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.
http://www.dobetterdeals.com/articles/tips-and-tactics/2013/009.htm

Steve Gutzman is a senior advisor at ICN and a 33-year veteran of the high-tech
industry.

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What Makes a Good Negotiator?

8 Attributes for Better Deal-Making

While your role in the acquisition process may not cast you into the final negotiation scenes, these traits will serve you well at any stage of the bargaining process. The following eight characteristics highlight some common attributes of the successful negotiator.

1. Clear thinker. Can you think fast and hold your own during the rapid give and take of a complex negotiation? There are few easy answers in high tech acquisitions. Some errors are unavoidable, regardless of how well prepared one may be. The ability to keep a clear head and think quickly will not only smooth over trouble spots, but keep the overall process moving forward productively. With a strong negotiation strategy as a base, the clear thinker is able to advance the process, regardless of surprises.

2. Good communicator. Can you express yourself with ease? During negotiations, how you convey knowledge is just as important as what you know. The ability to communicate effectively is essential. This ease of expression should not be confused with glibness. Rather, it results from a knowledge of the deal being negotiated and the ability to present a clear, concise and cogent narration.

3. Analytical. Do you have the ability to analyze possibilities and alternatives? Skillful negotiators can analyze others’ statements and identify those that favor their position, those that oppose it and those that favor another solution. Another aspect of analysis is the ability to recognize the truly important issues and ideas and focus on them.

4. Impersonal. Can you keep the company’s objective at the forefront of negotiations?  It is often difficult to stay composed, cool and calm when tempers flare in the heat of a difficult negotiation. An effective negotiator approaches the bargaining table with the company’s objective as his or her banner, putting personal inclinations and agendas aside.

5. Patient. Are you a composed, attentive listener? Often, the ability to let others talk and explain their position pays off by getting issues resolved without argument.

6. Objective. Can you consider another’s ideas objectively? Can you put yourself on the other side of the table to better evaluate the opposing position? If you can give serious, detached attention to an opposing point of view, you are in a better position to understand—and thus counter, if appropriate—a “sticky” negotiation point.

7. Tactful. Can you handle difficult people with tact, self-restraint and poise? It helps to have a well-developed understanding of human nature and a generous attitude toward others. It’s a cliché, but the truth of its message has been proven time and again: You can catch more flies with honey than with vinegar.

8. Sense of humor. Can you concede in good humor? It is unrealistic to assume you can win every point in a negotiation. The ability to keep a sense of humor even when conceding pays dividends in good will that may help resolve other acquisition issues. Further, negotiations can get intense, and there may well be several opportunities to become upset, worried or anxious. A sense of humor can help you—and others—maintain perspective and stay on track.

A ‘Top-Down’ Look In Challenging Times

By Joe Auer

As the daily media drumbeat of “economic downturn” picks up volume, we’ll no doubt be challenged to optimize IT costs and value as we move into possibly tough financial times. So doing better deals and managing vendors better will become much more important for IT organizations this year.

Traditionally, most IT organizations view their technology deals from the bottom up. That is, they tend to have a project-oriented perspective rather than a big picture-oriented overview. While there’s nothing wrong with this approach – especially if it’s coupled with a disciplined procurement process – you may miss opportunities to leverage major negotiating power.

Of course, focusing on a specific deal is important and can add value to the organization. But if you pay attention to only one deal at a time in uncertain economic times, huge cost and risk issues may go unaddressed. It’s the age-old “not seeing the forest for the trees” thing.

If you have to cut costs significantly, you should look at IT spending from the top down, identifying each major spending area. An excellent way to do this is to look at your annual IT budget. The major budget categories – hardware, personnel, software, communications, services and the like – provide a high-level indication of where the big money is going.

Armed with this information, you may be able to find opportunities to cut significant costs and risks and maximize your vendor’s attention. Remember, technology vendors are also under financial pressure and need all the business they can get. They may be willing to cut you a break in order to keep your business.

An analysis of each spending category should include adding up what you spend globally with each of your largest suppliers. You may be shocked at how much bargaining power you have but aren’t using.

