Thursday, 4 March 2010

Hardball negotiating with vendors

Second day at UCISA management conference, and opening session from Stewart Buchanan from Gartner on how to negotiate, and in particular how and when to adopt hardball negotiating tactics with vendors.

Some background - budgeted spending is not what sinks organisations - it's the total cost of ownership including the unbudgeted costs. So, in order to make costs more sustainable, we may need to restructure them. We also need the right metrics in place in order to improve the value of vendor relationships - these should include process, value, risk, quality, timeliness and alignment.

So, what are the top negotiating techniques? The first is obvious - communicate. If you're not happy with a vendor - tell them. Everyone in the organisation needs to say the same thing - procurement, senior management, users - all need to be on same message and carefully managed. Careful and consistent communication is vital.

Secondly - try to differentiate the product. Don't just look at how much you pay for the product, start looking at other metrics such as the efficiency of the product. Shouldn't be buying IT by the kilo, or terabyte. Need to understand the value of the commodity, and then you can challenge it.

If you are in financial pain you may have to share that with vendors. Make them understand the pain - lay seige to vendor revenue - cancel expensive contracts, consolidate spending.

Reset the rules for RFPs (Request for proposal). Follow a process, adapt it and keep asking questions until you get the right answer. Importantly, pick winners, not the least worse losers.

Understand the exchange of information with the vendors and control the flow of information - sometimes vendors know more about the business than you. Need to eliminate their intelligence networks. Continuous vendor management. Everything your organisation says and does in a negotiation has value.

Keep options open for reducing budgets - review strategic decisions until vendors comply - keep going round the loop.

Play good cop bad cop, but don't always be bad cop - let someone else do it (eg procurement), . Often can contribute more when you sit back and watch.

Use services to compete with products - compare cost of buying a service eg SAAS/Cloud with cost of delivering services in house. Pull apart the pricing and tell the vendor what you need to pay.

Use time pressures - vendors do it all the time. Make them wait. But don't push too hard and lose the benefits you've already negotiated.

Final recommendations:

  • Understand that everything is negotiable, at a price.
  • Prepare negotiating positions, and plan what you can afford to concede. Never make decisions during a negotiation.
  • Maintain stakeholder and budget holder support by not compromising on the business case or requirements.
  • Keep a diary of the promises made during sales visits and negotiations. Use it to check contracts and manage vendors.
  • Walking away is the loser's option. Keep going around the process until you make it work for all parties.

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