Tools and Tactics … To Do Better Deals

Tools and TacticsTo Do Better Deals        

by Steve Gutzman                                          

Too Big to Negotiate?

It seems that everywhere we look things are getting bigger.  The small corner store gives way to the mega mall, the once enormous 55-inch flat-screen TV is now double the size, data is no longer just data – it’s big data – and everything from cruise ships to cheeseburgers is getting supersized.  Even Roger Federer got into the act at the beginning of the year after winning the Dubai Duty Free Tennis Championship, claiming that a bigger racquet head helped his game.  But is bigger always better?  And have some technology companies, through acquisition, become too big to negotiate?

In the business world, the scorecard for acquisitions is mixed.  On the positive side you have XM/Sirius, Disney/Pixar, JPMorgan/Chase and Exxon/Mobil.  In these transactions it can be safely argued that shareholder value was created and end users benefited.  Some not-so-good collaborations included Sprint/Nextel, AOL/Time Warner, Alcatel/Lucent, and HP/Compaq.  In these transactions shareholders did not fare so well.

We all understand from our U.S. history books that when companies get too big, the government can step in with an 1890s-era federal statute known as the Sherman Antitrust Act.  If Teddy Roosevelt had not gone on his trust-busting campaign in the early 20th century, Standard Oil would now be worth an estimated $1 trillion.

In a strange twist, the government recently stepped in not to break up some very big companies in the financial industry-but to keep them alive.  Too big to fail championed the theory that some financial institutions had gotten so large and interconnected, and their importance to the economy so great, that they had to be supported by the government or catastrophic economic harm would follow if they failed.

And what about the high-tech industry?  According to Gartner, over the past five years the high-tech industry has grown approximately 16 percent.  In that same period the top five publicly traded high tech companies have grown almost 45 percent – with most of the growth coming from acquisitions.

The reasons for technology acquisitions are many and include such objectives as accelerating entry into a strategic market where internal development would take too long, plugging a technology or talent gap, buying a distribution channel in an industry or geography where there was no presence, eliminating a competitor, and as is often the case, especially with software companies (think IBM, Oracle, SAP and CA), acquiring a maintenance install base that can provide additional leverage for enterprise license agreement negotiations.  This last point cannot be overemphasized enough, as this is where “sticky products” (products that cannot be easily uninstalled) create leverage, and leverage creates tremendous negotiation advantage.  By some Gartner estimates, the costs associated with switching away from an incumbent range from 300 percent to 700 percent of current fees.

In an industry where corporate strategy often boils down to “grow or die,” it is unlikely that acquisitions are going away anytime soon.  With few exceptions, growth in the high-tech industry cannot be achieved through organic means alone – acquisition is often a central part of the story.  So what can be done from the buyer’s side to protect against the inevitable?

First, assume that the company you are negotiating with will one day be consumed by one of the top-tier players.  As ICN recommends, prepare for the divorce before you get married.  Think ahead to what your technology options could be down the road and understand the conversion costs of going to a different platform, service provider, cloud provider, third-party support provider, or open source provider.  Even if it is a very big number, it may not be as big as the new number you will see at renewal time after an acquisition.  This may not change the procurement decision, but at least when the acquisition letter arrives, it will not be a total surprise.

Second, look at your terms through the lens of one day renegotiating these same terms with one of the bigger players.  Price protection on new purchases, maintenance caps, license swaps, audit protections, usage rights, user profiles, and license metric change protections are but a few key terms that need to be carefully worded.  As software maintenance is of particular value to the vendors (85+ percent margins), the vendors have become very protective of this revenue stream and so two additional areas need to be underscored: buy only what you need, and if a bundle of products is proposed, make sure that you have a written description of what each product does.  Vendors love to include lots of additional products under the guise of value enhancement and they love to bundle products so that they can sell add-on features down the road.  Be wary of these contracting tricks, as they are designed with one goal in mind: to increase leverage at the next negotiation event.  A clause that says, “If the functionality is re-bundled, repackaged, or renamed, but is the same or substantially similar, extra maintenance will not be due,” can save you a lot of money and headache.

Third, don’t fall into the trap of thinking that escrowed source code gives you all the protection you need.  Working with source code requires highly skilled programming resources; most companies do not count this as a core competency.  Having access to source code is one thing.  Knowing what to do with it is quite another.

