Your IT vendors are reeling, whether from the economic malaise, their own bad decisions or some combination of adverse market conditions. The small and midsize network service providers, software developers, system manufacturers and integrators that have survived the shakeout are barely hanging onto their stock exchange listings. And even blue chip companies like AT&T, EMC, Nortel, Oracle and Sun are shaky as their profits -- and their market caps -- evaporate.
The tech meltdown affects more than your 401(k) plan. It bears directly on your career as an IT professional. As an evaluator and buyer of IT products and services, you could be left holding the bag should one or more of your key vendors go away. So how do you know which companies will be there for you a year down the road?
As evidenced by the accounting slights of hand at WorldCom and other public companies, income statements and balance sheets reveal only so much about a company's financial stability. And even when these documents are accurate, how do you divine which vendors' product lines are vulnerable to hostile acquisition or are expendable amid slackening demand?
There are no pat answers, so consider these "risk management" practices for evaluating and building relationships with IT vendors:
Conduct an up-front audit. Not every IT organization has a crack financial team at its disposal to gauge the health of potential vendors, but everyone can do basic due diligence on a vendor's revenue and profit history, cash position, market share, customer base and management team. Even private companies will open their books to land a key account.
Most other things being equal, gravitate toward size and stability. But don't rule out start-ups. One IT manager tells of his company's $1.25 million contract with a vendor whose assets were only a tiny fraction of that amount. "That much we could justify losing if it all went to pieces," he says. "Competitors for this type of product were in the $16 million range."
Negotiate contracts as if your company's life depends on them. Take no service guarantee, promised upgrade, price point or other contract detail for granted. For software, that means negotiating access to proprietary source code and technical documentation in the event your vendor goes bankrupt or gets knocked off in an unfriendly takeover. For hardware, it means getting the rights to mechanical drawings and production system designs. For network services, it means establishing who owns the connection. If you don't have the internal resources to support those products on your own, find a third-party vendor that could step in.
Map out a clear exit strategy should you become uncomfortable with your vendor's financial or organizational wherewithal. These "outs" generally cost money, but exercising just one of these options can save more than paying for hundreds.
Spread your money among different vendors as much as possible, especially for critical systems. Along those same lines, standardize on flexible platforms that don't lock you into a single vendor.
Don't overthink the commodity stuff. When it comes to PCs and other low-end hardware, for instance, sometimes just going with the lowest bidder is best.
When in doubt, consult your peers at other companies. More than even the best consultants and analysts, they can give you the inside scoop on how reliable a given vendor is.
Fundamentally, which kinds of IT vendors is your company willing to trust as strategic partners? How important are price and one-stop simplicity? How important is best-of-breed specialization? For which products or projects does a conservative, financially stable vendor make more sense than a promising start-up? These aren't just philosophical questions. You and your management team need to have this discussion now. Meantime, hedge your bets.
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