Price still key in tech vendor selection

Organizations in Asia continue to view pricing as important criterion in choosing technology partner but its impact on final decision should be weighed alongside other key factors.
Written by Vivian Yeo, Contributor

Price is still an important consideration when companies evaluate potential technology suppliers in the Asia-Pacific region, but its influence in the eventual awarding of contracts is, and rightfully should be, waning, say analysts and IT decision makers.

According to ZDNet Asia's latest IT Priorities Survey, nearly nine in 10 IT decision makers across the region indicated competitive pricing as "very important" or "important" when choosing a technology partner. Conducted in July, the survey polled 3,657 IT decision makers in the Asia-Pacific region including China, India, Indonesia, Malaysia, the Philippines, Singapore and Thailand.

Commenting on the findings, Patrick Chan, chief technology advisor of emerging technologies at IDC Asia-Pacific's practice group, explained that the trend was not surprising as the financial downturn that took place much of last year had impacted IT budgets. "Most organizations are now more stringent with their IT project expenses," he said in an e-mail.

CIOs ZDNet Asia contacted confirmed that price is an important criteria, but noted that it is not the only consideration in evaluating a supplier of IT products and services.

Sunny Lee, CIO of the Hong Kong Jockey Club (HKJC), shared via a phone interview that the organization has a "balanced scorecard" to shortlist tech vendors, which it customizes for each RFP (request for proposal). For instance, weighting for price would be higher for commodity-type IT implementations such as a PC refresh, while for projects such as developing a customized system, there would be greater emphasis on factors including functionality and technology innovation.

Lee said: "Pricing from our perspective is certainly one of the major determinant factors, but it's definitely not the only one because there are many other considerations that are equally, if not more important, especially with strategic programs or projects where we really look at the future of the technology."

James Loo, CIO of YCH Group, noted in an e-mail that price is "definitely an important criterion". For the Singapore-based logistics company, the vendor to which it awards a contract need not have the lowest pricing "but clearly it cannot be the most expensive".

Mistake to look solely at price
Industry observers warned that deciding on a technology partner based mainly on price is a risky route for businesses to take.

Chan pointed out that it can significantly impact an organization's ability to compete effectively in future.

Tech partners that are not competent or capable enough to fulfill the project or collaboration requirements can seriously undermine the business operational efficiencies, in the event of technical problems or when integration of multiple and specific technologies are needed.

Arun Chandrasekaran, research manager at Frost & Sullivan, concurred. "If purchasing price is the main yardstick used for IT decisions, organizations are doing themselves a huge disservice. It is extremely dangerous for IT decisions to be made just on purchase price.

"The industry is clearly moving toward TCO (total cost of ownership) which takes into account other factors such as repairs, maintenance, upgrade, support and training," he added. "It is imperative for organizations to understand the benefits of a value-based relationship that will serve them well in the long term."

On the other hand, Chandrasekaran observed that enterprises are moving to consolidate their IT suppliers, which means the importance of pricing as the primary selection criteria would "continue to diminish".

At the HKJC, Lee explained that after vendors are shortlisted using its scorecard system, the project team follows up with a "deep dive" to understand each player's capabilities. His team also conducts reference checks on these vendors, among other scrutiny, before deciding on the eventual partner, he added, noting that from that perspective, pricing is "further washed out".

According to Lee, other criteria that come into play during the selection process include the reputation or track record of the IT provider, its customer base and local support capabilities.

Source: ZDNet Asia IT Priorities Survey 2H2010

Other selection considerations
ZDNet Asia's report also revealed that IT decision makers in the region were likely to factor in authorized vendors and existing relationships when choosing a tech partner. About 73.5 percent of respondents highlighted "approved supplier status" as a "very important" or "important" criterion in vendor selection, while 76 percent said an "existing channel or partner relationship" was "very important" or "important".

IDC's Chan noted that in some industries, maintaining a list of preferred or approved suppliers can be beneficial for organizations where audits and checks have already been conducted, as this can save them a large amount of time and effort in selecting credible and reliable partners.

While such practices may put some smaller or less well-known suppliers at a disadvantage, particularly in the newer fields of mobile application, virtualization and cloud computing, if these smaller providers are able to play to their niche strength, end-users will take notice of them, he said.

YCH's Loo added that it is sometimes necessary to turn to a vendor that is placed on an official or "approved" list.

"There is an advantage with such a list because it helps us get commitment from the vendors…[but] that does not mean we cannot invite new players to propose and quote for their offerings, especially for very niche and exclusive products or technologies."

At the end of the day, he added, YCH views tech providers as more of a partner than mere supplier. "They provide business solutions more than simply transactional products, even for consumables.

"We don't want to start from 'ground zero' for every project," Loo pointed out. "We don't have the time and we just want to be able to connect the technology dots and keep moving forward with our investments."

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