And finally, understand that after acquisition your options are limited.  The acquiring vendor typically applies a full-court press to convert all the contractual paper of the acquired vendor to their paper.  There may even be some incentives involved.  But in the end, if a customer insists on keeping their old contract (there are always a few in an acquisition), the likely outcome is that the contract will simply be left in the legal entity of the acquired vendor – which in essence becomes a shell company with no support, no people, no upgrades, etc.

The bottom line is this: The big players are getting bigger and this inescapable trend should at a minimum compel a discussion on the elasticity of each major technology platform and the available options if the vendor becomes too big to negotiate.

Steve Gutzman is a senior advisor at ICN and a 35-year veteran of the high-tech industry.  You may contact him at sgutzman@dobetterdeals.com.

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Tools and Tactics … To Do Better Deals – HealthCare.gov

Tools and Tactics … To Do Better Deals                        

HealthCare.gov

It may be months before all the problems facing the HealthCare.gov website rollout become known, but already the pundits seem to have figured out the bigger pieces of the puzzle.  The two primary culprits seem to be lots of bad code that managed to skate through a virtually nonexistent beta test process and a paucity of bandwidth and computing power that led to huge scalability issues. 

There is no doubt that these were two very critical flaws in the rollout, but another key part of the puzzle that cannot be overlooked is that maybe this was just simply a poorly designed contract.  The scrutiny under this scenario should be not when the government website fell down (October 2013), but when it took a big stumble (September 2011).  That was the month it awarded a cost-reimbursement task order contract to CGI Federal.

According to the Washington Post, CGI Federal actually secured its winning bid in 2007, when it was one of 16 companies to get certified on a $4 billion Indefinite Delivery, Indefinite Quantity (IDIQ) contract for upgrading systems within Health and Human Services (HHS).  These types of contracts, often intentionally vague in their requirements, allow agencies to issue task orders to pre-vetted companies and sidestep the full, oftentimes cumbersome procurement process.  From these 16 companies, four were selected to compete for the healthcare website and of the four, CGI was selected.  According to USASpending.gov, CGI Federal got a total of $678 million for various services under the IDIQ contract — including the $93.7 million HealthCare.gov job.

These types of contracts serve their purpose and have their fan base, but was this the best way to ensure success in the largest and most visible technology rollout in recent times?  When the vendors involved in the rollout testified in front of the House Energy & Commerce Committee on October 24, we had our answer.  To a person, they all claimed they had performed admirably but that any questions concerning overall performance of the website needed to be redirected back to the government, specifically the Center for Medicare & Medicaid Services (CMS). 

The thing about IDIQ contracts, and by extension cost-reimbursement task order contracts, is that they’re great for acquiring resources but not so great for acquiring results.  This is the crux of the problem and a topic that ICN founder Joe Auer wrote about in a Computerworld article back in February 2002.  “The results-or-resources question establishes which side will bear responsibility for the results you’re expecting from the deal,” wrote Auer.  “In a results deal the vendor is responsible, while in a resources deal it’s the customer.”  Put a different way – in a resources deal, when problems arise the customer bears the risk and the vendor gets to sell more resources.  

We’ll never know if a results deal would have yielded a different outcome with the healthcare rollout, but chances are pretty good that there would have been a whole lot more accountability on display at the October 24 Congressional hearings, and the problems plaguing the site would have surfaced a lot earlier than October 2013.  The one thing to know about large-scale technology rollouts is that bad news delivered early is good news.      

 

Steve Gutzman is a senior advisor at ICN and a 34-year veteran of the high-tech industry.  You may contact him at sgutzman@dobetterdeals.com.

7 Habits of Highly Effective Brains

The United States Senate has engaged me to deliver a professional development workshop to the Senate staff later this month. This article is a brief overview of that planned presentation.

Recent research of the human brain has surprised the neuroscience community by revealing that our brains can change, and be improved, at any age in our life cycle. By developing simple habits, you can help ensure that your brain remains healthy and operating with improved efficiency for the rest of your life. People of any age can benefit from developing these 7 simple habits – listed in order of importance with the 7th habit being the most valuable:

  1. Have a Nutritious Diet. Eat a low glycemic diet with lots of nutrients. Omega-3 essential fatty acids have been shown to support brain health in countless studies. By the way, surprisingly blueberries are also an excellent food for your brain.
  2. Focus Sequentially – Don’t Multitask. John Medina, author of Brain Rules, calculates that a person attempting to multitask takes up to 50% longer and makes up to 50% more mistakes that the person performing tasks sequentially!

