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.

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.

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

Caveat Venditor

By Steve Gutzman

George Akerlof is perhaps best known for his article “The Market for Lemons: Quality Uncertainty and the Market Mechanism,” published in 1970 – the paper for which he was awarded the Nobel Prize.  In short, it is an article about asymmetric information and the imbalance of negotiation leverage created when one side knows more about something than the other does.  Remember subprime mortgages?

An imbalance of information is exactly what characterized the technology industry for most of its recent history.  The knowledge and ultimately the negotiation leverage were clearly on the side of the vendor.  An IBM mainframe salesperson in the early ’70s described it as “having an 8th-degree black belt in a barroom brawl with a room full of drunks.”  Back then, if you wanted to know about speeds and feeds, connectivity, throughput, pricing, integration, compatibility, and support, all roads led back to the vendor sales office.  It’s no wonder that caveat emptor – let the buyer beware – became such a useful principle and that the perception of sales was aligned with adjectives such as sleazy, slick, greedy, manipulative, and unscrupulous.

The good news is that the tables have begun to turn in recent years, with buyers having access to more and more information.  This certainly applies to the technology industry, but think of all the other aspects of daily life in which information has become more transparent: buying a car, securing a loan, finding an electrician.  A few keystrokes on Edmunds, LendingTree, or Angie’s List can take the mystery out of what used to be a cumbersome and intimidating set of activities.  In fact, there is so much information available that the watchword is now caveat venditor – let the seller beware.

Some studies indicate that as much as half the traditional selling cycle is complete by the time a salesperson learns of a new opportunity.  Today the buyer can easily scope out product information, viable suppliers, sample RFPs, evaluation models, vendor scorecards, checklists, and service-level agreements from the internet with relative ease.  Conference calls with colleagues from other companies, user group meetings, and buyer conferences can also be on the menu to the more determined.  And all before the sales team is called – if they are called at all.  This “new reality,” as one Silicon Valley head of sales terms it, is forcing sales teams around the world to reevaluate how they engage with customers in everything from small-business marketing campaigns to key account sales management.  The selling strategies and tactics of just a few years ago are proving to be increasingly out of date.

However, while having access to more information may take away the specter of the lopsided barroom brawl, knowing what to do with that information is where the high-value payback occurs.  As one insurance industry executive described the rollout of their vendor management office, “This is where the heavy lifting takes place.”

The goal, however elusive, leads back to a principle that even the theoretical economist George Akerlof would agree has real-world value: “fully informed, rational actors making decisions in their best interest.”

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Steve Gutzman is a senior advisor at ICN and a 33-year veteran of the high-tech industry.  You may contact him at sgutzman@dobetterdeals.com.

 

Other Enterprise Agreement Choices

by: John Cullen

A traditional Enterprise Agreement (EA), commonly called a “desktop EA,” was designed to license a wide selection of products for on-premises use—especially desktop software and Client Access Licenses (CALs) for server software. This remains the main use of the EA program. However, to meet competitive threats and foster new forms of software delivery, Microsoft has, over the past few years, augmented the EA program to support alternative licensing models for some select products as well as to incorporate new online services. These three extensions to the EA program leverage all or part of the traditional desktop EA contract structure, with two implemented as separate EA Enrollments and one (hosted online services) leveraging the same Enrollment as is used for a desktop EA. (See the illustration “Enterprise Agreement Contract Structure” on page XX.)

Enrollment for Application Platform

As a separate enrollment under an EA, Enrollment for Application Platform (EAP) is another way to license server applications and developer tools, specifically SQL Server, SharePoint Server, BizTalk Server, and Visual Studio.

There are two major reasons to consider using an EAP rather than purchase the same licenses as Additional Products under the desktop EA. First, the EAP provides a way to add Software Assurance (SA) to an old server license. SA grants the customer the right to use the latest version of software and confers other benefits. Customers must normally purchase SA at the time of the original license purchase; the EAP is a noteworthy exception. The EAP allows a customer who previously skipped SA to upgrade server software without buying a new license. The second reason to consider the EAP is license cost savings. If a customer foresees a growing need for these EAP products, license acquisitions under EAP can provide savings of 15% to 40% on new licenses.

The EAP has minimum initial purchase requirements. For instance, purchases of SQL Server require a minimum of five SQL Server processor licenses, or five SQL Server server licenses and 250 SQL Server CALs.

When a customer starts a new EAP, the customer may choose between annual true-up payments (payment made at the enrollment anniversary for software deployed in previous year) and a one-time true up after three years. The annual true-up option works just as it does in a desktop EA. With the three-year true-up option, the customer makes payments at the time of initial order and at the end of the three-year initial term only. However, this option requires the customer to commit to a minimum 20% year-over-year growth in EAP license purchases and a commitment that at least 35% of purchases will be from the EAP premium offerings, which are high-end editions of SQL Server, BizTalk Server, SharePoint Server, or Visual Studio. To date, most enterprises have selected the annual true-up option.