Then, review the existing contractual relationships with those suppliers since you may have contractual restrictions such as cancellation fees that have to be included in your analysis. When you’re done, you’ll find opportunities to consolidate spending, leverage your negotiating power, reduce costs and improve contract protections.

After the spending categories have been identified and totaled, they should be prioritized. There are many approaches to prioritization. A simple method involves rating each category according to four criteria: cost, complexity, risk and business need. You can weight each criteria using a 10-point scale to generate a numerical score that can be used to prioritize the opportunities. A 1 would be the lowest rating and a 10 the highest. A category with very high cost, complexity, risk and business need would rate four 10s for a total score of 40.

Let’s look at each factor:

• Cost is obvious. Areas of significant spending should receive more attention than the nickel-and-dime stuff.

• Complexity is important because spending areas involving sophisticated, new or unproven technology, or complex business processes should receive scrutiny.

• Risk goes hand-in-hand with complexity because the higher the complexity, generally the greater the potential risk. But risk should be evaluated separately. A category with a low complexity rating could carry a high potential risk. In any event, and in every deal, have your suppliers at least be contractually accountable for nonperformance through clear warranties and sufficient remedies. That’s a great start.

• Business need establishes a relative value of importance of the category’s overall contribution to the business – and the bottom line.

With the categories having been identified, totaled, analyzed and prioritized, the real work can begin. Start with the categories that score the closest to 40 (highest priorities) and work your way down as far as time and reasonableness allow. Focusing on the highest priorities will ensure that your efforts are directed at achieving maximum benefit.

Developing the discipline to objectively scrutinize major spending categories and vendors creates opportunities that would otherwise go unnoticed.

A tough-times strategy to leverage purchasing power, reduce costs and maximize vendor performance goes a long way to answering an economic wake-up call.

 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.

What Vendors Do Not Want You to Know About Escrow

WHAT IS SOFTWARE ESCROW?

by Ron Scruggs, CTPE

Software escrow is an agreement whereby a software supplier and its customer agree that the supplier will deposit the source code and related materials of a licensed software product with a third party (an escrow agent). This escrow agreement provides the customer access to the escrowed materials in the event defined conditions (triggering events) occur such as the supplier is no longer able or willing to provide support of the software.

A Source Escrow Agreement is usually a three party agreement between customer, software supplier and the escrow agent. Often master escrow agreements are put in place between the supplier and the escrow agent or the customer and the escrow agent.  This allows customers or suppliers to be added to the terms of the agreement in a simple manner – usually a one page form. As a party to be added a precaution is added to review the agreement since it was negotiated with the escrow agent and the other party with the terms favoring those parties.

An escrow provision is often used in ASP, outsourcing and software license agreements for critical software.

CONTRACT CLAUSE – THEN ESCROW AGREEMENT

After getting a clause agreeing to agree to escrow, the next step is to enter into an Agreement with an Escrow Agent, the vendor and you incorporating the elements in the escrow provision.  Some contracts have a simple statement that the parties will mutually enter into an agreement for escrow of sources when requested by the buyer. That delays negotiation of the key clauses and is not recommended when an escrow agreement is an absolute necessity. Have an escrow agreement as an exhibit to the agreement in order to avoid negotiation after selection – negotiation with little leverage for the customer.

EXPLANATION – DEMAND or QUICK RELEASE (Vendors hope you don’t know this)

The demand release provision in escrow agreements provides that the escrow agent turn over the source material promptly when you, the customer declare there is a release condition.This is known as a ‘demand release’ or ‘quick release’ provision. The escrow agent would turn the material over to you but the vendor can use arbitration to appeal after the material is released. General escrow clauses give the vendor a process to appeal before the escrow material is released delaying the source release.

These demand or quick release provisions can be inserted into any contract where escrow is deemed necessary.  Do use them if you are involved in SaaS in the Cloud.