Be Physically Active. You don’t need to be overly athletic for your brain to benefit. Studies show that 20 to 30 minutes of moderate exercise, like walking, three times a week is all you need to confer a wealth of benefits to your brain. In addition, such simple changes in lifestyle as taking the stairs at work, instead of the elevator, can help your brain stay healthy.

  1. Participate Socially. People who are active socially tend to experience far less mental decline than people who are socially isolated. So look up an old friend, or get together with that aunt or uncle you haven’t spoken to in some time.

Sleep Well – And Long Enough. If you’ve been awake for 17 hours straight your performance is equivalent to having a blood alcohol-level of 0.05%! A sleep-deprived brain works harder, but accomplishes much less than a rested brain.

Challenge Yourself Mentally. When you learn new things, or even think new thoughts, your brain restructures itself. The more you exercise your brain, the better it performs. To really super charge your brain, take a class in a new language, or in computer programming, or practice learning a musical instrument.

  1. Have a Positive Attitude – And Laugh Often. Attitude changes everything, including your brain. Research shows people who maintain a positive outlook on life are better equipped to cope with even serious brain disorders. Accept what you have, let go of anger and resentment, and move towards joy.

By making these 7 habits part of your daily routine, you’re taking steps to ensure that your brain stays healthy and efficient for a lifetime.

About the author: Jonathan Jordan, a member of the prestigious Society for Neuroscience, is an entrepreneur, Certified Business & Executive Coach and international speaker.  You can contact him through International Computer Negotiations, Inc at 407-740-0700 or via e-mail at Jonathan@MindfullyChange.com or via phone at (321) 214-5824. For more information visit http://www.MindfullyChange.com

How to Calm Your Brain During Any Storm

How to Calm Your Brain During Any Storm

There is a major storm in our economy currently. Understandably, this situation adds stress to negotiations. When you’re overly stressed the chemistry in your brain changes. Your problem solving abilities are reduced and your judgment is greatly diminished. In fact, it is a very similar state as being drunk! This is no state to be in when making important decisions during negotiations.

Here are some simple steps to take to begin to relax and reduce the effects of stress on your brain:

  • Take at least 3 deep, slow, regular breaths – this will start to slow your heart rate, lower your blood pressure and restore cognitive clarity.
  • As you breathe, let your shoulders relax and loosen your jaw – you may be surprised at how much tension you hold in your jaw.
  • Focus your mind on the present moment – to help with this maybe focus your attention on your breath passing through your nostrils as you breathe, or pick a spot on the wall and focus your eyes gently on that spot. When focusing on the present moment you prevent yourself from regretting the past and fearing the future – both of which increase stress. (For a deeper understanding of this concept, read The Power of Now by Eckhart Tolle.)
  • When uncomfortable feelings arise, don’t try to ignore them but acknowledge and label them – recent research at UCLA proves this allows you to detach from negative emotions so they do not hijack your calmness.

Once you begin to relax your mental clarity will begin to be restored in your brain. Will this calm the outer storm in our economy? No. But it will calm the storm within you and make you less likely to do something irrational during negotiations that you will later regret.

About the author: Jonathan Jordan, a member of the prestigious Society for Neuroscience, is an entrepreneur, Certified Business & Executive Coach, international speaker and ocassionally speaks at ICN conferences.  You can contact him via e-mail at Jonathan@MindfullyChange.com.

End of the Quarter? Squash Them!

Learn how to counter this ploy at the IT Procurement Summit (InterContinental Hotel) in Chicago on September 20-21.  You can register here.  Very funny video, take a look:

Technology Acquisition Professionals to Convene in Chicago

(Orlando, FL – 07/28/10) CAUCUS, The Association of Technology Acquisition Professionals, announced it is holding its 2010 IT Procurement Summit (ITPS) in Chicago on September 20-21.  This is the 15th year Caucus will hold this significant industry event.  “Our members have been working hard to organize this event,” said Sarepta Ridgeway of CenterPoint Energy and Conference Chair.  Professionals, both members and nonmembers, will attend to learn the very latest best practices for putting together cloud computing and SaaS deals, software license agreements, telecom transactions and service level agreements.  Risk management , supplier relationship management and CTPE / CTPS Certification classes with exam  will be among the other subjects or areas to participate in.

