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.

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Looking Beyond ‘Needs’

By Joe Auer

If you look at a large IT procurement deal comprehensively and objectively, its most crucial factors go far beyond a specific set of a given department’s needs. Yet vendors’ sales representatives are highly trained to identify these needs and to sell “solutions.” And to the detriment of their bottom lines, flexibility or sanity in contracting issues, many customers believe that the needs of their departments or functional areas are the only important factors.

To do the best deal for your organization, you must consider that whatever you want to buy is just one part of a package. For example, a vendor’s representative says, “Our equipment can handle your problems by providing these solutions, and it’s within your budgetary constraints. We can deliver the entire system, within your time frame, and the system will provide a more than adequate performance level. Can we do business?”

If these are your main concerns, your response will most probably be yes. The vendor’s representative then hands you a letter of intent and says: “Great! Sign here and we can get going.” You sign because your primary concerns at that time are the four or five areas that the vendor has so carefully targeted. Good deal? Many times, the answer is no.

Although a given department’s needs are important, they’re often only a subset of a wide range of issues involving contractual, financial, operational, technical, procurement, end-user and senior management requirements.

Unfortunately, department heads, project leaders and end users often find out later that in their haste to satisfy only their needs, they overlooked some extremely important enterprise wide issues. For example, they may have paid more than they needed to, neglected to secure adequate contractual protection or done something that’s incompatible with technical standards or long-term corporate goals. In essence, the customers may find they were sidetracked by a bad case of tunnel vision, compliments of a great sales job by the vendor’s representative.

This micro view of the acquisition has a number of variations. The speed-of-doing-the-deal obsession during the Internet craze played right into this problem. A noticeable number of customers suffered vendor performance shortfalls – stern reminders that haste makes waste. They didn’t get what they paid for because contractual assurances “took too much time” in the rush to get Web deals done.In some situations, a vendor uses a financial concern to persuade the customer to sign up. The customer’s CFO is searching for some impact to the bottom-line profit. So, an astute vendor structures an outsourcing or lease deal to provide massive, short-term financial benefits with very inflexible terms that lock the customer in for a very long time. In doing so, the customer surrenders future technological agility and options.

The solutions ploy is easy to overcome if the customer can resist buying on impulse. As any retailer will readily acknowledge, impulse buying is an important factor in retail consumer sales. Regardless of whether impulse buying is an appropriate justification for purchasing a new tie or a hanging plant, it shouldn’t apply to the acquisition of a multimillion-dollar system. I’ve seen too many deals done too quickly with too little thought or analysis.

Most important, a broad-based negotiating team should be used to collect and prioritize a comprehensive set of negotiating objectives that represents the entire range of necessary professional disciplines mentioned above. Documenting these sometimes diverse prioritized objectives in a position paper for all team members and senior managers to sign off on is a key step in the process. Then, and only then, does your team have a consensus and a realistic set of needs to use as negotiating points.

Don’t let the bells and whistles that you believe you so desperately need divert your attention from other considerations, such as cost, contractual assurances and flexibility. If you refuse to buy on impulse, and instead use a comprehensive set of negotiation objectives, this ploy should not be a problem to overcome. 

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.

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