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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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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One Bite at a Time

By Joe Auer

Here’s a strategy you can use to help gain and maintain negotiating strength. The key to this – called the “salami” strategy – is to disclose your goals to prospective vendors a few slices of information at a time, rather than give them the whole salami when they ask what it takes to do a deal.

Force the prospective vendors to fully address a few selected negotiation points without disclosing your entire position. Then negotiate only the set of issues you’ve selected and resolve those issues before discussing any of your other objectives.

Many vendors will press you to tell them everything you want before they concede anything. Tell them that they don’t need to worry about the rest of the things you want because if they don’t meet your initial issues, they’ll never hear your other points, but some other vendor will.

This technique has several advantages:

It helps put you in control of the negotiations. Only you are aware of your full shopping list, so the vendor is far less able to map a comprehensive strategy to gain control of the negotiations. On the other hand, you can disclose, withhold or compromise on points as necessary.

For instance, if you win or lose some points early in negotiations, it may change the importance of subsequent issues. And later, you can add points that may accomplish the same goal as the points you conceded earlier.

It permits you to add new considerations at virtually any point in the negotiations without being subject to the criticism of dealing in bad faith. A vendor might make such a charge if you said, “This is everything we want,” but then added other points after the original demands were negotiated.

It puts pressure on the vendor to concede the previous two advantages. The vendor is prevented from being able to control your negotiating position. You’re in control of where and when certain points will be addressed.

It allows you to assess and react to the vendor’s negotiating position with maximum flexibility. You can analyze a vendor’s reaction to various issues and adjust your negotiating tactics in response to the vendor’s reaction.

It maximizes the likelihood that the vendor will agree to your specific negotiating points. If the vendor is aware that you will continue negotiations only if agreement is reached on the subjects under consideration, The vendor is more likely to reach agreement. In addition, if early agreement is reached on some issues, it sets the stage and chemistry for further agreement on other points.

This approach also lets the vendor know that you take the negotiations seriously and plan to pursue each point vigorously.

There are a few techniques that help to maximize the effectiveness of this negotiating strategy. First, you can simply explain that the entire purpose of focusing on a few issues at a time is to determine whether there is any rationale for continuing negotiations. As one customer negotiator explained to a vendor recently, “Look, your time is valuable; our time is valuable. Before we clutter up the session with a lot of issues or waste time working through the contract, we want to know if you’re willing to reach agreement on a number of issues we think are critical to the entire deal.”

Second, recognize in advance that the vendor may do everything possible to avoid the “few slices at a time” approach. You should reject out of hand any vendor representatives’ comments reflecting their desire to go to management only once with the whole package. Simply refuse to accept the idea, or ask the sales reps why your account isn’t worth the trouble of going to corporate headquarters more than once. Better yet, ask them to bring someone to the table who has final negotiating authority.

Knowledge – especially of your opponent – is power when it comes to negotiating a deal. Vendors count on gaining as much knowledge of their customers as possible to boost their negotiating power and try to control the talks. But using the salami strategy can help prevent that.

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.

Creating a Work Scope Document (SOW)

By Ron Scruggs

A good work scope puts you in control of the project and procurement process.

This is an overview of the items to be included in any work scope document (sometimes called an SOW or statement of work).  Note that before selection of a vendor, you should complete negotiations. Negotiation after selection reduces your negotiation leverage. Make sure you specify the results you are after and have the contract terms defined. If you have a need that is not defined in the contract documents, then it is not in the deal. Avoid side letters and verbal promises.

After you have the SOW team and consensus, the first step is determining whether the SOW is to be for results (the vendor is responsible) or resources (we are responsible).  For results SOWs, the language should state that the vendor is responsible for achieving the “following results”. You do not tell the vendor how to achieve the results or who to use.  For resources SOWs, you will be defining the steps, people and you determine their performance (when to be on the job, the type of engineer and other details).

If you are creating results work scope documents, call them statement of results (SOR) or another appropriate name not associated with time and expense resource documents.

Red-flag language to avoid in results SORs is unclear, ambiguous wording such as:

  • Joint efforts (This avoids vendor responsibility for results)
  • Customer will assist…” (This avoids vendor results)
  • Qualified technicians…” (How are they qualified?)
  • Best practices…?” (According to whom?)
  • Reasonable…?” (be precise in results SORs, reasonableness can vary)

Avoid the vendor totaling creating the SOW or SOR. If a customer fails to specify requirements, then the vendor has a license to propose anything, or to tailor its presentations to identify only the requirements that it can meet. The sales effort then subtly shifts to convincing you that the vendor’s strengths are your requirements.

The basic work scope must answer these six questions:

  1. What is the work to be performed?
  2.  How is it managed?
  3.  What are the benefits to our company?
  4.  Are there special requirements?
  5.  What are we supplying?
  6.  When is it finished?

What is the work to be performed? 

  1. Explain the background, where you are now and where you want to be.
  2. State the results you want to be achieved by the vendor.
  3. State the deliverables the vendor is to provide
  4. Define the schedule for the results, deliverables and acceptance.
  5. Define the service levels that you want and the measurements.

How is it managed?  How are you going to oversee the project?

  1. Daily, weekly, monthly, quarterly. Red-flag reporting
  2. Achievement to date, achievements planned
  3. Identification of problems to date (use a rolling estoppel process)
  4. On-site meetings, progress meetings, acceptance process meetings, etc.
  5. Project managers with authority to make decisions for the results.
  6. Milestone reviews
  7. Payment for performance.

What are the benefits to our company?

  1. When the results are achieved, what benefits do we expect?
  2. Vendor needs to know the benefits of results for full understanding.
  3. These were likely expressed to get internal buy-in of project.

What are some special requirements?

  1. Technical requirements (specifications)
  2. Government and legal requirements
  3. Contract requirements (SLAs if not specified elsewhere)
  4. Location of work and access requirements

What are we supplying?

  1. Define the customer-supplied items (data, hardware, etc.)
  2. Specify the dates
  3. Note that vendor has to report on issues with our items
  4. Any item not specified as contractor supplied, is vendor responsibility

When is the project completed?

  1. Define the acceptance criteria.
  2. Define who is responsible for acceptance.
  3. Define what happens for failure to meet acceptance.
  4. Is there initial acceptance and an operational acceptance?
  5. Are all deliverables completed and accepted?
  6. Use of an acceptance form to signify customer acceptance.

Summary:

  • A good RFP and SOR puts you in control of the procurement process
  • Address “results” or “resources”
  • Answer the six basic questions
  • The right team is essential (sometimes it is only the buyer and PM)
  • There is no substitute for preparation
  • Negotiate before you select.
  • Use a clear and concise writing style; simplify wherever possible
  • Avoid ‘reasonable’, ‘best practices’, ‘joint efforts’ and other ambiguous language
  • Spell check and proofread all correspondence to potential vendors
  • Always include your form contract in your RFP and work scope document
  • Never underestimate the power of competition – it yields the best deal
  • If it is not in the contract (or Work Scope Document), it is not in the deal.