IDEAL SCENARIO – YOUR EXISTING ESCROW AGREEMENT (Vendors hope you don’t do this)

In the ideal scenario you would have a negotiated agreement with an Escrow agent containing the desired escrow language including the demand release (aka quick release). Then the contract clause would just require the vendor to be part of the existing agreement between you and the escrow agent.

I have negotiated agreements with escrow companies on behalf of customers.  These escrow agreements were in place when an escrow situation arose with a vendor.  The purpose of having your own escrow agreement is to avoid having the vendor’s negotiated agreement with the escrow agent govern the escrow.  The vendor negotiated agreement generally contains provisions that delay getting the escrowed materials and other provisions protecting the vendor – not you.

SUMMARY

In summary the best scenario is to have your own agreement with an escrow agent where you can add vendors to your escrow agreement.  You can have the demand release in your agreement.

Absent that have a provision in your agreement (SW, ASP, SaaS) that commits the vendor to enter an escrow agreement with a demand release provision. It is generally a good practice to avoid being added to the vendor’s escrow agreement for the reasons noted but many firms do it since (1) it is easy (2) escrow need is low probability and (3) it is likely cheaper. The downside is that it is written to favor the vendor rather than you – the customer.

If escrow is really a necessity consider having your own agreement with the escrow agent permitting vendors to be added.  In your escrow agreement have a demand or quick release provision.

 Another option is to have a party such as your law department be the recipient of the source materials under seal. That is another subject for another day.

 

Ron Scruggs is a Senior Consultant at 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 ron@dobetterdeals.com .

Two Truths Behind Securing Better Deals

By Joe Auer

Over the course of 37 years in the business of technology deal-making, I’ve learned a lot about the people and 10 truths that play a part in every negotiation. Two truths, which I detail here, are useful anytime but critical in an economy that’s undergoing a “correction.” Now more than ever, with pressures from the CEO’s office to be very careful about – or even cut – IT spending, we need to focus on doing better deals and managing deals better.

One truth is that you have to hear some “no’s.” In other words, you must have some deadlocks and impasses in your contract negotiations. This should be no surprise, given the contrasting goals of a vendor, who wants to maximize revenue, and you, the customer, who is dedicated to minimizing costs, especially in a down economy.

Here’s an interesting scenario: A vendor makes you an offer, “$1 million.” You respond, “Not a dime more than $900,000.” The vendor says, “Done deal.” How good is the deal you got? With a response as quick as that, you obviously left some substantial bottom-line dollars on the table.

Based on the conflicting financial objectives between client and vendor, you must be assertive enough on these issues to hear some “no’s” – and not just one. That means you have to go beyond “vendor acceptability” several times to find where it really is. You have to ask for what you want – assertively. That’s not easy, because almost no one likes conflict; we’d all rather just do the deal. That may be fine for some deals, but not for better ones. To get better deals, understand that you don’t get what you don’t ask for. So, be convincing when you say, “Excuse me. Unless we have this and this and this, we can’t do business.”  

Another truth is one that seems to be frequently overlooked or, at best, given minimal attention. That is: Contract remedies are essential. If the vendor doesn’t face any consequences if it doesn’t produce specified results, the contract probably isn’t worth the paper it’s written on. Sometimes the vendor will live up to its responsibilities, even without stringent remedies in place. But in most cases, remedies are the catalyst to a good deal.

There are different theories on remedies, two of which I disagree with. Some people believe remedies should exist to punish the nonperformer. And, some believe remedies should exist to compensate the side that has suffered the loss of performance.

Both theories are wrong. Remedies – which vendors don’t like – should motivate them to perform, not punish them. I’m not talking about cases where you pay extra for something the vendor should have done. Remedies should be designed to spur the vendor in case it doesn’t live up to the terms of the contract.

My favorite question to a vendor when negotiating remedies is: “How much confidence do you have in your ability to perform?” Most vendors answer, “100%!” My response: “Good. Then you’ll have no problem with these remedies. If you were worried about the remedies, I’d be concerned that you can’t do the job.” Remedies are evidence of the vendor’s confidence in its ability to perform.

