In the world of Telecom Expense Management (TEM), also currently known as Technology Expense Management, size does matter. It matters in the sense that the larger and higher-profile names within the TEM industry do tend to get first dibs on critical first impressions.
These larger and higher profile TEM firms have a Marketing and Public Relations edge. This is because they typically have more available human resources and financial capital to deploy in their campaign efforts to convince prospective clients that they are more up to the task than their lesser-known and/or smaller counterparts with employee headcounts of, say, less than 200, and very often less than 100.
The size and visibility of the larger firms tends to be a real advantage for them, and they will avail themselves every opportunity to leverage the common notion that a larger company size and larger brand presence translates to greater safety and/or trust for you the customer.
These larger and higher profile firms tend to have 250 or more employees, they are often private equity owned, and they will generally have high visibility on the internet and within industry publications such as Gartner or AOTMP.
So, it’s true that these larger PE-owned TEM firms have a megaphone advantage in terms of market visibility. But are they a better choice for a TEM provider / partner?
Let’s look more closely at how size matters in the discovery process of choosing a TEM partner wisely, especially if you are evaluating a mix of larger PE-owned TEM firms along with smaller firms.
And we do recommend reviewing a mix of different TEM providers, under different ownership models, when evaluating potential TEM partners.
TEM Provider – Private Equity Ownership
The TEM industry – like others within the modern corporate world – has undergone significant consolidation over the past 25 years, meaning that many of the larger and higher-profile TEM firms are private equity owned.
PE ownership itself is not a sin. But these “larger and higher profile” TEM firms tend to play a highly focused one-track game. And the name of the game is fast growth, most often meaning the inorganic kind. These larger firms will aggressively pursue acquiring a multitude of smaller companies to grow their customer base and drive revenue growth quickly, hockey-stick style.
These types of companies are looking to sell or “flip” the TEM company within 3 to 5 years, so speed is of the essence.
This bodes well for the senior leadership of the PE-owned TEM firm, the board, and certainly key investors but does the value translate to you the customer in the way that it should? In our experience, the answer is often no.
Private Equity TEM Priorities
The game that PE-owned firms are playing puts the primary emphasis on investor returns, which are often arbitrarily set high, necessitating unwavering focus on hitting very formulaic margin targets at the expense of other worthwhile business considerations and objectives (e.g., long-term customer interests, long-term employee interests).
Private Equity – Employees & Customers
Intrinsic to the PE model is top emphasis on investor returns upon sale of the company, which is – as noted – a top goal right out-of-the-gate. Because this time horizon is not far out with PE firms in the IT-Tech sector (3 to 5 years), the game is therefore inherently short term for them.
As mentioned, this is not a sin in itself; please just be mindful that if you are a customer or employee, your more longer-term interests will be trumped by this heavily weighted focus on shorter term business moves that won’t always align to your longer-term needs.
For example, consider offshoring. This may save the TEM firm money, but these savings will most often not be passed on to you and the quality of work is usually diminished.
Despite our current labor shortage, it’s doubtful that this segment of the industry will dramatically alter its view of labor. And it’s this type of view of labor that results in either laying off more expensive US-based personnel to save money or move work offshore for far less competent support but at far cheaper costs.
And with respect to their enterprise customers, PE-owned TEM firms tend to care less about the longer-term health horizon of many of their customers. This is the case because many of this customer base will have expiring contracts years out from when the PE-owned TEM plans to sell the company, which makes customer satisfaction a “new ownership” problem.
Private Equity TEM Firms – Strong Points
To be clear, not all PE-owned firms should be considered a bad choice because of the concerns being voiced here. We are simply being straightforward about the issues we have experienced in this regard.
If you are presently evaluating TEM providers, you should have a few PE-owned firms under consideration in, say, your group of 5 TEM providers under review; you will have at least three if you research their ownership model, which we naturally recommend (these firms are popular these days).
PE-owned firms should be given consideration, especially if your company has wide global reach; PE-owned firms are well-suited to far-reaching global projects. This is so given that they usually have a bigger international footprint and tend to have deep resources for any needed special projects that are often associated to projects with international scope.
TEM Industry – Non-PE Ownership
TEM firms not under private equity ownership are naturally privately owned or otherwise publicly owned. In either case, the pressures to overly weight shareholder returns on a short timeline are not the same and therefore why we make a point to separate the PE- TEM ownership model from the others.
The above said, each company’s needs are unique, and each TEM firm will have its own technology platform and stable of subject-matter-talent to help your internal TEM team.
Smaller privately owned firms will be able to take the long view for your enterprise’s interests, but they may not, say, possess the extensive global reach that you may require. Smaller firms tend to be stronger on the customer service side, but they also tend to be a little more expensive than some of the larger TEM firms owned by investor groups. (This is worth it if you feel they have strong technology and do high-quality consistent work.)
There are also publicly traded companies that are not under a full PE-model or private ownership. This is a middle-ground between the PE-ownership model and private ownership. With this traditional type of company, you will still see a shorter-term emphasis on revenue targets, but it will be less intense than the private equity focus.
There is no perfect world or perfect TEM. You need to evaluate various TEM firms and make an educated choice. The main takeaway here is to know what you are dealing with and to put yourself in a position to be able to ask the right questions during your TEM provider evaluations.
Here are some summary items for consideration as you evaluate various TEM partners for your future.
Conclusion - 7 TEM Provider Considerations
1. Research Higher Profile TEMs
Take a close look at a few of these providers, amongst others, when evaluating TEM providers to potentially partner with. Yes, they may be PE-owned but if you are mindful of the right things to consider and dig deep into, you can rest assured that you did your due diligence. Whatever your final decision, you should land in a good spot. It’s been our observation that prospective buyers that do not perform their proper due diligence are the ones that put themselves in the most peril.
These types of firms should be under real consideration for projects with material international scope.
2. Research Smaller or Boutique TEMs
Often, larger enterprises mistakenly overlook smaller TEM firms that might serve them much better. This is the trap of larger Marketing and PR budgets that can create a larger brand presence and false sense of trust.
Many of the smaller firms invest heavily in strong technology and highly skilled staff to compete. They may charge more because they must but it’s most often worth it. Smaller TEM firms are playing the long game, which is the opposite of the private equity short game model.
In sum, they must keep you happy to keep you. They will do all things to keep you happy and very cognizant of the TEM value you are receiving daily. The goal is to keep you for 10 years or more and therefore they cannot afford to disappoint you.
You will pay more for this type of TEM but, again, provided they can keep their promises and deliver against their service level agreements, this could very well be worth it to avoid many of the challenges that come with many of the higher-profile TEM firms.
3. Inquire About TEM Platforms Supported
4. Inquire About TEM Support
5. Technology Platform and Inventory Support
When you compare TEM providers, inquire in detail about the capabilities of the technology platform. This is important in our current era of big data. The platform needs to be able to manage enormous amounts of data. Just as important, it needs to be configurable to each client’s custom needs.
At Tellennium, we also stress the importance of this for inventory support, which we feel is critical to a strong TEM program.
6. Inquire About Business Continuity Plans
7. Inquire About Expected TEM Program Savings
It’s important that you get a clear understanding of how the TEM will deliver savings initially and in an ongoing fashion. This is a key area to establish expectations around so the more clarity that can be achieved the better.
If you’d like to consider Tellennium in your TEM vendor comparisons, contact us to schedule a brief demo of our solution.
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