Category:
Terzo Conversations

Part 3 of 3 Terzo Conversations: Industry Leaders Talk Business Strategy

April 28, 2022
Eric Pritchett
President & COO
Ken Kanara, President and CEO of ECA Sits Down with Eric Pritchett, President and COO of Terzo on the value of Transforming Vendor Relationships in this engaging 3 part series

Ken Kanara, ECA President and CEO works with clients to fill permanent and project based roles for strategic initiatives across growth, transformation and organizational strategy formulation. Ken has extensive experience in management consulting, having spent more than a decade working with clients on various strategic and operational initiatives at Booz & Company prior to joining ECA and rising to his current position.


Eric Pritchett, Terzo President and COO, leads corporate strategy development and operations for Terzo, the world’s first VRM.  Terzo’s mission is to help businesses transform their vendors into strategic partners, to accelerate innovation and transform business performance.  Prior to Terzo, Eric led corporate investing and M&A for Asurion.  Eric has been a part of three founding startup leadership teams and started his career as a management consultant. 


Procurement in the New Economy

 

Ken’s HBR article was published in March 2020, shortly before things began to really shut down in the US, and touched on this topic of “procurement in the new economy” before we all came into direct contact with what “new economy” really meant. Put this down to luck, but most experts today agree that the pandemic merely accelerated trends that were already unfolding.  Still, the challenges the pandemic brought to supply chain and procurement teams may have slowed progress on people-centric strategy in many respects, including vendor relationship management. As we sit amuck in a global supply chain crisis, which is driving inflation and frustration, we clearly don’t have all the answers, yet.

 

Eric: When you're in conversations with your clients, is the topic brought up of “we need to change the way we look at our vendor relationships?” And if so, is it more at the forefront of their mind or that they’re vaguely aware of the concept, but it’s something for down the road?

 

Ken: What I have observed is that we get uneven application of the best new ideas.  Take a hot topic like advanced analytics - analytics are a huge focus of the Fortune 500, who are making huge investments in data. Whereas, the middle market companies have lagged on data. If you're a private equity firm, and you have a portfolio company that does $20 million in EBITDA, you better bet that advanced analytics is something that you might want to invest in, especially if you're in a highly competitive industry and need sources of differentiation on operations or customer experience. But to do it, requires a massive investment in talent, technology and process. The only way that you can access this right now for most middle market companies, is if you work with a really intelligent third party vendor that has access to the right talent, has access to the right technology, and has knowledge of the right approach to process and implementation. So, there is still this reliance on “star player” vendors and partners, rather than transforming the relationships with others. Many companies still don't exactly have the knowledge to go out and be strategic with their vendor relationships, so they lean on the ones who already have come to the table with a proactive approach.  In many cases, being smart about your strategic vendors requires that you actually have smart strategic vendors that can drag you into the trend.  It can be as simple as picking the right vendors to bet big on.

 

Eric: I want to expand on that just a bit.  Do you feel like to treat vendors more like employees so both sides are coming to the table with a “proactive” or strategic approach to the relationship, do you feel like these themes are more important for these middle market companies than perhaps the Fortune 500 giants or less?

 

Ken: I do feel like it's actually immensely more important to the middle market. Many Fortune 500 companies don’t place enough emphasis on their vendor or supplier relationship because they already have a tremendous amount of power in the relationship, and basically can’t be left behind by their vendors. Vendors still see the relationship with these highly-recognizable logos as a big opportunity - even critical to their own existence - so they’re ready and willing to jump through hoops. But if you're a company in the middle market that's competing for the very best talent and getting attention from your vendors, and you're increasingly reliant on various parts of your supply chain to innovate, it is in your best interest to make sure that you're treating those relationships, like true partnerships.  You can’t afford to be passed over with a good idea if your supplier has one. 

 

Eric: I think it's a very nice point that if, as a mid-market company you don't want to end up with a subpar outcome, you have to pay more attention to those partnerships, because you're never going to be the first priority of all your suppliers.

Adapting SaaS Providers to Aid in Vendor Relationship Management

 

How much does technology investment come into play in all this? It's hard for technology not to be a theme in any business conversation anymore. Companies in every facet of their business are looking for new ways to invest in tech, not only from a transformation standpoint as previously mentioned, but as solution providers. Software as a Service (SaaS)  is definitely an important part of business but something missing from the conversation is  the concept of software plus service. Technology becomes increasingly table stakes for a lot of companies and where they differentiate is on the service component. 


Ken: I think that the service component is going to be a true differentiator as it relates to delivering technology-based solutions in the future. I hate to use the same example, but if you look at advanced analytics providers, you have a number of options that are pre-built on the one hand, like Power BI and Salesforce Tableau. However, the best providers out there are going to use a technology stack and then apply it to your business in the best way they can. I think this thinking around technology has become more industry focused and vertically focused. Take the way we look at email, right? It's not like a company nowadays would build their own email system. Right? So then the service component becomes the true differentiator.

 

Eric: I love that email analogy. No one would think of having their company’s email as part of a digital transformation. But that is what it was during the late 90s. And, you know, electronic communication is table stakes and we’re interacting with lots of platforms: email, Slack, WhatsApp, every day.  So with these communications platforms, the services around the communication, the media storage, the persistence, the omnichannel nature, these are critical parts of the value proposition now.

 

Ken: Exactly! You don't even think of it as part of your tech stack. But it is.

 

Eric: Are there any things that you're seeing in the market where you think there are particular opportunities, either by sector or by industry where you see themes where managers could materially move the needle in their financial performance, ultimately, by leveraging supplier and vendor ecosystems more effectively?

 

Ken: I do. So one recurring theme that I see with private equity is that there's always a value creation play established up front, when you close a big deal. It's a set of initiatives against a timeline, and folks go out and work against that plan. One thing that I'd say consistently that I've seen in private equity is the desire to address the supplier portfolio for significant recurring cost savings.  There is immense research done up-front in terms of determining key supplier dynamics and opportunities to cut cost mostly on price of existing services.  I think most investors assume there’s 10%, easy, of dead portfolio cost in most supplier bases at a large mature enterprise.  The reality is that the barrier to realizing the value is often as simple as the teams not having good management of the existing set of contracts and low systematic management of the overall supplier portfolio.  You would be amazed how many cost reduction evaluations spend the first six months just trying to locate a complete set of all the current contracts.


Eric: I hear you, it’s amazing how many customers we talk to that echo some of these points.   With Terzo, a lot of what we do really reaches the aspirational.  A lot is systematic blocking and tackling around people, process and data. 


Ken, this has been great fun.  Thank you for taking time to have this conversation with me.  I look forward to keeping the conversation going and wishing you and ECA the best, as you continue to deliver your message about the power of partnership to your clients!     


Ken: Yes, thank you for the opportunity to talk. It was interesting to hear how Terzo is directly solving many of these challenges we discussed today and I wish your team the best of luck.



Missed the first two conversations? Check out Part 1 and Part 2 here.