Are You Acquiring Results or Resources?

 by Joe Auer

Are you acquiring results or resources? The answer to that question will yield a fifth important, essential “truth” whenever you negotiate a technology deal. About six months ago, I mentioned 10 of these truths, and detailed four of them.

The answer to this “results or resources” question establishes which side will bear responsibility for the results you’re expecting from a deal, and you need that answer before your acquisition process begins. In a “results deal,” the vendor is responsible, while in a “resource deal,” it’s the customer.

For more than 20 years, I have testified as an expert witness in court cases involving customer-vendor disputes, and almost every one revolves around the question of who’s responsible. In most of these cases, contractual responsibility for the success of the deal is unclear or mutual, or the vendor’s form contract has disclaimed any responsibility. The bottom line: If you, as a customer, fall short in a contract of clearly and completely assigning full responsibility for final results to the vendor, you’re responsible.

A results deal. In a results deal, you, the customer, effectively get the supplier to fully accept the risk of failing to produce the solution, or the expected outcomes or results. If the vendor’s representatives talk about “solutions” to your executives or end users, the vendor is held accountable for producing them.

This sounds good, but you can shoot yourself in the foot if you’re not careful putting the deal together. You might say, “OK, we have them committed to results. But we’re going to manage the deal. After all, it’s our money and our project.” Don’t do it! That shifts some responsibility for results to you, and the vendor is off the hook. The vendor must have complete authority to have complete accountability.

Another thing you might say is, “We have them committed to results, but we’re going to tell them the policies, equipment and staffing levels they must use.“ This also ruins a results deal. I’ve seen countless vendors avoid accountability because they were “forced” to do things according to their customers’ dictates. The customers got too proscriptive and shared responsibility for the outcomes.

Another important point about a results deal: Make sure your obligation to pay a vendor is triggered only by its producing the agreed-upon results, whether by reaching certain milestones or upon project completion.

If it’s a results deal, why should a vendor’s invoice force you to pay? Why should a set monthly date, the signing of a contract, accepting delivery or anything short of contracted-for results require you to pay? Make sure your money is tied directly to the vendor’s performance. The satisfaction of having a good contract is exceeded only by holding payment until the vendor produces.

A resource deal. In certain instances, there’s nothing wrong with a resource deal, especially if you don’t expect the vendor to produce the final results or outcomes. Maybe you just need some equipment, software or support to help you produce the results. Actually, sometimes you can’t predefine the results, or you may just need some tools to distribute — like 3,000 desktop PCs. Or maybe you need help on a general software development team or ongoing maintenance work and the results aren’t predetermined. These are resource deals. In these deals, you must pay attention and manage the resources, tasks, time frames and progress, because you’re responsible for the results.

The first thing I do when I’m asked to help on a deal gone bad is try to determine whether it’s a results or resource deal. Who has the responsibility for the outcomes? In most deals I look at, the answer is unclear. If that’s the case, you’ll never win a dispute that goes to mediation or court, where you’re trying to blame the vendor for not producing the results or solutions that it so eagerly promised verbally during its sales pitch.

IF YOU WANT TO SEE MORE ABOUT THIS, there is a SLA Lab at the AMA in Chicago May 27-28 produced by ICN.

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.

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Negotiations Pioneer Announces New Course

(Orlando, FL – 04/08/10)  Today, procurement and technology negotiations pioneer International Computer Negotiations (ICN) announced the addition of a new advanced course to its curriculum.  For 35 years, ICN has been training Global 1000 companies in how to Do Better Deals, and its new SLA Lab: Results-Based Contracting was developed to teach best practices in the use of service level agreements with suppliers.

CEO Joe Auer states, “Early in the acquisition process, effective negotiating teams must agree upon the concept of which contractual approach they will use to drive the deal. ICN’s advanced training course SLA Lab: Results-Based Contracting helps you understand the difference between contracting for resources and contracting for results and shows you how to implement a ‘results deal’.”

