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Time Capsule: Once You Sign the Contract, You’re Just Another Customer Who Used To Have Leverage

April 12, 2013 Time Capsule 4 Comments

I wrote weekly editorials for a boutique industry newsletter for several years, anxious for both audience and income. I learned a lot about coming up with ideas for the weekly grind, trying to be simultaneously opinionated and entertaining in a few hundred words, and not sleeping much because I was working all the time. They’re fun to read as a look back at what was important then (and often still important now).

I wrote this piece in September 2008.

Once You Sign the Contract, You’re Just Another Customer Who Used To Have Leverage
By Mr. HIStalk


The healthcare software vendor I used to work for geared up for our annual user group meeting like hospitals preparing for pre-announced Joint Commission inspections, i.e. we scrambled frantically for a couple of weeks to make it look like we had done a good job all year.

Those user group meetings were generally cordial. Rank-and-file users with personal bones to pick usually didn’t attend since their bosses used the travel money themselves. It was our suits against theirs, a wary face-off of capitalist warriors on a hotel carpet battlefield under an ominous cloud of expensive cologne.

A few vendor riffraff like me were in attendance to support specific low-level contingencies. We were told: (a) show up only for the events for which you’ve been assigned, then get back to work; (b) don’t admit to any claims of software bugs or unannounced changes in strategic direction; and (c) stay away from the food.

One popular session every year was a "grill the executives" event. Our highest-ranking suits stood on a humbly bare stage and took questions from the audience. Our execs played it close to the vest, so it ended up being a Charlie Brown-like hum of pleasant but indistinguishable MBA-level buzzwords. It passed for sincerity, but an hour later, customers were hungry for information all over again.

I remember when one guy zinged the reigning suit. He waited for his turn at the aisle microphone, smiling and nodding sympathetically, but then grabbing the mike like he was Mick Jagger. Instead of belting out Satisfaction, he proceed to rip us a new one, complaining loudly and bitterly about something we had botched (forgive me for not remembering what, but the list of possibilities is long).

Since I knew that executive better than the customer and, therefore, respected him even less, my fellow flunkies and I secretly cheered the guy on. (It would have been more impressive if he hadn’t reached for his notes mid-rant, but it was still a pretty good job for a guy who spent his days under data center fluorescent lights).

The executive on stage looked like he had just discovered that a miscreant had keyed his mahogany wall, but he quickly got back on track. He oozed sincerity in personally promising the angry guy that someone at a more appropriate level would look into it. I bet he was happy with himself: he had talked the guy down.

Even as an industry newbie, I knew the customer’s plight. He had no leverage, so his only remaining shot was to whine publicly. His hospital had already bought our stuff.

Partnership promises aside, signing the contract of some vendors changes the dynamic from "we’ll do anything you want and put it in the contract” to "we’ll think about it and let you know." Switching costs are high, so most customers aren’t going anywhere no matter how mad they are. Everyone knows this.

If the vendor’s choice is between "do a lot of work for a customer who will pay us no additional money” vs. "do some work and rack up big sales," most (but not all) vendors will go for B every time.

That one-sided vendor advantage is probably being chipped away. KLAS reports give unhappy customers a forum, forcing vendors have to pay at least some attention to them. The few pay-as-you-go software licenses (like subscription models and ASPs) reduce the switching costs and give customers earlier options to bail. Blogs (obvious disclaimer: I write one) level the information playing field and call BS in ways that advertiser-supported magazines traditionally hadn’t touched. Unresponsive vendors are finding it a little harder to hide.

Still, I don’t blame those vendors. They live and die by the big sale. It’s easy to forget that you are actually expected to work for those recurring revenues when everybody is talking about the sales pipeline.

Here’s what our Mick Jagger would have advised. Don’t buy futures. If it’s important, get it in writing before the sale. Get visibility in the industry, which vendors respect because it gives you a platform. Put the vendor at risk by scaling payments to performance. Cheerlead for your vendor so they’ll want to work to keep you happily chirping. And if you have to use public shame to get them to listen, it’s probably a lost cause. It’s likely that (You Won’t Get No) Satisfaction.

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Currently there are "4 comments" on this Article:

  1. How much lower would those switching costs and the related buyers remorse moment be if data were really able to be shared across EMRs in a meaningful way?

  2. The article would be ok if you kept to the last paragraph with a couple of sound points. Hopefully you are more positive now than you were when you published this in 2008.

  3. I don’t think contract structures affect product stickiness very much in the hospital EHR space.

    For hospitals, the cost of switching is in data conversion, system setup configuration and testing, and training. No contract structure can reduce the scope of those realities.

    However, for private practices, many of which employ fewer than 10 people, contract structure could be the defining parameter that affects ability to switch. For these practices, the scope of work of switching systems is not that significant. And generally, most dislike the legacy system and are eager to switch, creating an air of positivity around the new system. If the contract allows them cancel payments with little consequence, they will be far more inclined to switch if they’re dissatisfied.

  4. You are hilarious. But shame on you for being so negative about your employer & continuing to work for him. We all hope those that work for us are our cheerleaders & not the opposite.

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