The Power of No

By Steve Gutzman

It is important to be comfortable saying “no” in a negotiation. Not all terms need to be agreed with, not all best and final prices are best and final, and not all deals need to be done. Unfortunately, many inexperienced negotiators think they must hang on at all costs until a deal is done. For them, saying no to a deal is like saying no to a free lottery ticket … it just might be the winner, and they can’t afford to pass up the jackpot.

From the buying side, preparing for a negotiation requires an understanding of the best “no deal.” The value put on the best no-deal option sets a limit that any agreement must not exceed in order for the buyer to agree. It becomes the point that the buyer will not go above. From the selling side, the best no deal becomes the level that the seller will not go below.

William Ury, in his best-selling book Getting to Yes, calls this the BATNA, or best alternative to a negotiated agreement. According to Ury, “The BATNA is the only standard which can protect you from both accepting terms that are too unfavorable and from rejecting terms it would be in your interest to accept.” In its simplest form, this concept means that if the proposed agreement is better than the BATNA, accept it. If the agreement is not better than the BATNA, continue negotiating. If the agreement cannot be improved, consider withdrawing from the negotiations and pursuing an alternative proposal or walking away from the negotiations altogether. Each side typically knows its own limits, which must continually be assessed and reassessed as new information unfolds. The problem is that many negotiators have only a hazy sense of their own no-deal options or how to value them. At a very basic level, buyers are taught that unless they hear no at least once, they are leaving money on the table. It’s part of the process and can be an important tactic. But let’s explore the use of no from a strategic standpoint as well.

To finish reading this artcile, click here.
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Steve Gutzman is a senior advisor at ICN and a 33-year veteran of the high-tech
industry.

Do You Care about the Long-Term?

            A few weeks ago, I wrote about the Senior Manager who bought in to the “We’re Your Partners” supplier ploy hook-line-and-sinker.  Later, I had a conversation with an IT procurement practitioner (our hero) at a major NYSE-listed company. 

            It seems that an executive with his company was hell-bent on signing an agreement with a particular vendor despite the fact that the agreement was not in the best interests of the company.  Our hero explained all his objections and refused to sign off.  Despite internal procedures that require our hero’s signing off on all such agreements before they’re executed, the executive went ahead and executed the contract anyway.  (I can’t wait to see how this works out.)

            These two events got me thinking.  Nowadays, do we care more about short term results than the long-term ramifications of our decisions?  Are our decisions being driven by a “git ‘er done” mentality rather than what’s best for the company?  Are bad decisions being made because people know that it’s unlikely they’ll be around when things start to come undone?

            How are decisions botched in your organization?  How are successful decisions made? Feel free to comment – anonymously of course!

Our guest blogger is Dan Wallace, a staff member at ICN and Caucus-The Association of Technology Acquisition Professionals. For information on the time-tested, best-practice methodology called the Managed Acquisition Process^TM, contact ICN.  If you have a story worth sharing, please contact ja4@dobetterdeals.com. 

Beware the Appliance?

By Dan Wallace

 
A recent issue of InformationWeek (Sept. 27, 2010) featured the “Rise of the Appliance” on its cover. My first reaction was a flash-back to those scary borgs in sci-fi movies. After reading the feature articles, I’m just as scared.

It seems that all the “Big Boys” – the Oracle’s, IBM’s, SAP’s, H-P’s, and others – are stirring the pot to create crazed excitement and demand among IT professionals for software-plus-hardware systems. InformationWeek seems to be falling for the idea, calling them “game changers.” Businesses want highly integrated hardware, software and operating systems that speed up their ability to analyze data to better serve their customers. Sounds great, right?

It sure is. And that’s why the vendors are pushing the idea as the latest and greatest technological development. Appliances are expensive. And because they’re expensive, buyers have to commit to them for the long term. For vendors, that means substantial long-term profits.

In an era where budget constraints and economic pressure is the number one challenge for IT executives, does it really make sense to lock yourself in with one vendor supplying your data appliances? Do you really want to be in bed with Oracle (for example) for the next five years? Do you really want to invite a supplier to become an “entrenched” supplier and lose your future negotiating leverage?

If you believe Larry Ellison, appliances will become the greatest technology on the face of the earth. And we’ll all be at the mercy of the suppliers. Hmm… Maybe the sci-fi borg analogy isn’t such a stretch.

Our guest blogger is Dan Wallace, a staff member at ICN and Caucus-The Association of Technology Acquisition Professionals. For advice on negotiating with entrenched incumbent and single/sole source suppliers, contact ICN.

