Thursday, January 16, 2014

Frugalnomics – Why the IT spending growth forecasts from Gartner are wrong again!

According to Gartner, the annual release of their New Year’s spending forecast predicts global IT spending growth of 3.1% for 2014. However, as has been proven over the past two years, this forecast may be dramatically optimistic.
Examining their 2013 predictions, Gartner indicated IT spending would rise 4.2% for the year. When the dust settled on 2013, the IT spending growth was a mere 0.4%. In 2012, initial rosy predictions of 3.7% growth were never realized, coming in around 1% by year-end.

Looking back at the reasons for the forecast shortfalls, Gartner indicates economic headwinds, a shift from land-lines to mobile, even blaming exchange rate fluctuations.
We don’t buy it, and believe that Gartner has missed a major sea change in IT spending and decision-making in their forecasts. For IT solution providers who may be using these forecasts to invest in a turnaround for 2014 revenues, another flat year could have significant implications for your organizations and your career.

Frugalnomics in Effect

So what are the real reasons behind the continued slow growth? I believe it all revolves around Frugalnomics:
1) Although progressing, real economic growth remains slow. As a result, organizations have learned how to “Do More with Less”.

2) Although new technologies like mobility, big data and social collaboration are hot topics, and they promise to fuel the next big IT investment wave, they are taking a little longer to catch fire than pundits claim, are replacing spending on other projects and not adding to overall spending, and are not significant enough to affect the annual growth figures.

3) Purchase decision making has significantly changed, now driven by buyers who are:
a.   Highly empowered – privately controlling the decision making process with ever more competition for each deal and more discounting,
b.   Risk averse – afraid of making a wrong decision, and instead choosing to remain with business as usual / status quo,
c.    Frugal – with over 95% of IT decisions now requiring a solid business case with significant ROI and fast payback according to IDC.

4) Most IT spending decisions are now driven and controlled by business groups vs. formal IT. At the same time, more and more spending is occurring in the shadows, by individual users and groups without the formal knowledge of IT. This “dark” spending is not showing up in the growth figures. When it comes to business and shadow purchase decisions, most IT solution providers are not adept at selling to the business groups and capturing dark spend.

All of these conditions contribute to the Frugalnomics shift, and as a result  it is likely again that Gartner’s predictions will prove overly optimistic. Most importantly, you need to take Frugalnomics into account as you evolve your sales and marketing strategies and investments to meet the challenge.

Surviving Frugalnomics - The 3 Things You Must Do Now to Win in 2014

 To help meet the challenge and Fight Frugalnomics, we recommend three “must do” programs for 2013:

#1 - Engage Frugal Prospects with Provocative Marketing
Todays’ buyers are more risk averse and frugal than ever, with 58% choosing to “Do Nothing” versus considering your solution (SBI).

Prospects will choose to stick with the status quo unless you can proactively and provocatively quantify that they have a pain worth addressing. 

And those opportunities you thought were progressing through the waterfall / sales process to “wins” will stall unless you can help successively convince the prospect that the issue you can help solve is real, that it is a high priority worth addressing over all other issues on their plate, and that your solution represents a real low risk / superior value solution with unique competitive advantage.

In order to connect and engage with “Do Nothing” buyers, helping them through the decision making journey, you need to help them realize:

  Why Consider a Change? - the Prospect has a pain worth addressing and a significant cost of “Do Nothing”,
  Why Change Now? – the Prospect should not wait to address the issue because every day is costing them, they are leaving good money on the table (significant bottom-line impact, ROI and fast payback), and they are falling behind competitively (illustrated through peer comparison benchmarks),
  Why Your Solution?– that your solutions can deliver unique and superior value at a lower total cost of ownership (TCO).
So how well does your current content marketing help answer these key decision making questions for your buyers in a compelling and quantified way?

Developing and deploying the right interactive Value Marketing Tools is the key, to provide Prospects the personalized, relevant and provocative value messaging, insights and financial justification to these key questions early in the decision making cycle. Click here to learn more.

#2 - Empower Sales with Value Storytelling and Quantification
According to SiriusDecisions, the #1 reason why sales professionals fail to meet quota (for the 3rd year in a row) is their “inability to effectively communicate the value of proposed solutions”.

