Forest First, Then the Trees

One of the most frustrating traps a negotiator can fall into is negotiating specifics before resolving the broad principles of the deal. For instance, if the supplier hasn’t agreed to the principle of sharing the risks of implementing a new system, discussing specific warranties and remedies for supplier nonperformance could be a significant waste of time. Yet most users, including some of the biggest and best in the business, fall into this trap time after time.

What happens is relatively simple. The supplier, sensing our urgency and that we’re not doing any comparison shopping, is reluctant to engage in serious negotiations, while noting delays in its legal department. In the meantime, the supplier tells a needy end user of ours that we’re delaying the deal with contract mumbo jumbo, which doesn’t help the strength of our negotiation position.

Now we’re worried about whether the supplier will actually address our important issues in time to meet our deadline. After more delays — so the supplier can drive up our blood pressure some more — the supplier agrees to negotiate. Now comes the next ploy: When we sit down, the supplier’s negotiator suggests that things would go faster if we addressed the contract section by section and line by line. Then he asks us to justify each and every change we request, challenging us to “sell” the supplier on why it’s necessary. Any change we propose is likely to be countered by the supplier. A loud ticking sound permeates the atmosphere, reminding us of our deadline.

Any hope we had of controlling the negotiations is sacrificed to the scrutiny of details, and we’re running out of time to go to alternative sources. We’re trapped into negotiating specific changes to a form contract that has been carefully prepared and refined by the supplier over a period of years. The result? We get no substantial concessions, only meaningless fluff.

The tip? Pin down the major issues early in the negotiation when you still have negotiating power and can go to alternatives. That’s vastly more effective than haggling over details first. Negotiating principles first also speeds up the process because an agreement on a given principle is a precursor to agreement on all the embedded details. It helps us buyers control the negotiating agenda and timing and maximize our power and time.

Remember: We’re the customer, and we’ve got what they want — the money.

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Maximize Your Power in a Sole Source Deal

By Joe Auer

The absence of competition can make any deal arduous. You’re starting at a negotiating disadvantage, and if you aren’t begging yet, you soon will be when the supplier figures out its position.The only way to avoid having to beg is to create alternatives — or the illusion of them.

Your having negotiating power is the best defense against a cozy incumbent offering higher costs for the same service. If you don’t have any, create some. Here’s how:

First, issue a Request For Proposal (RFP). Even if it’s issued only to the incumbent, it gains you power, especially if you can keep the vendor’s solo status a secret. I’m not suggesting you lie about what you’re up to — just that you shut down the vendor’s normal information flow that lets him know everything that’s going on with your organization.

Second, just wait for the response. Suppliers tend to fear the unknown and will fear the worst, responding with an aggressive deal to keep the account. A major midwestern food company saved $3.3 million on a version of this strategy, the whole story to appear in a future column.

Third, review the supplier’s proposal and refine your negotiating strategy based on the supplier’s response to your stated requirements. You now have leverage. Go for what’s important, striving always to reduce, or limit, price and risks while obtaining more contractual protections. Incidentally, you can add certain new contract issues to the bid requirements and correct some relationship problems you may have had with the vendor.

Fourth, begin to negotiate aggressively with the supplier. Stress you may prefer to renew the relationship but they must earn the business to continue. Remind them they are a preference, not a need. Press on with the negotiations, but build in some down time to allow the supplier to think you may be negotiating with others.

Your supplier probably suspects you don’t have any real immediate alternatives. Your best defense is to point out to the supplier that thereare always alternatives. Then, start discussing alternatives thatdon’t include the incumbent supplier. Note: Developing the best alternative to a negotiated solution before you negotiate is a proven strategy. Focus your supplier’s attention on keeping your business, rather than maximizing its position.

Defending Your Process

Recently, on a software acquisition, a supplier confronted a sophisticated customer that has a good deal-making procurement process and commented, “Gee, your procurement process takes too much time.” This comment just happened to be skillfully laid as well before the customer’s technical architect.

This popular vendor ploy is normally effective for two reasons. First, it can disarm the procurement process by convincing the technical architect the process itself causes unreasonable delays and puts the project time line in jeopardy. The alarmed technical person then pressures the “bottlenecks.” This divides the customer’s team as it pits technical person versus procurement person.

Second, this ploy attempts to eliminate competition by suggesting the lengthy investigation and evaluation of others is unnecessary, since the perpetrating vendor could immediately provide the solution were it not for that cumbersome procurement process.

Fortunately in this case, the technical architect was experienced and trained on vendor ploys. He recognized this ploy for what it was and clued in the rest of the acquisition team.

The team responded to the supplier in the best possible way: “This is our procurement process. We use it for all procurements, and you are expected to adhere to the process just as your competitors do. Also, please be reminded you are under evaluation and any more subversive behavior will be viewed very negatively.”

The user also stressed to the unruly supplier that careful attention was paid to determining requirements so fact-based decisions can be made. And with all the clarity the statement deserved, the user added, “We take the time to do it right the first time.”

By taking this stance, the user instantly disarmed the ploy and re-focused the supplier’s attention on meeting requirements and keeping up with competition. It also clearly sent a message that the customer was committed to a disciplined process that could not be subverted — and was in control of the relationship. Now that’s a recipe for a successful deal.