Enrollment for Core Infrastructure

As another separate enrollment under an EA, Enrollment for Core Infrastructure (ECI) is an alternate way of licensing a server machine to run the Windows Server OS, be managed by System Center products, and be protected against viruses and other malware by Forefront Endpoint Protection. All three ECI options include Forefront Endpoint Protection plus the following other products:

• The Standard ECI Suite includes Windows Server 2008 R2 Standard, System Center System Operations Manager Standard Management License (ML) for monitoring, System Center Configuration Manager Standard ML for software configuration and inventory, and System Center Data Protection Manager Standard ML for backup
• The Enterprise ECI Suite includes Windows Server 2008 R2 Enterprise and System Center Server Management Suite Enterprise, which offers a superset of the System Center licenses in the Standard ECI suite
• The Datacenter ECI Suite includes Windows Server 2008 R2 Datacenter and System Center Server Management Suite Datacenter, which offers a superset of the System Center licenses in the Enterprise ECI suite.

The ECI Suites are sometimes referred to as “Core Infrastructure Server” suites, and they are licensed with a per-processor model. This is an oddity considering that some of the included products in the suites, when licensed separately, are under a per-server model. There is a minimum initial purchase requirement of 50 ECI processor licenses of any suite, and if a customer already owns Windows Server licenses with active SA, there are means to transition those licenses into an ECI enrollment. ECI Suites may also be purchased on a subscription basis.

The primary reason to consider purchasing ECI suites is the license cost savings: ECI purchases cost up to 20% less than individual product licenses purchased separately. An added benefit is that the server suites provide some compliance convenience for those customers requiring Windows Server, System Center, and Forefront security technology for their server infrastructure.

Online Services

Some Microsoft-hosted online services for businesses are available under a desktop EA, including Office 365 (which includes Exchange, SharePoint, and Lync, and subscription rights to Office Professional Plus 2010 for customers’ local PCs), Dynamics CRM Online (Microsoft’s customer relationship management service), and Windows Intune (Microsoft’s PC management and malware protection subscription service).

These Online Services can be purchased as subscriptions under a customer’s existing desktop EA enrollment, or a new desktop EA enrollment can be started for the express purpose of licensing Online Services. Microsoft allows customers to either start new users with Online Services or transition existing on-premises users to and from Online Services. A customer may order Online Services through the desktop EA without the purchase of any Enterprise Product (Windows OS upgrade, Office Professional Plus, or the Enterprise CAL or CAL Suites); however, in this case the customer must initially purchase a minimum of 250 subscriptions for users or devices. Different program rules and requirements apply to purchasing Online Services, but these terms are now incorporated into the EA. For instance, customers can convert on-premises CAL suites into Online Services licenses per the license transition rules of the EA.

About the Author:

John Cullen is a Research VP at Directions on Microsoft, an independent analyst company and ICN partner that provides detailed research about Microsoft technologies and licensing policies. Prior to joining Directions on Microsoft, John spent nine years at Microsoft and was a senior product manager for Windows Server.

Microsoft makes changes to Select Plus – Improves Discount and Software Assurance Rules

This is the 2nd of a two-part series (the first part was out on April 1st) :    The Select Plus volume licensing program received two updates that preserve discount levels and ease license tracking and management.

Two changes to Select Plus will benefit customers by helping to preserve discount levels and making license and Software Assurance purchases easier to manage

Part 2,  By John Cullen

Initial License and SA Purchase Term Alignment

The second Mar. 2011 change alters the rules for initial purchase of licenses with SA so that the SA renewal dates of multiple purchases fall on a single affiliate anniversary date. This helps organizations to keep track of their renewal dates.

In Select Plus, purchases are made by the affiliate, a business unit or department within the organization that signed the agreement and that is allowed to make independent purchases. An affiliate designates its affiliate anniversary as either the date that it first registered under a Select Plus Agreement or the date it began using a licensed product. Until now, for orders of licenses with SA (called L & SA purchases) in Select Plus, Microsoft ignored an affiliate’s anniversary date when setting the initial term for SA. Specifically, every order for L & SA was required to include a full 36 months of SA coverage. This resulted in multiple orders of L & SA purchases that ended on different dates, giving the affiliate a large number of renewal dates to track. Microsoft mitigated the problem by aligning all SA renewals after the initial 36 months to the affiliate anniversary. This meant that the term of the first SA renewal could be between 25 and 36 months. As a result, initial orders of L & SA had staggered end dates, but their corresponding renewals made within the same year were aligned.

Under the new policy, L & SA orders will be aligned to the next third-year affiliate anniversary from the date of purchase. Therefore, L & SA orders made at any point during a year will terminate simultaneously at the next third-year affiliate anniversary date, and thus they will run from 25 months (for purchases made just before the anniversary date) to 36 months (for purchases made just after). SA renewals are then aligned for a three-year period.

This change improves and simplifies the SA purchase process by avoiding L & SA orders with different end dates for renewal. L & SA orders will align at purchase instead of waiting for alignment upon SA renewal. Customers will still need to consider timing when buying SA for a particular product; however, internal recordkeeping and renewal date tracking should be simplified.

