Competition is the fuel of improvements

Without competition, the things will not improve. On the other hand multiple parties in a competitive situation may cause different problems. Let's go through these issues and get some tips to handle them.

One vendor with no chance to open competition

This is the clearest case of vendor lock-in. Usually your vendor, provider keeps all the right to touch the product, service they deliver. Trying to open competition raises issues in service level, prices or supportiveness at all. Although this case is not good for long run, sometimes good to pick up the advantages it has.

I saw a case when a company bought all notebooks for employees from one large brand. They had the feeling, that a competition with another large brand would result better prices and other conditions. Finally they recognised, that both parties gave larger prices then they have before! The reason was simple: unique reference at a significant company is a kind of great advertisement, which results better prices. The competition still had a great value: let the company learn the lesson of being unique reference and they asked special discount from other vendors in similar cases.

Tips

The main message is to break the walls! Although it is not a good idea to invite an external competitor, you can use your employees! You have to build internal knowledge about the product or service used to get some independence from the vendor. Staying at the previous example, you may have internal repair team, who will do some of the fixes of computers therefore you gain some space to move.

The problem of two dinosaurs

Two players in the same weight having similar knowledge level and values in risk causes boring matches. In the business era it means that there is no competition in equalised situation. Here the "size" of the players is derived from some different aspects:

  • Frequency of changes
  • Risk potential of changes
  • Outstanding/strategic targets
  • Size of their business at you
  • Their market size

Having no change on these dimensions will FROST the competition, you will have dual vendor lock-in usually with a much larger cost level then in the single vendor case.

Tips

Some of the aspect above are clearly out of your control, like the market size and the strategic targets of your vendor. These two aspects will change only if you replace one of the vendors. Easier to play on the other three strings! Changing the frequency of the changes to have more smaller or less larger orders usually wakes up the players, either if you change only at one.

You have to be consious to open challenges between them, letting one to eat something from the other to play with the business side and taking their "domain" into risk.

Having two dinosaurs in the ring you have to be really careful, because their fight may heart you!

One large one challenger

This is the most simple one, because you can utilise the forces impact toward equitation. You have to have a significant provider with a challenger set against it. The challenger should be ready to get some painful portion of the business of the large vendor but you have to care to keep it small to avoid the to dinosaurs situation.

The challenger should be a strive, small team, full of action.

Tips

Sometimes the best challenger is you internal team. In the past I led a situation when we built up deep internal knowledge about a software delivered by a large vendor, at we used this knowledge to set up a team of independent developers, which got the right to implement parallel functions to the big software.

Very important to highlight, that the challenger game is trilateral! The team we built to challenge the large vendor had good result for the company, the small team and the last vendor.

The company got lower TCO, since the unit price of the independent programmers was much lower the daily rate for the large vendor. Other gain was the better software performance, since the two teams challenged each other.

The small team had empowering target to win some match towards one of the largest name of the market, while they get good amount of money for their work.

The large vendor lost on income side but gain a lot of customer satisfaction, since one part of the deal was, that all the successful stuff made by the small team was introduced as the result of their software internally. The site became a very good reference to gain business at other companies and a grat training site where there newcomers learnt a lot in a competitive environment AND from a great competitor.

Multiparty competition

This is the case when more, usually large number of vendors are invited into a competitive situation. This is useful when the product or service is completely same but the competition is about the prices or some delivery conditions. The problem of these approach if it is used for non-similar solutions because the result of large amount of competitors is to have inadequate proposals, hidden costs, functional loss and certainly delays. Interesting to see that the same bad results is realised in that cases when the companies starts to focus too much on prices or price items.

This case gives the illusion of best results, while it is usually one of the worst you can reach ever. Inviting too many vendors into a competition or fighting too much on prices will result frustrated vendors and employees on your side who feel that they lost their decision autonomy at all.

Tips

Be so careful of opening price negotiations in case of non-similar solutions or two give significant (like 35% or more) of prices in tender evaluations!

Summary

We saw that all competitive situations has their own field to use and it is not so exciting that using them on the wrong field causes bad results - sometimes extreme bad.

Approving the statement that competition is the fuel of improvements you have to select the good kind and right level of competition on the scale below.

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