Remedies also should have three tiers. The bottom tier should be problem-solving remedies. This level would include things like having to add more people, bringing in different equipment or bringing the two companies’ CIOs together. The next level, attention-getting remedies, might involve the customer receiving liquidated damages (money) based on a predetermined performance guarantee. The third level is what we call global thermonuclear war remedies. This is where you talk about getting out of the deal and getting your money back.

If you don’t have remedies in a contract and you suffer as the result of a vendor’s lack of performance, what are your alternatives? You can go to court, or you can begin arbitration or mediation. None are good. They’re costly and time-consuming – and there’s no guarantee that you’ll win.

If you focus on these two truths, as well as my eight others – you’ll do better deals than 98% of all companies.

Driving the Deal

The Right Attitude

By Joe Auer

One of the more important issues when I advise IT buyers is their basic attitude toward contract negotiations. In many situations, the end user or senior management has a friendly, close relationship with representatives of the vendor. The vendor is referred to as their partner, friend or the one with the solution to their problem. As a result, these stakeholders, who must protect their company’s interests, can be less than objective in analyzing the vendor’s proposals, promises and provisions.

Whenever I brief the key players on the customer’s negotiating team, I use the following “attitude adjustment” points, which are useful for all of us:

• Negotiations begin when the first person in your organization exchanges information with the vendor. You gain or lose negotiating power with every succeeding interaction.

• The customer is the buyer, and the vendor is only the potential supplier. You’ve got what all the vendors want – the money.

• Change your “needs” to “preferences.” Needs aren’t negotiable; preferences are. Don’t tell a vendor you need it, its product or its service. Just say you prefer it.

• At negotiation time, the vendor’s sales representative has projected to his management that the deal with the customer has already been sold. Use this to your advantage, since the sales rep has placed the pressure on himself to close the deal.

• Vendor reps face many pressures to reach certain sales goals at various times, such as quarterly, annually or when earnings are down. Be aware of these pressures.

• Vendors will try to exploit almost any sense of urgency. Remember that haste makes waste, unless your side is the better prepared, has alternatives and sets a deadline that’s to your advantage.

• Generally, it’s to the customer’s advantage when vendors bring in their top brass, as long as the customer is unimpressed with warm-and-fuzzy talk about relationships and places on the agenda substantive negotiation points to address with the vendor’s executives. They have more to give away than the sales reps do.

• Never rely on vendor promises and benefits unless they’re written in the contract, and hold the customer personnel who trust those promises accountable.

• Vendor shareholders and senior management are primarily interested in bottom-line profits and allocating risks to the customer, not interpersonal relationships. Don’t rely on these relationships; vendors just use them to get what they really want.

• Multiple acquisition methods (leasing vs. purchasing, short- vs. long-term contracts) should be considered in most cases, though vendors will try to give you tunnel vision that benefits their current performance objectives.

• The customer does have alternative vendors, approaches and deal timing, and both sides should be aware of that during negotiations.

• Vendors must be aware that negotiations will end only when the customer is fully satisfied and the agreement is fully documented.

• Ignore a vendor’s claims, especially early in negotiations, of “That’s the best deal we can give you.”

• If you haven’t heard a no from the vendor or haven’t experienced a deadlock, impasse or some sort of breakdown in negotiations because you asked for too much, you haven’t gotten the best deal you can get.

• Remember that negotiations are enhanced by thorough planning, knowledge, teamwork and dedication to securing the best contract protections at the best price.

• Most important, remember that competition is your strongest ally. Don’t select a vendor until you’ve gone through competitive negotiations on everything, including the contract, with at least two potential vendors.

You and the rest of your negotiating team should keep these points in mind and review them like you would review a checklist before each negotiation. After all, other professionals, like pilots who have been flying for 20 years, still review their checklists before takeoff.

JOE AUER is president of International Computer Negotiations Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates users on high-tech procurement. ICN sponsors CAUCUS: The Association of High Tech Acquisition Professionals. Contact him at joea@dobetterdeals.com