Ten Truths of Negotiations – Truths #7 & #8

Truth #7. The entire procurement process is about control and negotiating power. Anyone who has been on the vendor side can confirm this. The most used term in vendor vocabulary is account control.

As I said earlier, we give vendors massive amounts of negotiating power. What has to happen is that we have to think in terms of negotiating power for ourselves. The right process or the right attitude isn’t enough. It’s about negotiating power.

I often hear people say, “Gee, Joe, I’m negotiating with so-and-so and trying to do x-y-z. How do we do it?” In each case, the answer depends on your negotiating power. You can know the best deal ever given to any customer, but if you don’t have the negotiating power, the vendor won’t give it to you. Why should they? If you got it under those conditions, I’d disqualify the vendor as being too stupid to stay in business.

 If you build negotiating power into the fabric of your company, you can be very gentle when it’s time to negotiate. Consider a vendor such as IBM. People have said to me, “IBM will give me anything. I’ve seen IBM give away the store to get an account. We’re a prestigious account with alternatives. We have negotiating power.” The next thing I hear is, “I can’t get anything, Joe! What happened?”

My response is, “Let me see. The IBM account rep’s office is right next to your CIO’s, right? Your executives went on an executive retreat and mandated that IBM be a strategic partner, correct? You shouldn’t be surprised that now you can’t negotiate anything with them.” In short, as a client, you no longer have any negotiating power.

Truth #8. You have to hear some noes. This truth often comes as a surprise to people. However, you do have to have some deadlocks and impasses in your negotiations. Here’s a scenario: A vendor makes you an offer: “One million dollars.” You respond, “Not a dime more than $900,000.” The vendor says, “Done deal.” What do you think? How good is the deal you got?

Based on the conflicting objectives of profit as well as cost and risk, we know that you’re going to have to be assertive enough on these issues to hear some noes—and not just one. You have to ask, ask, ask. That’s not easy; almost no one likes conflict. We would rather just “do the deal.” That may be fine for some deals, but it’s not fine for the better ones. To get better deals, you have to make assertiveness part of your corporate culture and its processes.

When that’s the environment, there’s support when you hear the noes. That support will bolster your negotiating position. You can be convincing when you say, “Excuse me. Unless we have this and this and this, we can’t do business.” And when the vendor does an end run to a senior executive in your organization, it’s great if the vendor doesn’t know that the senior executive is on the negotiation team and has signed a position paper containing your objectives. But if that executive isn’t on your negotiating team when the vendor does that end run, your negotiating position can crumble.

Ten Truths of Negotiations – Truths #5 & #6

     Truth #5. Information is power. Who do you think ranks higher in terms of having information about the other side—the customer or the vendor? As clients, we offer the vendor office space and security passes, we allow free passage through our building and access to our computers and then we try to negotiate with them. No surprise…it’s a mismatch.

     Ask a vendor if you’re “partners.” Most likely, the answer will be, “Oh, YES!” Then, in the context of partnership, ask for equivalent floor space in their headquarters; ask to sit in on their planning meetings. Of course, they’ll reject that idea, citing proprietary information. On the other hand, we give our vendors an inordinate amount of information about us. That’s a mistake. I wouldn’t let them have more than is absolutely necessary for them to complete the project for which they were hired. Any information you give them beyond that gives them negotiating power over you.

     I’ve even seen clients lose competitive intellectual property through on-site vendors who also work with the customer’s competitors. An on-site vendor sees how something is being done; they may very well be getting paid to learn that something. On the other side of town or on the other side of the world, another of the vendor’s customers magically learns that same concept soon afterward. I’ve seen this more times than you might believe.

     Truth #6. Don’t worry about the vendor’s feelings or profits. Both are the vendor’s responsibility. How often have you heard someone caution not to “beat up” a vendor because the vendor must make a profit? This is a true statement: they must make a profit. I’ll go even further: if our deal isn’t profitable for them, we’ll end up losing in the end. But to whom does the responsibility fall to ensure that the vendor makes that profit?

     Here’s what happens on the vendor’s side of the table, just to ease your mind about feelings and profits. Imagine you’re the customer and I’m the vendor. You negotiate your best deal and sign the contract. I take that contract to my manager. If the deal is close in either of two areas—yield or risk—there’s a team of people waiting for me at headquarters. This is the deal review team, which assesses whether or not a profit is going to be made. The team also determines if too much risk is being taken—by the vendor, of course. Both areas must be acceptable. The customer is not there saying, “You must sign this deal.” The vendor decides on its own, without any pressure, if the profit and risk levels are acceptable. If there’s too much risk or too little profit, the salesman will return to the customer and say he couldn’t get the deal approved; it must be renegotiated.

