The fine art of vendor negotiation

If there's one skill that usually gets short shrift in giving up-and-coming leaders valuable on-the job-experience, it's negotiating contracts with external partners. In some large corporations there are so many parties involved in forging vendor relationships--from internal purchasing organizations and general counsel to outside consultants and advisors--that it's difficult for budding IT leaders to get any experience in edgewise. In smaller organizations, top IT brass may cleave so closely to the contracting and management process for fear of losing money or putting the company at risk that they lock their next generation out of the process.

Yet negotiating contracts with IT partners--and managing the resulting relationships--is a proficiency that's multiplying in importance for IT leaders as outside providers deliver more and more of the IT solutions portfolio. "There are several key skills all individuals in IT need to take with them to advance in their career, and contract negotiations is absolutely one of them," says Mark Carbrey, CIO of Medford, Mass.-based Cross Country Automotive Services and a group mentor in the Pathways leadership development program of the CIO Executive Council. "The technology world has become so very complex in terms of the web of suppliers and partners that you must embrace to succeed."

Providing this career-enhancing opportunity--without taking unnecessary risk--takes some care both on the part of the CIO providing it and the IT manager taking advantage of it

Building Toward a Solo Shot

Carbrey has very clear ideas about what he wants from IT contract negotiations--a well-defined process, clearly defined requirements, and--ultimately--a true business partnership. To instill those vendor negotiation values in his managers, he employs a team-based approach. His best and brightest will get numerous opportunities to serve on a five person review team negotiating one of Cross Country IT's many contracts.

After they've absorbed the essentials--what it means to treat a vendor like a partner, how to define requirements in an ever-changing business context--Carbrey gives his promising performers a shot to take over, but never on the most critical contracts. Instead he looks for new deals or renewals that are lower risk--say, a conference call provider, or new supplier for printer maintenance. "We may sacrifice a little bit of money or performance [if the negotiations don't go well] but we won't put the company at risk." It's a win-win--it takes something off of the CIO's plate and gives his top talent more negotiating experience.

Sorting out What's Important

What's important and what isn't--that's a critical distinction and key learning experience in negotiating, says Chris White, senior manager of ERP and business systems for Hess's exploration and production business and a Pathways program participant.

First you must "understand the business drivers behind the contract--what should be the negotiating positions including must-haves and the willing-to-part-ways-with," says White, who's been involved in negotiating contracts for the last five years. "Then you have the same dialogue [with general counsel]."

Those discussions form the framework for successful negotiations, but they're not created equal. White has learned to "focus on the business context first," he says. "Legal terms and conditions don't matter if you cannot get a framework in place on the business components of the deal." And, at each stage of the negotiation, White checks back in with the boss and the business to review his progress, reevaluate his negotiating position and make changes as necessary.

Learning to Fact Check

White was recently sweating it out at the negotiating table, wrangling with an existing software provider over a licensing issue. "It was a long and arduous process. We were miles apart on the cost side. To make matters worse, our account manager and I had zero context as to what was struck in the original deal," he recalls. "My concern was how to get a leg up in the negotiations." It helped that White knew the business drivers, but he really needed to validate the costs behind the vendor's position. "Several years back, I learned that it is critically important to talk to your network of contacts and see what they are getting for similar types of contracts," White says. Reaching out to peers helped White seal a deal with the vendor at market rates.

Looking to others also helped White with negotiations for a content management solution--an area in which his knowledge was lacking. To make sure he was getting the right software for the right price, he called upon people much more knowledgeable about this particular software space and had experience with contract negotiations. That helped a lot, but if he had to do it over again, he wouldn't hesitate to hire external consultants to fill in the blanks when internal expertise is lacking.

The same strategies work when things are going too smoothly in negotiations. If there are zero issues, White asks himself--and others--"What I am missing?" Most contract negotiations are a give and take, he says. If a vendor rolls over too easily, White now knows there's room to negotiate. And he's learned to look as critically at current vendors as he does at new providers. While negotiating a new service agreement with an existing infrastructure provider, White skipped over the reference checks on the new services and the vendor ultimately failed to meet service expectations. "We quickly realized that we bought a service that our partner could not provide us," White says.

Having Their Backs

Terry Dinterman was named a 2010 CIO Ones to Watch honoree by the CIO Executive Council and CIO magazine, partly on the strength of his work negotiating an outsourcing contract for JetBlue's data center, network management and service desk operations. While the airline was looking for good value and service, Dinterman, vice president of technology services, had a ticking eight-month timeline to address serious vulnerabilities in system availability and pave the way for a new reservations system. He'd led a few RFP processes before, but none with such high stakes.

The key, he says, was support from the board of directors on down. That was invaluable when overeager vendors attempted to go above Dinterman to get the contract. "We were able to manage this by enlisting strong executive commitment to the RFP principles, including a clear set of engagement rules, a balanced scorecard approach and a fully transparent process that was tough but fair," he says. "In the end, those that attempted to bypass the process hurt their chances rather than improving them."

Dinterman's biggest concern was balancing his desire to hammer out every detail and his responsibility to get the deal done in time. "In large contract negotiations like this, parties can spend many months and sometime years--not to mention dollars--attempting to discuss and resolve every nuance," he says. Dissecting the process into shorter, distinct phases and holding potential partners to the iterative process made that easier, especially given Dinterman's own stressed schedule. "This infrastructure project is a major initiative, [but] it is just one of several efforts underway, all vying for my attention," he says. "I had no choice but to develop my ability to discern when to trust the team and when to dive into the details."

Stephanie Overby is a Boston-based freelance writer.

This story, "The fine art of vendor negotiation" was originally published by CIO.


Copyright © 2010 IDG Communications, Inc.

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