The annual summit provides acquisition professionals with the latest information on all facets of the acquisition process.  “Networking opportunities abound, many of the interactions initiated at the conference develop into long-term business relationships,” said association founder Joe Auer. “If you do any type of technology acquisition, this is where you need to be on September 20-21.  The presenters are the very people that do these types of deals…everyday!”

Attendees come from a variety of disciplines including procurement, finance, legal, IT and contract management and represent organizations of all sizes from all sectors of the economy, including large global corporations;  small and medium sized businesses; not-for-profits, government agencies, states and municipalities.

The 2010 ITPS will be at the InterContinental Hotel on Michigan in Chicago and the early-bird has a deadline of August 12th.

Caucus – Established in 1994, Caucus is the only association serving the specialized needs of technology acquisition professionals. Members come from a variety of disciplines including procurement, finance, legal, information technology and contract management.  Membership gives them an invaluable edge – the Caucus Advantage. Caucus also provides certification in this field as a CTPE or CTPS.

Contacts:

ICN
407-740-0700
Ja4@dobettdeals.com
http://caucusnet.com

Make Sure Consultants Will Keep Your Secrets

By Joe Auer

Confidentiality and secrecy agreements between customers and outside consultants are very important. The nature of consultants’ work means that they will probably have access to confidential information such as business and marketing plans, costs, profits and proprietary processes. So it’s paramount to guard against having your confidential information disclosed to other outside parties, especially your competitors. Managing consultant confidentiality is a process that mustn’t be overlooked.

You must exercise strong due diligence to initiate a workable consultant confidentiality program. First, identify the types of confidential information the consultants may have access to in the course of completing their engagements. Armed with this information, you can identify the potential risks that must be addressed. Obviously, the higher the potential risk, the greater the protection needed.

Many times, the risk issue isn’t even considered. Worse yet, the risk has sometimes been dismissed with a statement like, “We know these people, and we can trust them.” Even if you do know the consultant you’re considering working with, there’s no reason to abandon caution. The most trusted consultant can make an unintentional mistake and expose your information, particularly if there has been no reinforcement of confidentiality requirements.

If the due-diligence phase finds a potential risk, the next move should be to immediately enter into a confidentiality and nondisclosure agreement (NDA). This is a logical, precautionary step, and it’s difficult to imagine a reason for a company not to take it. The NDA is a straightforward document describing the terms under which the customer and the consultant will and won’t disclose certain information.

The NDA also provides a definition of confidential information (such as a certain process that gives customers a competitive advantage), each party’s obligations regarding the information and a remedy if your consultant fails to live up to the agreement, either by design or by accident. Many times, it’s best if the NDA is negotiated and put into effect well before the actual consultant agreement is in place, since precontract discussions may involve confidential customer information.

When the actual consulting agreement is drafted, include a confidentiality provision that references and incorporates the NDA. The NDA can be very precise in nature, defining types of information, a certain project, a particular time period or specific remedies. The contract confidentiality provision should be wider in scope and should remain in force beyond the contract or engagement expiration – perhaps a year or more.

Finally, you should require that each consultant employee assigned to your account sign a personal “secrecy agreement.” This provides an additional layer of protection and serves to make sure consultants are very aware that they will be receiving confidential information and are personally bound to protect it.

Some consulting firms balk at having their consultants sign secrecy agreements, saying there’s no need to create separate contracts between each consultant and client. Try hard to win this one, but if you can’t, a reasonable compromise is to make sure that the consulting firm agrees that each consultant assigned to your account has previously signed a secrecy agreement with the firm or will sign one before starting work on your account. And don’t forget to review the content of the firm’s secrecy agreement to make sure it meets all your needs. Most important, have the consulting firm contractually accept full responsibility for its employees’ acts and omissions.

As a final safeguard, it is important to have “orientation briefings” for all of the consultant’s people who are new to your account, to emphasize the seriousness of these issues.

Many large organizations already do NDAs, but they fall into the “pesky paperwork that’s a mere formality” category and don’t get highlighted as being a big deal. In my 35 years in this business, I’ve seen a number of confidentiality breaches that have been very big deals.

Recovering after breaches occur never seems to work as well as preventing them from happening in the first place.

JOE AUER is president of International Computer Negotiations, Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates Professionals on IT Procurement, Sourcing, and Vendor Management. ICN sponsors CAUCUS: The Association of Technology Procurement Professionals. Contact him at joea@dobetterdeals.com.