     I think you can negotiate a great deal without ever raising your voice, if you have the negotiating power. You can even ask for what you want very nicely, but you must ask. For example, when I was on a vendor negotiating team, there were two types of people whom we thought were fools. One type was the people that fell for everything, all the ploys. You walked out of the negotiating session saying, “Can you believe those guys just left three-quarters of a million dollars on the table? What fools!” There also were the people who didn’t know what to ask for. They asked for all the wrong things if they asked for anything. We, the vendor team, had 75 pages of pre-approved contract addenda that they could have gotten just by asking. The customers we respected were those who were prepared and came right at us, knowing what they were negotiating. So I can tell you from first-hand experience, the vendor’s feelings and profits are not the customer’s concern in negotiating.

Ten Truths of Negotiations – Truth #3 & #4

Truth #3

     It is not a relationship of trust. It is not a partnership. Ask your attorney what the definition is for a true legal partnership. For one thing, it involves being liable for each other’s actions. This is not what a vendor contract is about. Read one. It is not a relationship of trust—it’s one of mistrust. It’s a relationship in which the vendor drafts a wonderful document that protects the vendor and allocates the risk to you. If a vendor gets you to sign this contract, it’s good for the vendor. Then a vendor will look you in the face and say, “Trust us.”

     That’s the time you should be asking yourself, “Have they shown any trust?” The answer is a resounding no. So get the fantasy that a vendor contract is a partnership out of your head. It’s not a relationship of trust but that doesn’t mean it’s a terrible thing. We have a tendency to let our guard down the minute we think of a relationship of trust. I believe that there can be a good, professional relationship with a supplier, but not a partnership.

     I’ve heard customers say, “We’re partnering with them.” When a client tells me that, I say, “Could I see your partnership agreement?” I was amazed when one client actually showed me one. It was the one true partnership between a customer and a vendor that I’ve seen in the last ten years. Let me assure you that 99 percent of the time it’s not a relationship of mutual trust.

Truth #4

     Are we acquiring results or resources? My next truth is based on this question. It’s a question that must be answered the first day, in any deal, and it has to do with responsibility. Whose responsibility is it to produce the results?

     I’ve been testifying in state and federal court for over 20 years, and almost every dispute I’ve heard revolves around responsibility. In 90 to 99 percent of the deals, responsibility for success is very unclear. Many contract provisions say, “We will decide this. We will jointly accomplish that.” What does that verbiage mean? Who is actually responsible? The bottom line in such wording is that the customer is responsible.

     A “results deal” is one in which the customer has effectively and completely delegated to the supplier the risk of failing to produce the results. It’s the deal where if the vendor talks about “solutions” and “results” to a company’s executives, they are held accountable for service levels and outcomes. That’s a deal where the vendor has the responsibility.

     The other choice is a “resource deal” and, in certain instances, there’s nothing wrong with that. Not every deal has to be a results deal. Sometimes results can’t be defined. What is needed is some horsepower—maybe 3,000 PCs. That’s a resource deal. However, applying those resources and getting the desired results is the customer’s responsibility. These are the cases where that customer needs to pay attention and really manage the resources, the vendor and the outcomes.

     Let’s go back to a results deal for a moment. There are a couple of related and salient points that we tend to forget. We say, “Okay, we have them committed to ‘results.’ But we’re going to manage the deal. After all, we’re risking our money, our assets and our project.” Think about that. What are we really doing? That approach shifts the responsibility for results to the customer.

     Another thing we say is, “We have them committed to results, but we’re going to tell them the policies, equipment and staffing levels they have to use.” Doesn’t this blow the deal? I’ve seen countless vendors avoid accountability because they were “forced” to do things at the customer’s direction.

     There’s one other important point about a results deal. Never have the obligation to pay a vendor triggered by anything other than the vendor producing the agreed upon results, whether it’s on a milestone basis or completion. If it’s a results deal, why should we have a vendor’s invoice trigger our obligation to pay? Why should we have a monthly calendar event trigger our payment? I’ve seen contracts in which the vendor is to be paid $500,000 per month for 60 months, due no later than the tenth of the month—an unconditional obligation for the customer. That’s a financeable document, isn’t it? The vendor can cash out of that deal in the first month, but say, “Don’t worry. We’ll take care of you for the next 59 months.” There’s nothing better than having a good contract—except having the vendor’s money.

     The first thing I do when I look at an RFP is to determine whether it’s a results or resource deal. Who has the responsibility for the outcome? In most deals I look at, this is unclear. If that’s the case, the customer will never win in a dispute that goes to mediation or to court.