Sitting in on the majority of sales presentations and you can see that most are still delivering empty product pitches or pseudo-solution selling asking a few questions and then jumping into canned “death by PowerPoint” presentations. According to Forrester, prospects indicate that less than 12% of sales engagements are focused on customer value.

Despite significant changes in prospect expectations, sales leadership recognizing that value selling is needed in order to meet quota, and the millions spent on solution / value selling messaging and training, only about one in ten sales professionals engage with “value”.

So how well do your sales professionals and channel partners engage with value?

There is a way to overcome the value selling adoption challenge … to better institutionalize and effectively deploy your solution / value selling methodology to sales professionals and channel partners so it actually gets used in sales engagements. To empower sales professionals to engage with powerful value storytelling and “back of the napkin” value quantification. Click here to learn more.

#3 - Close the Deal with a CFO-ready Business Case 
CFOs are large and in charge of many IT purchase approvals. According to a Gartner and Financial Executives Research Foundation research survey, the CFO is becoming the top IT decision maker in many organizations, with:
  Over 75% indicating significant decision making involvement,
  41% indicating being the main decision maker for IT investments.

From the CFOs we talk to, they indicate that proposals:
  Won't be considered a priority without a business case, and the larger the proposal, the more detailed and formal the case has to be,
•  Won’t be advanced unless they show that the proposed project is low risk and with low resource requirements, as “do more with less” applies regardless of the ROI,
  Won't be approved unless you show that the issue being addressed is a priority with a high cost of “doing nothing”, quantified savings / benefits from the proposed solution, and a significant ROI and fast payback,
  Won't be signed off unless you can prove your solution has a lower total cost of ownership (TCO) / better value than competitive offerings.

With Finance playing such a key role in IT decision approvals, it is imperative that proposals contain the business case content that CFOs need to provide approval, otherwise your deals will be stalled or delayed in the final stages, and you may be losing critical deals to competitors who make the better CFO case.

So how well do you deliver the business cases that CFOs demand?

There is an easy way to develop and deliver CFO business cases for your solutions. Click here to learn more.

The Bottom-Line

Gartner has once again predicted significant IT spending growth in the New Year, but as in years past, we believe they are being overly optimistic by failing to factor Frugalnomics into the figures. With Frugalnomics in full effect, IT sales and marketing need to implement a more value-focused approach.

If value marketing and selling are not effectively implemented, the majority of deals will continue to stall, sales cycles will get longer, and heavy discounting will prevail.

For the rest of 2014, IT sales and marketing professionals should consider three initiatives as a top priority to help Fight Frugalnomics:

1.  Engage Frugal Prospects with Provocative Marketing
2.  Empower Sales with Value Storytelling and Quantification
3.  Close the Deal with CFO-Ready Business Cases

To learn more, click here.

  IDC 2013 Buyer Experience Study (Oct)
  Forrester Sales Enablement Conference 2013
  SiriusDecisions SiriusIndex, results from 2011 – 2013

1 comment:

Unknown said...

B2B Frugalomics starts at home...

Where's the NEW demand going to come from?

Robert Reich on "cash flow problems facing 150MM+ in NA.

US and Canada consumer spending trends, stats compared to world etc.

How did Gartner conclude that consumers were going to increase either NET wage growth in 2013, after inflation, OR increase personal debt to drive more demand at JC Penneys, Sears or Target Canada- which would maybe result in a new call center solution from ie AVAYA or Cisco?

(even Walmart seemed slow to me the other day in Massena, NY)

US consumers have dropped debt down to approx. 115% of household income- (as Warren Buffet said "you only need 1 pair of jeans" (para.)("deleveraged" (ie "sorry I can't afford it") is how our Grand parents ran their lives before the 1940's "Madison Ave MadMen" got cranked up.

Wheres the MONEY? In corporate bank accounts- waiting for consumer DEMAND or a MODEL change (a la Germany). ($2 trillion)

(think real cross industry collaboration triggered by several leading IT vendors investing $500 billion in a 5 year program versus some lame "loyality card").(better to act before Mr Icahn buys 10% of your stock).

Stuart Armstrong