SMB and Midmarket - ITDMs and BDMs: the balance of purchase authority

Techaisle's SMB & midmarket research not only confirms that BDMs are increasingly present in the IT solution adoption process but the research deep-dived to understand the extent to which BDMs actually lead their organizations in adopting solutions. To develop a deeper perspective on this issue, Techaisle asked both ITDM and BDM respondents to address questions that explored the acquisition process around software (both new applications and meaningful upgrades to existing applications), infrastructure hardware and IT services. The results provide direction for sales strategies aimed at these product segments within the US SMB market.

Software budget authority

“Determining the need for” a new business application or a meaningful enhancement to an existing application is not, of course, identical to signing off on the purchase of a new system. When we extended our coverage to ask about having “budgetary control and authority,” we discovered two interesting findings:

• The proportion of organizations where budgetary control and purchasing authority for new applications rests entirely with BDMs increases in all e-size segments, relative to the statistics for determining need in these segments. This means that BDM control over the final purchase decision is even higher than the “determining the need for” statistics suggest.
• The proportion of respondents reporting that responsibility resides entirely with either IT or business – but is not shared between them – increases in five out of seven e-size segments (missing only the 10-19 and 20-49 employees groups). This suggests that needs identification may be more collaborative than final purchase decisions.
• Both findings point to the same conclusion: that BDMs are extremely important to suppliers of software.

Planned vs. ad hoc spending

In follow-up calls with respondents who reported that that neither ITDMs nor BDMs had complete control over new application expenditures, Techaisle researchers were told that in many cases, this response reflected ad hoc purchasing, with verbatim responses along the lines of “nobody knows [who has final authority], but things get purchased and used. Depending upon the type of purchase sometimes IT is forced to pay while other times business pays from its own budget.”

Using this input as a guideline, Techaisle developed an alternative view of SMB application expenditures, dividing total opportunity into three approaches: BDM-led, ITDM-led, and ad hoc. The ad hoc approach is frequently used in micro businesses, which often lack formal acquisition budgeting processes. It is also shown as being prevalent in near-enterprise (500-999 employees) businesses, though we suspect that this is more a case of ‘different stakeholders have different processes’ than a real admission of a lack of process within these organizations. In the five e-size segments between these SMB extremes, we see that while BDM and ITDM influence varies fairly widely, ad hoc purchasing is used consistently by 15%-23% of 10-499 employee businesses.
Infrastructure acquisition: IT influence increases (almost) directly with size

In sharp contrast to business applications, where the businesspeople who require the applications are most involved in their acquisition, our survey respondents report that except in micro (1-9 employees) and very small (10-19 employees) businesses, IT has primary control over infrastructure acquisition budgets. In fact, the influence of IT over infrastructure purchases increases almost linearly with company size. It is easy to imagine that in at least some cases, this pattern reinforces the preferred work approaches of IT suppliers (both within the vendor and channel community) – they are able to conclude sales directly with IT department buyers, and consequently, to believe that their market is not affected by the widespread reports of purchase authority transitioning from ITDMs to BDMs, or at a minimum, to a DMU comprised of both ITDMs and BDMs. This belief is out of step with market realities. Techaisle (like much of the world) is persuaded that discrete infrastructure product purchases are declining and will continue to decline as businesses rely increasingly on cloud computing, and that IT sales will increasingly focus on solutions, with an ever-higher proportion of these solutions targeted at front-office functions. The first trend suggests that there will be less infrastructure product spending over time, while the second suggests that mid-market IT leaders will be under increasing pressure to connect the infrastructure purchases they do make with other solution components – especially software, which is heavily influenced by BDMs. In our opinion, the best reading of this chart is “discrete infrastructure products can be marketed successfully to ITDMs, but longer-term strategies should include broadening both the scope of the offering and the audience that it is directed towards.”

The IT services perspective

In the course of our research into software and infrastructure hardware budget control, we also looked briefly at where control of budgets for IT services resides within SMBs. We see that in micro businesses, BDMs are responsible for roughly two-thirds of decisions, and that within very small (10-19 employees) businesses, IT controls only about one-quarter of IT services budget decisions, with ad hoc accounting for a similar proportion, and BDMs leading just less than half of all IT services engagement decisions. In larger businesses, however, this picture changes. IT is responsible for half of all IT services budget decisions in mid-sized (100-999 employees) businesses, and for a similar proportion at the high end of the small business segment.

Techaisle believes that this data reflects different realities within different segments. In very small and (especially) in micro businesses, IT services are used in many cases instead of internal IT, so budget decisions would have to be made by BDMs, and represent expenditures that would be included as staff expenses in larger firms. In these larger firms, however, BDM-led spending on IT services (accounting for 35% of IT services budget decisions in mid-sized firms) likely represents an alternative to dealing with IT.
 
Software acquisition and the importance of “deep carpet selling”

There is an old story about a consultant who was advising a client about changes in his market, and what they would mean to sales strategy. The consultant went through a series of tables demonstrating that, due to increased interconnectivity with other corporate systems, products in the client’s segment were increasingly purchased by senior managers rather than shop floor managers. The consultant stressed the importance of developing new marketing material and directing the sales force to call on the senior managers instead of the shop floor, to which the client replied, “You are talking about deep carpet selling. We don’t do deep carpet selling. We do linoleum selling here.”
Most IT vendors engage in a variation of ‘linoleum selling,’ focused on engaging IT professionals in discussions that focus on the technical attributes of their products. However, BDMs – who tend to inhabit the ‘carpeted’ realms of their businesses – are more likely to be engaged by discussions about business benefits and objectives than by ‘feeds and speeds.’ In categories where the BDM is central to the needs identification and budget process, sales reps will need to develop ‘deep carpet’ language and skills. The data from our survey demonstrates that we have already reached that point in software in both the small and mid-sized business segments.