Volume purchasing programs can be an attractive way for enterprises to do business with their largest IT vendors – including the Cisco Enterprise Agreement. Large customers with significant levels of Cisco spend may be inclined to default to an EA to help streamline purchasing. But spend size, while certainly important, should not be the only determining factor.
To understand if a Cisco Enterprise Agreement makes sense for your business, it is important to consider the pros and cons of this purchase construct, and the internal dynamics of Cisco’s pricing and sales machines.
What are the benefits of a Cisco Enterprise Agreement?
For most customers, the decision to enter an EA with Cisco is largely driven by cost. If you’re procuring multiple products a la carte, you’re probably missing out on valuable discounting that’s only available to EA customers. EAs are also an easier way to source with Cisco from an administrative perspective, removing the barrier of repetitive steps of procurement. The Cisco EA serves as a single purchasing and support vehicle. That’s important for large customers that could otherwise have multiple support agreements to manage and negotiate. Customers also consider EAs an opportunity to consolidate like technologies from multiple vendors to a single vendor in order to reduce the number of relationships and technologies to manage.
The notion of moving to an EA often originates with Cisco – not the customer. And Cisco does a good job of making sure EAs are positioned to quickly “make sense” to the buyer. For example, if a customer is purchasing Cisco’s firewalls, and also considering the vendor’s Umbrella or IPS solutions, the EA becomes more attractive to the buyer and captures low-hanging fruit for the Cisco sales team.
What are the disadvantages?
While financially and administratively beneficial, a Cisco Enterprise Agreement does have its risks. Most notable is the inclination for customers to put all their eggs into one basket. Why bring other vendors into the mix when an EA makes it cheaper and easier to buy from Cisco?
First, it’s advisable for some customers to pursue a best-of-breed approach for critical network, UC and infosec products and services instead of a single vendor approach (which is easily fostered by an EA). Multi-vendor is also IT procurement best practice. Competition means more buy-side negotiation leverage as well as the ability to create redundancies or load-balance as dictated by the customer’s unique network/security requirements. Second, vendor lock-in can be costly in the long-term. A good deal under an EA now may not be so great if a better performing and lower cost solution comes around.
Overbuying is another risk inherent in a Cisco EA. Like a lot of enterprise IT vendors, Cisco likes to bundle its offerings with little visibility into line-item pricing. This typically results in the customer buying more than they need, accruing shelfware, and ultimately driving up support costs over the long run (a perfect recipe for toxic spend). To fend off overbuying, customers should demand line-item pricing transparency, benchmark pricing against similarly-scoped peer purchases, and negotiate smaller bundles that best fit their requirements. Note that Cisco usually does not allow for licensing swaps.
Another thing to note is Cisco changes “the rules” every year for its entire sales organization. Customers are served by a core account team as well as technology-specific sales specialists, with both groups having their own compensation structure and incentive programs that change year to year. While customers with an EA may receive attractive volume purchasing discounts, they run the risk of missing out on some of the unique deal incentives that come from purchasing from different sales specialists.
How negotiable is a Cisco Enterprise Agreement?
NPI has analyzed thousands of Cisco purchases and renewals. Our experience indicates that while Cisco sticks to a pretty rigid discount range (which makes it all the more important to purchase only what you need and to pay a fair price from the onset of your EA), there are certainly customer situations where it’s possible to move the needle on savings.
Committed spend is a big one – the more you can commit over the term of a Cisco Enterprise Agreement, the more leverage you have. For enterprise clients, sales teams are often willing to make an internal case for better pricing over multiple rounds of negotiations and escalation. Marquee logo account penetration, replacing a major competitor (this is a big one), a major hardware purchase, a divestiture – these are all examples of circumstances where material savings can be achieved if meticulously negotiated.
What are some other ways to achieve savings?
There are other ways to increase leverage in Cisco EA negotiations, but they’re highly specific to the buyer’s business case, prior history with Cisco, and unique technical and business requirements. For example:
- Does your IT roadmap create substantial opportunity for Cisco to grow its footprint?
- If you’re an existing Cisco customer, have you experienced a lot of support calls? If so, what areas? Are you paying for more support than you need?
- Can Cisco offset IT costs in other ways such as providing additional implementation services or fixing an issue at no charge?
There’s also opportunity to leverage Cisco’s bundled offerings for better pricing – albeit with a few considerations. Like a lot of enterprise IT vendors, Cisco has bundles for its entire portfolio. In recent years, it’s broken its larger bundled offerings into smaller bundles. Today, many customers are choosing smaller bundles to avoid the waste of unused or underutilized offerings that often accompany larger bundles. The discount percentages aren’t quite as competitive compared to larger bundles but can still be attractive. There are two downsides with committing to bundles:
- The inability to swap out or remove unused products at renewal time.
- Lack of SKU-level visibility into pricing – Cisco is renowned for not sharing pricing down to the SKU level and it’s not uncommon for its own reps to be kept in the dark.
Advice Before Entering or Renewing a Cisco Enterprise Agreement
Before entering or renewing a Cisco Enterprise Agreement, make sure it’s the best contract vehicle for your needs. While it’s a no-brainer for many larger customers, it’s not always the best fit. If you do choose a Cisco EA, be sure to explore every avenue for savings. Cisco doesn’t dole out major price concessions easily, but customers that come to the table with leverage, validated pricing targets, and a strong business case can achieve significant cost reductions.
Have additional questions about the Cisco Enterprise Agreement? NPI’s IT procurement advisors can help – we are not a reseller and our guidance and expertise are 100% unbiased and objective.
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