Fighting Blindfolded or Informational Asymmetry in Procurement
- Sergii Dovgalenko
- May 29
- 5 min read
Updated: 2 days ago
Information asymmetry is one of the most underestimated typical problems in procurement, especially in the IT category. Most sourcing discussions focus on pricing, negotiations, supplier competition, or contract clauses. Yet many procurement failures originate much earlier — at the information level. The fundamental problem is simple: one party knows significantly more than the other.
In complex categories like IT procurement, suppliers typically possess far greater visibility into technical sophistication, implementation risks, scalability limitations, support effort, integration dependencies, pricing mechanics, and the real economics of delivery. The buyer, meanwhile, often makes decisions under conditions of incomplete visibility. This creates a structural imbalance long before negotiations even begin.
Information Asymmetry in Procurement: SaaS category specifics
The SaaS (Software-as-a-Service) market has significantly amplified the complexities and challenges of information asymmetry in procurement, creating a landscape in which traditional sourcing methods often fall short.
Many organizations continue to approach SaaS procurement with a mindset akin to buying simple commodities, a fundamental misunderstanding of the nature of these services. In reality, companies are not merely purchasing software; they are entering long-term commercial ecosystems largely controlled and influenced by their suppliers. This dynamic creates a power imbalance in which SaaS vendors typically hold significant sway over critical aspects of the service relationship.
One of the primary areas of control lies in pricing visibility. Vendors often maintain opaque pricing structures that can lead to unexpected costs over time, making it difficult for customers to budget accurately for their software needs.
Furthermore, usage metrics, which are essential for understanding how effectively a service is being utilized, are often tightly controlled by the vendor. This lack of transparency can prevent customers from making informed decisions (e.g., identifying fair market pricing) about their subscriptions and usage patterns. Additionally, the renewal structures imposed by SaaS vendors can be complex and lack clarity.
Customers may find themselves facing auto-renewal clauses or unfavorable terms that were not fully understood at the outset of the agreement. The logic behind upgrades or migrations can also be convoluted, with vendors frequently pushing customers towards "newer" versions or additional features that may not align with the customers' actual needs or budget constraints.
Moreover, the transparency of the product roadmap is another area where customers may feel left in the dark. Vendors often keep their future development plans close to their chest, leaving customers uncertain about the longevity and viability of the software they are investing in.
This uncertainty can lead to anxiety about whether the chosen solution will continue to meet their evolving needs. Technical dependencies further complicate the relationship, as customers may become locked into a specific vendor's ecosystem, making it challenging to switch to alternative solutions without incurring high costs or disruptions.
As a result, the customer frequently lacks sufficient visibility into the long-term cost structure of their SaaS relationships, which can lead to financial strain and strategic misalignment over time. In summary, the SaaS procurement process requires a nuanced understanding of the long-term implications of entering into these agreements. Customers must recognize that they are not just sourcing a product but are instead engaging in a complex relationship with a vendor that can significantly impact their operational and financial landscape.
As such, a more strategic and informed approach to SaaS procurement is essential for navigating this intricate environment effectively.
Adverse selection
One of the classic forms of information asymmetry is adverse selection. This occurs when the buyer cannot properly distinguish between strong and weak suppliers before contract award. In public procurement practice, organizations often assume that competitive tendering automatically solves this problem. In reality, competition alone does not eliminate informational imbalance.
Weak suppliers can appear highly competitive during tenders because they aggressively "low-ball" costs and overpromise capability. Real costs are then recovered later through annual price escalations, change requests, proprietary technology, or support dependency.
Stronger suppliers, on the other hand, frequently price risk more realistically, disclose limitations more honestly, and allocate larger budgets toward governance and delivery capability. Ironically, this can make stronger suppliers appear less commercially attractive during evaluation.
This is one of the reasons why procurement maturity cannot be measured through “savings” alone. A sourcing process that produces the lowest initial price does not necessarily produce the highest long-term value. In fact, aggressive savings targets can unintentionally amplify adverse selection by systematically rewarding suppliers willing to hide future costs or risks.
Moral hazard
Information asymmetry does not disappear after contract award.
In many cases, it becomes even more problematic. This is where moral hazard emerges. Once dependency increases and switching costs rise, supplier behavior becomes more difficult to monitor. The customer cannot fully observe the supplier’s effort, internal staffing quality, prioritization decisions, or cost optimization behavior.
Typical symptoms become familiar very quickly: deteriorating service quality, excessive change requests, declining responsiveness, hidden resource substitution, annual price escalations, or steadily increasing complexity. The buyer eventually discovers that the contract did not eliminate uncertainty. It merely redistributed it across the relationship lifecycle.
Principal-agent problem
Another important dimension is the principal-agent problem. Information asymmetry does not only exist between suppliers and buyers. It also exists inside organizations themselves. Consultants, integrators, advisors, internal IT teams, and even business stakeholders may pursue objectives that differ from those of the organization as a whole.
An integrator may prioritize billable hours over implementation efficiency.
A consultant may promote technology from a strategic partner rather than the most suitable solution.
Internal teams may resist transformation in order to preserve legacy systems, processes, or controls.
Business users may bypass governance entirely through shadow IT or decentralized SaaS adoption.
In all these cases, the “agent” acts on behalf of the “principal” while operating under different incentives.
This becomes particularly dangerous during digital transformation programs because complexity itself increases informational imbalance. The more technologically complex the environment becomes, the harder it becomes for non-specialists to independently validate supplier claims, implementation assumptions, or future operating costs.
You may attempt to solve these problems through excessively detailed contracts. Unfortunately, this approach has limits. IT procurement increasingly operates amid uncertainty, rapid technological change, evolving business requirements, AI disruption, and limited visibility into future scenarios. This directly connects to the theory of incomplete contracts.
It is simply impossible to fully specify future integrations, business requirements, regulatory changes, technological development, etc., inside a static agreement. Contracts inevitably leave gaps, and those gaps create space for renegotiation, dependency, and opportunistic behavior.
Procurement = Managing the imbalance, not asymmetry
This is why mature procurement professionals focus less on contractual perfection and more on governance capability. Strong procurement is not about eliminating uncertainty.
It is about managing informational imbalance more effectively than others. That usually requires a combination of demand management, supplier due diligence, benchmarking, phased implementation, proof-of-concept validation, KPI structures, SLA governance, incentive alignment, relationship management, and adaptive sourcing strategies.
Ultimately, one of the most important procurement questions is not “Which supplier is cheapest?” but rather “What does the supplier know that we do not?”
That single question fundamentally changes the entire game of sourcing.
This logic also sits at the heart of the Technology Procurement Framework used in the IT Procurement Foundations course: make technology demand and consumption visible, optimize the requirement, and only then negotiate the commercial structure. The same sequence applies across Cloud, SaaS, and AI, where the lack of informational balance can turn an apparently good commercial deal into a wasted effort.
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