, performance, the bottom line, etc.
- You and the vendor are accountable for actions and inactions, with both parties being at risk.
- Negotiations are not one-sided; they are meaningful and productive, resulting in an equitable distribution of money and risk.
- The vendor is aligned with your desired outcomes and helps you achieve success.
- Trust and transparent communication exist.
Our Take
Our experience indicates that relatively few vendors, maybe one or two among your vendor ecosystem, earn the privilege of being referred to a partner. Read a standard vendor contract and you’ll realize that the relationship between a customer and a vendor is not a partnership. The terms partner and partnership are marketing buzzwords created by vendors to gain an advantage that can be leveraged for the long term. You can control the narrative by raising awareness internally and being strategic in your vendor interactions. Being more proactive and attentive to partner and partnership will help you improve your vendor relationships and performance.
If you’d like to discuss this note in greater detail and learn more about improving your vendor management skills, please schedule a call with one of the analysts in our Contract Review – Vendor Management practice.