Being an incumbent supplier for a million-dollar plus service contract is a bittersweet thing.
First, the Sweet
As incumbent, your firm gets the revenue, profit, and prestige of a large deal – not to mention, sales reps get to keep their jobs, earn commissions and operational personnel gain continued employment, etc.
Fine and good.
Now, the Bitter
Once you’ve secured that whale of a contract, you must keep it; month-after-month, year-after-year, and contract renewal-after-renewal. And this entails:
- Exceeding customers’ expectations (pardon my cliche’) – delivering more & delighting customers often
- Bringing innovative new technologies, cost-savings & enhancements continuously – it’s just what customers expect (in addition to 100% contract compliance)
- Integrating not only your service solution into customers’ operations – but also integrating your teams’ relationships up and down customers’ organizations; in the C-suite, Procurement, Operations, Safety, etc.
- Presenting your performance & value already delivered in a compelling & memorable fashion – if customers don’t perceive it, suppliers didn’t do it (from customers’ perspectives)
- Strategically out pricing your competitors to keep value high enough for customers to keep you as the incumbent
Starting on Notice
And even though large contracts are rarely canceled before their termination dates (not a good look for Procurement), their terms & conditions (T&Cs) allow them to end contracts within 30-90 days after notifying suppliers, with or without cause.
This means after suppliers’ first day of service, they’re basically on notice that they can be cancelled.
OK, typically there’s an unspoken grace period at the start where customers give a new supplier the benefit of the doubt and allow them to work through startup issues and unfamiliarity.
However, not replacing a poor-startup supplier immediately is as much a hassle-factor most customers want to avoid as it is a kindly act of forbearance to a new supplier.
Large contracts are the life blood of service suppliers, so this is the water they swim in. And if you are a service supplier, it’s always good to know what a life-threatening riptide looks like.
5 Warning Signs of Impending Contract Trouble for Incumbents
“Seller Beware.” Here are five signs that occur around, or in conjunction with a typical RFP rebid process .
These aren’t the only warning signs, but they are critical ones. And the more of them that occur, the deeper in the dire straits the incumbent supplier will be.
#1 No regular access to your contact’s boss & higher ups
Many incumbent suppliers do great work and have great on-site service teams. Your team works hard to deliver results and their customer contact likely trusts and respects them for it.
Having a great relationship with your operational day-to-day customer is expected, it’s a given. But if it’s all you’ve got, you’re in trouble as an incumbent.
The danger comes when the incumbent doesn’t establish and nurture face-to-face relationships higher up the customer food chain, all the way into the C-suite.
Without these higher relationships, incumbents won’t have back channels for insights into customers’ strategic initiatives, impending challenges, nor help overcoming incumbents’ missteps.
If service contracts top $1 million annually, suppliers’ top execs had better do what it takes to connect with and speak to the customers’ exec leadership at least quarterly. Those connections don’t all have to be in-person but a minimum of twice yearly in face-to-face meetings should be accomplished.
And don’t worry, if your customer is spending $1 million annually with your firm, then you are important to their success, and your execs will get access if they persevere.
#2 RFP scope expands abnormally & unexpectedly
As the incumbent supplier, begin preparing for the expected RFP rebid when your contract term date is about six to nine months away (read more here: Proposal Heroes Not Needed).
However, on the expected RFP release date, lo and behold, a different type of RFP lands on your doorstep. One that includes your previous scope of work but now adds services not normally associated with yours.
You can understand how that new, expanded scope of work could, and maybe should be part of your service world. But this change in RFP scope has taken you unawares.
And that’s a danger sign. It likely means a consultant or competitor has slipped in and helped your customer rethink their strategy for this and possibly other outsourced categories.
Now, as incumbent, you’re on your back foot and scrambling for a solution to a situation you’ve not been fully aware of. Something’s going on with your customer and you’ve not been included. See danger signal #1 above.
#3 Incumbent supplier for more than 10 years
Here’s a sad commentary on outsourcing relationships. No matter how much value, innovation, and commitment a customer has received from its incumbent supplier, it’s likely to move that contract to a new supplier if the incumbent has had the contract for 10 years or more.
Of course, it doesn’t happen all the time. But it happens often enough for incumbents to tremble when they hear the phrase “cleaning house.” Here are several reasons why it occurs:
- Customers have new operations’ execs and/or procurement buyers come onboard & want to make a name for themselves (these new contacts weren’t around when the incumbent first started & may not receive, or be impressed by the incumbent’s reported performance)
- Customer operations decides to boldly change direction in how things are done & doesn’t feel the incumbent can lead the new change, or lacks the technological capabilities & management horsepower to get it done
- Procurement may become worried the incumbent supplier has grown too powerful & believe it’s time to change suppliers & reassert their authority
- Incumbents get complacent, lose focus, & take customers’ continued business for granted
- Customers no longer feel they’re special, preferred clients and/or no longer receive value-adds (aka no-cost) they feel they deserve – See danger signal #1 above
- Customers’ business models and/or industries changed significantly since incumbents first came onboard, yet incumbents’ contract/value delivery hasn’t adapted to customers’ current business environment – which can be customers moving up into higher-quality services, or down into lowest-price commodity suppliers
#4 New, dynamic game-changing executive in customer c-suite
This doesn’t happen all that often just because there doesn’t seem to be that many superstar C-level execs frequently jumping around.
Yet when it does happen, hold tight. “Cleaning house” goes into hyper-mode and the C-level exec’s new vision will be shouted from your customer’s rooftops to all their personnel.
So much so that your operational and/or Procurement contacts may end up taking extraordinary and sometimes misguided actions to show how much they’re onboard with the superstar exec’s new vision. It’s the “Hey, look what I’m doing in my span of control, aren’t I who you want on your new team?” Which really means: “Please keep me, I don’t want to look for a new job.”
#5 You, as incumbent, are failing, or have had a cataclysmic disaster
Lastly, after a few years incumbent suppliers can lose their excitement and/or focus on a customer and their large service contract. This customer just becomes overly familiar, or overly demanding, or the supplier changes strategic direction in new business development. It happens.
Or, something unexpected and/or unpreventable can happen. Some cataclysmic disaster from which no matter what the incumbent does, the customer only sees it as “time for a change.” It happens.
Summary
As in life, being an incumbent supplier is as much about how you respond to events as it is about preparation for them. Both skills are needed.
This is the water incumbents swim in. And as the supplier with the contract, it’s always good to know what a life-threatening riptide looks like. Prepare and respond as well as possible.
5 Danger Signals for Incumbent Suppliers was first published on LinkedIn at https://www.linkedin.com/pulse/5-danger-signals-incumbent-suppliers-chris-arlen/