This “results versus resources” decision establishes which side of the bargaining table will bear the responsibility for the outcome you’re expecting from the deal. In a “results deal,” the vendor is responsible, while in a “resource deal,” it’s the customer.

Auer continues, “In SLA Lab, you’ll gain an understanding of critical elements that can help you shift risk and responsibilities to the vendor and monitor ongoing compliance.”

The training classes are open to the public and are available privately all over the world. The first class will be conducted in Chicago (May 27-28, 2010) at the AMA. Registration information along with a detailed outline is available at http://www.dobetterdeals.com or 407-740-0700.

Since 1975, Winter Park, FL based ICN has provided critical training and consulting in IT procurement, vendor management, and negotiations, establishing a reputation that sets it apart from the competition.  Internationally, ICN has presented both public and customized on-site seminars in countries around the world including the United Kingdom, the Netherlands, Malaysia, Canada, Australia, New Zealand, Hong Kong and Singapore.

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Tyrus Cooper

ICN PR

1133 Louisiana Ave

Suite 100

Winter Park, Fl 32789

1.407.740.0700

A Strategy for the Right Service Levels

by Joe Auer

Service levels are an important part of any results-oriented contract where specific supplier performance is required—and where it must be measured. Service levels are especially important in outsourcing and telecommunications deals in which the customer becomes vulnerable because he depends on the supplier. A results-oriented contract with meaningful service levels and remedies is an effective mechanism to help customers actually get what they’re paying for and minimize exploitation by opportunistic suppliers.

Establishing realistic service levels and remedies for supplier nonperformance can be very difficult. With some pressure from a prospective customer, suppliers are generally willing to contract for service levels and, sometimes, remedies to go along with them. But suppliers usually try to make service levels as broad and as loose as possible, which makes them easier to achieve—and tougher to measure. Meanwhile, customers want service levels to be as tight as possible to ensure maximum and measurable performance. The challenge manifests itself during contract negotiations.

As a customer, remember that the supplier is always trying to minimize its risk by placing as much of the burden of proof on your shoulders as possible. Here’s a recent example:

During negotiations for a global telecom deal, a customer was faced with the service-level challenge. Several prospective suppliers proposed their standard service levels. The customer believed those levels were too broad for some critical components of its network. The suppliers stuck to their standard rhetoric, stating that their service levels were reasonable and consistent with industry practice.

The customer didn’t fold and argued that while the levels may be consistent with industry practice, they weren’t sufficient for the company and some parts of its network. The customer’s procurement team focused the prospective suppliers’ discussions and proposed solutions on the actual network. The team presented its network map and pointed out there were certain locations that were critical to operations. The supplier-proposed service levels weren’t adequate for these critical locations because they left the customer vulnerable to too much downtime in the event of a network failure. (But the proposed service levels were acceptable for some other noncritical locations.)

The customer then stressed the need for location-specific service levels to guarantee the robustness and serviceability of its network as well as the continuity of operations. This argument seemed to be new to the suppliers and was met with some initial skepticism.

The customer pulled an ace out of its sleeve by saying, “This is a way to distinguish yourself from your competitors. It’s an opportunity to excel and gain an edge. It’s an opportunity to win a global deal without assuming an inordinate amount of risk. We’re willing to accept your standard offering for most locations if you give us a display of confidence in your ability to perform for the critical ones. These locations are critical for us, and we need to more fairly allocate the risk of network failure.”

Two suppliers agreed and proposed their best location-based service levels. That’s just what the customer needed to be competitive and maintain negotiating power. Isn’t that what it’s all about? Suppliers with real confidence that they can do the job shouldn’t be afraid of performance guarantees. What’s more, having supplier competition on service levels helps both the evaluation and negotiations processes for the customer.

The difficult task ahead is actually agreeing on the specific metrics that ensure that all three critical service-level components—time, money and quality—exist and are meaningful. In other words, every performance factor must be measurable, including how long it will take, what the maximum cost is and how acceptable (to the customer) quality will be verified.