GartnerGroup: Negotiation team must work together
By Staff -- Purchasing, 8/24/2000 2:00:00 AM
"In today's business environment, we tend to work in Internet time," says Marie Reeve, a research director in GartnerGroup's Consulting Services procurement solutions organization. "So, time you save in the negotiation process is time you can use to get a project implemented."
Reeve, one of several GartnerGroup Inc. researchers, gave these sentiments at the organization's IT Asset Management 2000 Conference: "Coming of Age in the Millennium" held in New Orleans. More than 400 IT and procurement managers attended.
Reeve gave a presentation on "Negotiations and Team Building." She says the success of a negotiation team depends on the ability of the team to work together to negotiate a best-in-class deal for the enterprise.
The negotiation process begins with a company's first contact with an IT supplier-whether it's a phone call to ask for information or an invitation to respond to a request for proposal (RFP), says Reeve. "Believe me, the supplier already is negotiating and sees you as a potential prospect."
Reeve suggests that conference attendees "establish a process that works for your organization, taking into account corporate culture, financial requirements and business goals." It's also important when developing the process to understand who the constituents are and to include them. Then, the team can assess the current state, define objectives of the negotiation, and determine strategy for achieving them.
Assigning roles and responsibilities to each of the team members is a next step. "Make the process flexible enough to adapt to the changes that may come about during the negotiation process," adds Reeve.
A lot of negotiation-especially for computer equipment and software-tends to be at the top level of the organization. Reeve says the CIO or business unit managers who agree to a deal then "throw it over the wall to the procurement people to make it happen.
"Oftentimes, the manager will tell procurement 'to get a great price' even though he or she already told the supplier that they have the deal and their competition has been left out," Reeve says.
IT procurement should include representatives of business units, finance, legal, contract management early on in the process before the RFP goes out. (Procurement and contract management deal with a good number of suppliers and know if the organization has been doing business with a particular supplier, and if the supplier can meet the organization's contractual requirements.) The RFP should reflect input from each of these individuals.
Reeve also suggests that the team define the role of senior management, so that it knows what it is supposed to do and establish rules of engagement for the internal organization. "You need a process of resolving disagreements. You want to present a united front to potential suppliers."
Assess the environment
IT procurement organizations readying for negotiation should assess the supplier environment. "You want to be able to understand how they are doing in their marketplace," says Reeve. She urges buyers to look not only at potential supplier's Web sites, but their competition's as well. Other resources include annual reports, marketing reports, user groups and references.
Buyers also need to assess their own environments, including expectations of senior management. The team should meet with other constituents who might not be sitting at the negotiation table. Reeve suggests buyers understand constraints, validate assumptions, analyze any existing agreements with the supplier and determine hidden agendas.
The next step is to define the negotiation objectives. "You're trying to maximize value to the enterprise while minimizing costs and maximizing contractual protection," says Reeve. "It's not all about price. Terms and conditions are at least as, if not more, important."
To establish supplier-selection decision criteria, buyers need to understand how the team is evaluating the RFP. "It's important to put at least two suppliers on the short list," says Reeve. "Review the proposals. Identify points to be negotiated. List them out and develop a check list. The best thing is to attach your own contract to the RFP. That's the ideal situation: Astute negotiators at a minimum ask suppliers to comply with certain contractual terms."
Reeve also says buyers need to quantify objectives into "must have," "nice to have," and "bargaining chips." They must prioritize these, Reeve says, establishing weighted value to determine which objectives are more important.
Now it's time for the negotiation team to determine its strategy. Many enterprises believe they can best meet their objectives if they work in a collaborative approach with the supplier. "We at Gartner support win/win agreements because if a supplier thinks he's been squeezed, maybe the organization may not get the same support-or they will come back to renegotiate," says Reeve.
It's important for IT buyers to ensure that the supplier is working in the same framework. "If you are working in a collaborative way and the vendor is working in a competitive way, you won't be able to achieve the success you want," she says. "You want to establish initial and fallback positions up front: Prepare a position paper, circulate to all stakeholders, have them be aware of it and have them comment if they disagree. You want to assign roles and responsibilities (also to silent partners). And, prepare for the unexpected."
Roles and responsibilities
Reeve suggests IT buyers assign roles and organize teams in a way that takes into account members' strengths and weaknesses. One way to keep suppliers on their toes is to have members frequently change roles. "Communicate roles to everyone involved, ensuring that they are agreed upon so that there are no surprises during actual negotiation," says Reeve.
At the same time, buyers should be analyzing supplier roles. "Astute negotiators can gain a lot by doing this," she says. "Look at business cards and organizational charts and don't be afraid to ask questions."
Next, the negotiation team should review the position paper to ensure it's up to date, identify the individual with authority (on both sides), consider alternative scenarios, plan timing and practice role-playing. "IT and procurement managers may be involved in a lot of negotiating, but some people on the team may never have done one," says Reeve. "You want them to be comfortable in their roles."
She also suggests that the team understand who has responsibility and accountability for business and legal decisions regarding pricing and contractual terms, and knows how to access those parties throughout the negotiation.
Negotiate
First, it's important for the team to establish a framework and rules of engagement for negotiation. This gives the team insight into how the vendor wants to behave.
"Agree on business issues. You want to understand the business principles of what you want to achieve initially," says Reeve. "Document, document, document. When you agree to something, the note taker should write down not only what is agreed, but the rationale for it. You want to have all this down so you can review it. Know when to escalate and when to walk away. Be sure to understand the deal breakers; you don't want to cry wolf too many times."
According to GartnerGroup, typical techniques used by suppliers during a negotiation include emotional appeals, "divide and conquer" (using this technique, the supplier will try to go around negotiation teams), preemptive close (close without signature of negotiation team and go off to the next deal), strategic partner, "we can't do that" (due to corporate policy, accounting guidelines, revenue recognition), limited-time offers.
If the supplier says "no," Reeve says the team needs to push to get the reason why.
The negotiation team then can turn the supplier techniques around or use others. "Using your company's contract instead of the supplier's is one good one," says Reeve, who also suggests that the team limit supplier contact within the organization.
"You need to manage this. You need to communicate this to the organization; in turn, they should tell you what the suppliers try to do."
Leverage points, which can be used by a negotiation team, include competition, timing, size of the deal, references, past performance and sales metrics.
Reeve says the team needs to remember, however, that members are dealing on a person-to-person basis. "So, you want to act professionally and in a businesslike manner. Typically one of the members of the supplier negotiation team will be a person you will deal with in the future: They will be promoting your needs and requirements in the supplier organization."
Once the team signs a contract, it must manage it. Reeve says "to build in terms that enable the organization to manage the contract. Performance metrics should include rewards."
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