Ten Truths of Negotiations – Truth #1

          Now, more than ever, we need to focus on doing better deals and managing deals better. One reason, of course, is technology itself, which has become a huge part of organizations. We depend on technology like never before. A second reason for focusing on our deals is that we continue to face some challenging financial times. People who know how to do better deals and manage deals better are going to be essential, viable and in demand.

          In recent months, I’ve been reflecting on my 40 plus years in this business and I’ve come up with what I consider to be the ten most important truths of technology negotiation. Although it may be presumptuous to say, I believe that if you focus on these ten truths, you can do better deals than more than 90 percent of the people doing deals today. I know that seems like a high expectation, but I sincerely believe it to be a fact. Let me describe for you those ten truths.  I will be letting one or two truths out every now and then for the next few weeks.

          Truth #1. If it’s not part of the contract, it’s not part of the deal. Why is that a truth? Vendors have written in their contracts, right near the signature line, that if something is not in the contract, it’s not part of the deal. Period. Yet somehow we tend to forget this critical point. Our decisions on what supplier to do business with are based on things that are not in the contract. And we make plans for things that aren’t in the contract. Think about it…in many cases, the contract disclaims a lot of the things we are dependent on. Sometimes we bet our jobs on a deal going right, but we act naïve in the face of a legal document that says that if something isn’t part of the contract, it’s not part of the deal.

          Recently, I was reminded of something that International Computer Negotiations, Inc. (ICN) did some time ago that worked well. In fact, it worked so well that we’ve used that same concept many times. We held a vendors’ conference for a large electric utility. We told the vendors that we had reviewed all their documents, and that they all said that what’s not in the contract is not in the deal. So we said, “We’re going to give you a Request for Proposal (RFP) that talks about our requirements. And your response—your proposal—has to be your contract. This will hold true unless you’re willing to remove the provision, ‘If it’s not in the contract, it’s not part of the deal,’ from your contract right now. If you do take it out, then we’ll agree to consider things outside the contract. Is any vendor here willing to strike that provision from their contract?”

          How many vendors do you think raised their hands? You’re right…none. We then said, “We’re going to evaluate only your contract and base our decision on what’s in the contract. Feel free to include in your contract any representations and inducements—about your reliability, acceptance testing and what great results we’re going to get. But we’ll evaluate you based on only your contract.”

          We followed through on this and guess what? We got some wonderful contracts. Our ground rules eliminated a lot of the superfluous sales posturing, a lot of unrealistic user expectations and a lot of other unnecessary things. That experience and others like it have convinced me that the closer we can get to that type of situation in our procurement process, the better our results will be.

          The more we bring the contract and the issues related to it to the front of the deal, the better off we are. I would never even consider doing a Request for Proposal without a contract in it. That’s right, and I mean our contract in the RFP. I would make every vendor react to every provision in one of three ways: we fully accept that provision, we totally reject that provision or we accept this provision as modified. I would tell them their response to the contract is worth 35, 40 or even 50 percent of the evaluation. They’re being judged on their contractual willingness.

          In other words, why would we even consider making a decision without paying attention to how willing the vendors are to back up everything in their contracts? Just remember, if it’s not part of the contract, it’s not part of the deal.

Worldwide Software Negotiations Training Coming to the UK

(London, 15-6-2010) – Worldwide IT Contract Negotiations Training Company, International Computer Negotiations (ICN), is coming to the United Kingdom on July 1-2, 2010, for their highly acclaimed Software: Issues, Contracts, Negotiations training class.  For 35 years, ICN has been training Global 1000 companies on how to Do Better Deals.  ICN’s Software Negotiations Training has taught over 1000 IT buyers how to do better licensing and development deals. Click here for more information.

“How Software is Protected, Key Licensing Ingredients, Software Development, Pricing Models and Strategies, Avoiding Litigation, Prioritizing Objectives are just some of the topics the business community will see,” says CEO Joe Auer Sr.  People looking to register for this 2-day event must do it in advance.  Training will take place at the headquarters of BP in London and sign-up is available through http://dobetterdeals.com. “Anybody that is involved with the acquisition of Software, including legal, IT, finance, procurement and contract or vendor management, needs to see this course,” says Auer.

Since 1975, Winter Park, FL based ICN has provided critical training and consulting in high tech procurement, vendor management, and negotiations, establishing a reputation that sets it apart from the competition.  Internationally, ICN has presented both public and customized on-site seminars in countries around the world including the United Kingdom, the Netherlands, Malaysia, Canada, Australia, New Zealand, Hong Kong and Singapore.

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