More Like Old Select

With these two incremental changes to how Select Plus operates, customers will have greater ability to retain their discount levels as well as simpler L & SA and SA renewal asset management and tracking. These changes also make Select Plus work more like the Select program that it replaces, which will give organizations currently on Select more reason to consider the newer program. Microsoft’s announcement of the changes is at https://partner.microsoft.com/US/licensing/licensingprograms/ltvolumelicensing/vlselectplus.

 

About the Author: John Cullen is a Research VP at Directions on Microsoft, an independent publisher of information about Microsoft technologies, product roadmaps and licensing rules and programs. For more information, visit www.DirectionsOnMicrosoft.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.

Ten Truths of Negotiations – Truths #9 & #10

This will conclude our “Ten Truths of Negotiations” piece.

Truth #9. Remedies are essential. In this instance, I’m referring to remedies in the contract, not remedies under law. Building on a previous truth—if it’s not in the contract, it’s not in the deal—if there are no remedies when a vendor doesn’t produce specified results, the contract probably isn’t worth the paper it’s written on. Sometimes the vendor will come through, but in most cases the remedies must be there…in writing.

There are different theories on remedies. In my opinion, two of those theories are wrong. Some people believe remedies should exist to punish the non-performer. That’s wrong. Some people believe remedies should exist to compensate the side that’s suffered the loss of performance. I believe that’s wrong, too. I believe remedies should motivate vendors to perform. When I say motivate, I’m not talking about paying extra for something the vendor should have done anyway. I’m talking about remedies you can exercise to motivate the vendor in the event of nonperformance.

My favorite question to a vendor when we’re negotiating remedies is, “How much confidence do you have in your ability to perform?” Most vendors respond with “One hundred percent! No problem!” Then what do you say? “One hundred percent? Then you should have no problem with these remedies. If you’re 100 percent sure you’re going to perform, these remedies could be ten times what they are, and you wouldn’t be bothered by them. Right?”  I go even further by saying, “The more you worry about these remedies, the more you scare me that you can’t do the job.” I believe that remedies are there as evidence of the vendor’s confidence in its ability to perform.

I also believe that remedies should be three tiered. The first level should be problem-solving remedies because that’s what you really want to accomplish. This level would include having to add more people, bring in different equipment and get the vendor and customer CEOs together.

The next level is attention-getting remedies. This might include running an ad in the Wall Street Journal or having the CEO of the company that manufactures a helicopter that crashed ride in that same model helicopter.

The third level of remedies is what we call the “global thermonuclear war” remedies. At this level you talk about getting out of the deal or getting your money back.

So remedies are essential. If you don’t have remedies in your contract and you suffer as the result of the vendor’s lack of performance, what are your alternatives? Live with it or what? You can go to court, or you can begin arbitration or mediation. These are not good alternatives.

Truth #10. Don’t select a vendor before you’ve negotiated the deals. This is a tough way to negotiate. It involves a situation where there are alternative vendors involved in a procurement or evaluation. Why would we select one vendor, tell them they have the business, tell the competitors “thanks but no thanks,” tell everyone in our organization that we’ve selected this supplier, disclose more information to that vendor—like how badly we need them, become more and more dependent on them and then try to negotiate with them? Why would we do that?

There’s only one reason I can think of—vendors have trained us how to negotiate. I’m reminded of a time when we went to a client on an outsourcing deal. We had met this client at an outsourcing seminar. About halfway through the workshop, one of the client’s people said, “We’re in a tough deal. You’ve got to come help us.”

A couple of us from ICN went to the client location, and we were briefed on the deal. They not only had selected the vendor, but that vendor had said that to get a negotiating team authorized, the customer had to put up $500,000 good faith money. Another vendor requirement was that the customer not talk to other suppliers. The customer complied with all of this. Exacerbating this was the fact that a date had been identified when employees hired by the outsourcing vendor would begin working. This was the situation when the customer asked us to help negotiate the deal.

At that point, we asked the client to pay the expenses for our trip and told them we wouldn’t charge a fee because the negotiations were over. They refused, saying that we didn’t understand—the negotiations had not yet started. We responded by telling them that they didn’t understand—the negotiations were over. How well can you negotiate under the circumstances I described? The moral of the story is, don’t select a supplier until the contract has been negotiated—with two or more vendors.

For more than 35 years, ICN has been using what we call the “Zone of Consideration,” a concept that involves negotiating with two or more suppliers. During that time, there have been clients who have said things like, “We won’t do that because Vendor A is a slam dunk. Everyone wants them.” We’ve encouraged these clients to negotiate with one or more other suppliers.

When our advice has been accepted, 25 to 30 percent of the time clients have selected a vendor other than the “slam-dunk” one. That was because things happened during negotiations that changed their minds. You learn extremely valuable things about a vendor during true negotiations. When multiple suppliers are being considered, negotiate the deal before any decision is made. Do this with two or three vendors. Negotiating with three is more fun because you can eliminate one and still have two in competition for the business.

Those are my ten truths—distilled from four decades in the business. I believe that if we focus on and implement these truths, we can do better deals and do them better than 98 percent of the people out there. Remember though, after you’ve done them, you have to manage them. By doing better deals and managing them better, you’ll be head and shoulders above the rest!

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.