Beware the risks of vendor lock-in
Every business is at the mercy of outside factors, whether they’re unstable foreign exchange rates, unexpected weather patterns or uninvited guests making off with your office computers. All the threats which are relevant to your business, however unlikely, should be covered in your risk management plan.
Your plan needs to consider the likelihood and potential impact of each threat along with ways you might mitigate the risk.
The trick to running a successful business isn’t simply to avoid risk, the trick is to identify and manage risk. When you’re drawing up a list of potential threats to your business, don’t forget to include the vendors on which you rely in order to get things done. Particularly if you have structured your business around that particular vendor.
Every time you become dependent on a new service, application or device, you’re putting a little bit of your business’ future into someone else’s hands. That’s a risk. Even your large customers are potential risks if you become too reliant on them.
You might view your suppliers and customers more as partners than threats, but think about how you’d cope if they went out of business tomorrow. That might seem unlikely, but what if they simply change a product/service in a way which significantly impacts on you? How disruptive are their decisions for your business?
One of the key ways to mitigate risks from your suppliers is to avoid vendor lock-in.
If it would be painful and expensive – or simply impossible – to change to a competing vendor, then you’re staring down the barrel of vendor lock-in.
You’re at their mercy and perhaps locked into their upgrade cycle. If they decide to double the price, force you to buy the new version every year or discontinue features on which you rely, then you might have no choice but to play along, whatever the cost. You need an exit strategy.
Vendor lock-in can occur anywhere throughout your business. It might be your choice of cloud storage or Software as a Service provider. It might be the choice of a key IT system, such as your accounting, e-commerce, customer relationship management or content management platform. It might be the hardware you use to run your inventory management and point of sale systems. It might even be the handheld gadgets you issue to your mobile workforce.
Play devil’s advocate and think about how a change to any of these products or services would impact your business. Alternatively, would you need to abandon significant hardware/software investments in order to change vendor?
It’s important to assess the risks of vendor lock-in during the research and evaluation stage of the purchasing cycle. Don’t wait until after you’ve handed over your money and tightly integrated that vendor into your business. It’s not just about money, the risk can be just as great if you’re relying on a free service. In fact the risk might be greater, because the vendor is less obliged to keep offering and supporting that service.
Before you commit to any vendor, ask yourself how difficult it would be to switch to a competitor.
Don’t take their word for it, do your own research. The more mission-critical that vendor is to your business, the more important it is to make the right choice. Will your business processes be totally reliant on proprietary hardware or services?
Will your data be locked away in proprietary formats? What are the options for exporting that data in a format which can be easily imported into a rival service?
It’s important to think about the big picture. Will the choice of a particular vendor cascade through your organisation, locking you into other vendors which may be less reliable? Will your choice of vendor impact on your relationship with your suppliers and customers?
In a perfect world your business would be completely vendor, platform and device agnostic, but realistically you’re likely to trade some freedom in return for advanced functionality and other benefits. You’re always going to be somewhat reliant on your vendors and there might be a solid business case for sacrificing some freedoms – but make an informed decision. Think carefully about the potential long-term price of putting your destiny in someone else’s hands.