10 things to worry about when your vendor divests

How to limit any negative impact to your company.

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Potentially difficult times

In tech, divestitures are a fact of life and solutions are bought and sold all the time. But that doesn’t change the fact that when it happens to a solution that your company uses, it can make things difficult for you. Although your vendor’s divestiture is out of your control, you can at least do your due diligence in limiting any negative impact to your company. With that in mind, ZL Technologies lists 10 things you should worry about if your vendor divests.

 

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New vendor approval process

When your organization purchases an information technology solution, you’re not just investing in the product, you’re investing in the vendor. Among other expectations, you’re banking on its dependability as a provider and the assurance that it will continue to invest in the product, let alone won’t go out of business. This type of commitment requires an extensive vetting process, where you’re put in the position of having to restart your vendor approval process from stage one. Depending on how the new vendor manages the transition, remember during this time that your best option may be to look into a new solution. You are going to be stuck with a new vendor regardless: you may as well have a say in which one.

 

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Contracts must be renegotiated

When a vendor offloads a solution, its clients are likely to be subject to renegotiation with their new vendor. This can mean a new licensing agreement, new service fees, and other new or removed items in a contract. Not to mention clients may incur legal fees during the renegotiation stage. In the event of divestiture, make sure to find out how it affects your current contract. This has been a notorious challenge with hosted or cloud providers that enter these negotiations with huge leverage: data hostage fees. Don’t get convinced to throw good money after bad – the longer you wait to move, the more leverage the vendor gains.

 

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Differing road maps

The long-term vision for a product is a huge risk upon ownership change. Ensuring your new vendor’s road map is in alignment with your organization’s information technology strategies is challenging enough, but the talent required to deliver the road map is often left behind. The key developers, designers, product managers often don’t survive the transition for various reasons. Don’t focus on “what” moves over but “who” – it’s critical in the software world.

 

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New product support

Your new vendor might have a new support team from your previous vendor, which will likely be untrained and have a steep learning curve. Additionally, when a company acquires a new product, it can split their focus and lead to a quality loss in product support. Therefore, it’s worth ensuring that your new vendor will have the same bandwidth to deal with your organization’s issues and requests. This is especially critical for applications that help insulate risk for the organizations or are central to revenue generation.

 

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Don’t get stuck on an old version

In the information technology arena, innovation and product development are essential. It’s not enough to simply maintain a product; it must be consistently improved to keep pace with rapid technology advancements. Post-acquisition of the product, customers are often forced to stay on an older version of the product because innovation dies or new versions pose a stability risk to customer environments. Ensure you have a clear path forward for a minimum of 24 months and be careful in vetting the acquiring vendor. The vendor may not deliberately mislead you but promise something it cannot deliver.

 

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A distracted vision

When a vendor purchases technology, there’s no promise that the vision for that technology will continue to align with your requirements. Acquiring companies often have at least one or more other major product lines and may choose to repurpose the technology or integrate it into their existing products. Don’t focus on the promises and reassurances made by the acquiring vendors; instead, look at its history of acquiring products, speak to the current customers and realistically evaluate if it will have incentive to continue investing in a product you rely on.

 

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Repeated resells

If a vendor tries to integrate a new technology with existing solutions and it realizes that it's not possible, or it doesn’t align with the business strategy, it may choose to sell it to a third organization. This was the case when HPE bought and quickly sold Autonomy, which itself already had a long history of acquisitions. Depending on the nature of the transition, this can be either smooth or difficult for the product’s clients. Do what you can to make sure the product isn’t just going to be resold three years down the road, or ensure you have contractual provisions that protect you if it does.

 

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Knowledge loss

In specialized spaces, rather than simply supplying a product, there is a trend toward vendors providing a comprehensive managed service. You depend on the vendor for its expertise, and because you’ve spent a long time working with them, they have an understanding of issues your organization faces. This is one of the biggest risks in taking on any acquiring vendor, even with the promise of the same product, but it’s exasperatiing if the acquiring company isn’t in the same space. Make sure you take steps to avoid paying for your new vendor’s learning curve.

 

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Cost of mistakes

The issue of knowledge loss is compounded by the high-impact nature of these specialized spaces, meaning mistakes typically carry a high cost. For instance, in information governance, inadequate or misinformed litigation support can mean losing a multimillion-dollar case or facing expensive fines, as well as creating other unnecessary risk exposure.

 

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Sunsetting and end-of-life

This is the worst-case scenario. When you purchase an IT solution, you’re betting on the likelihood that the solution will be supported for well into the future. Evaluate why the acquisition took place: was it a strategic product acquisition or a mechanism to get access to a new set of clientele with no intent of supporting the product? There’s usually a high cost for implementing the solution—data migration, developing a new framework, training, etc.—which makes product sunset and end-of-life legitimate concerns. If the solution your organization uses gets phased out, you get less return on your investment. If this seems plausible, in order to avoid future instability, it might be time to bite the bullet sooner than later and find a new solution.