Ten Truths of Negotiations – Truths #7 & #8

Truth #7. The entire procurement process is about control and negotiating power. Anyone who has been on the vendor side can confirm this. The most used term in vendor vocabulary is account control.

As I said earlier, we give vendors massive amounts of negotiating power. What has to happen is that we have to think in terms of negotiating power for ourselves. The right process or the right attitude isn’t enough. It’s about negotiating power.

I often hear people say, “Gee, Joe, I’m negotiating with so-and-so and trying to do x-y-z. How do we do it?” In each case, the answer depends on your negotiating power. You can know the best deal ever given to any customer, but if you don’t have the negotiating power, the vendor won’t give it to you. Why should they? If you got it under those conditions, I’d disqualify the vendor as being too stupid to stay in business.

 If you build negotiating power into the fabric of your company, you can be very gentle when it’s time to negotiate. Consider a vendor such as IBM. People have said to me, “IBM will give me anything. I’ve seen IBM give away the store to get an account. We’re a prestigious account with alternatives. We have negotiating power.” The next thing I hear is, “I can’t get anything, Joe! What happened?”

My response is, “Let me see. The IBM account rep’s office is right next to your CIO’s, right? Your executives went on an executive retreat and mandated that IBM be a strategic partner, correct? You shouldn’t be surprised that now you can’t negotiate anything with them.” In short, as a client, you no longer have any negotiating power.

Truth #8. You have to hear some noes. This truth often comes as a surprise to people. However, you do have to have some deadlocks and impasses in your negotiations. Here’s a scenario: A vendor makes you an offer: “One million dollars.” You respond, “Not a dime more than $900,000.” The vendor says, “Done deal.” What do you think? How good is the deal you got?

Based on the conflicting objectives of profit as well as cost and risk, we know that you’re going to have to be assertive enough on these issues to hear some noes—and not just one. You have to ask, ask, ask. That’s not easy; almost no one likes conflict. We would rather just “do the deal.” That may be fine for some deals, but it’s not fine for the better ones. To get better deals, you have to make assertiveness part of your corporate culture and its processes.

When that’s the environment, there’s support when you hear the noes. That support will bolster your negotiating position. You can be convincing when you say, “Excuse me. Unless we have this and this and this, we can’t do business.” And when the vendor does an end run to a senior executive in your organization, it’s great if the vendor doesn’t know that the senior executive is on the negotiation team and has signed a position paper containing your objectives. But if that executive isn’t on your negotiating team when the vendor does that end run, your negotiating position can crumble.

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Worldwide Software Negotiations Training Coming to the UK

(London, 15-6-2010) – Worldwide IT Contract Negotiations Training Company, International Computer Negotiations (ICN), is coming to the United Kingdom on July 1-2, 2010, for their highly acclaimed Software: Issues, Contracts, Negotiations training class.  For 35 years, ICN has been training Global 1000 companies on how to Do Better DealsICN’s Software Negotiations Training has taught over 1000 IT buyers how to do better licensing and development deals. Click here for more information.

“How Software is Protected, Key Licensing Ingredients, Software Development, Pricing Models and Strategies, Avoiding Litigation, Prioritizing Objectives are just some of the topics the business community will see,” says CEO Joe Auer Sr.  People looking to register for this 2-day event must do it in advance.  Training will take place at the headquarters of BP in London and sign-up is available through http://dobetterdeals.com. “Anybody that is involved with the acquisition of Software, including legal, IT, finance, procurement and contract or vendor management, needs to see this course,” says Auer.

Since 1975, Winter Park, FL based ICN has provided critical training and consulting in high tech 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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Supplier Measurement Programs – Measurement Series

by Patrick Campbell, CPCU, CLU, FLMI

Introduction:

While serving on an assignment as a director of quality (implementing a quality improvement program), I had the opportunity to develop, edit and mentor many team members on building service levels and the supporting measurement programs. Later, working in a center of excellence concept, I conducted quality reviews and audits of several IT and non-IT measurement programs. Finally, I had to execute measurement programs as director of a major operations center. During those periods, and even today, I have seen some measurement programs struggle and others flourish. Both the failures and successes seem to follow predictable patterns. In this article I would share with you what I have found to be some major reasons for less than satisfactory measurements and their associated risks.

First, let me mention some fundamental principles. It is common axiom that the path to improved performance is through measurement. You cannot improve what you cannot measure. From a supplier performance perspective, suppliers are improving, declining or staying the same. It is vital to know this, especially with your most important suppliers. Each condition calls upon specific action plans.

This leads to a second principle. Measurements are about continuous improvement. Measurements should not be viewed as an event, but as incidences within a pattern of trends. Performance measurements are about tracking trends. Programs need to be built for longevity with elements of repeatability, regular monitoring and feedback.

The third principle, for this discussion, is measurement programs need to be client (business units) usable. They need to be developed to support and assist clients to perform better and ultimately contribute to improved corporate performance. The question to ask is can the measurement be tied (directly or indirectly) to corporate performance?

Unfortunately, many measurements and measurement programs are not successful. There are several reasons for this which include lack of training, inadequate attention and insufficient planning. For example, I had a discussion with one supplier of a major bank, who told me that one of their clients installed a fairly impressive and comprehensive measurement program. However, since the inception of the program the client has, yet, to meet with the suppliers to have a mutual conversation on what is going well and what is not going well. This particular supplier wanted an opportunity to collaborate and improve, but the feedback mechanism was not there. A feedback process is essential and needs to be continually followed. What you make important becomes important

Let me share five issues that I have found to be common causes measurement programs to fail.

Inconsistent executive support

Performance programs fail, when there is dissimilarity between what management wants and the support design. Building a program takes time, money and talent. Additionally, executives need to provide consistent direction, both during the development and execution. They need to agree to the program goals and support those goals. When support does not occur, the program loses creditability and can flounder.

One of the most glaring examples occurred in the case where a supplier was chronically missing their targets. They were in jeopardy of being removed, according to the service agreement. Being concerned, they sought counsel with a senior executive. Upon hearing the supplier’s dilemma and explanations, the executive gave the supplier forgiveness and requested the measurement targets to be reduced. The rippling effect of that decision caused irreparable damage.

Lack of confidence in results

When there is a discrepancy in the results, there is an obvious creation of uncertainty and doubt. I have seen this, most often, in two situations: (1) the published measurements did not match the actual experiences of the client and (2) the computations contained errors.

In the first case, when the customer’s actual experience did not correlate to the published measurements, doubt was caste on the measurement. The most notorious situation occurs with availability and response time. A specific supplier may have a reported 100% availability, but the customer reports a different experience. One reason for this is that many suppliers (such as telecom) may be involved in the chain events providing availability, but not all in the chain are being monitored. Thus, an individual supplier could be performing well, but others in the chain are not doing well. The customer is experiencing substandard performance. The entire chain needs monitoring.

How could there be computation errors? In the second situation published data contained erroneous summations and computations. Why could this even occur? It is usually carelessness created when there is a rush or time driven requirement to produce a report. In a particular case at a large health insurer, the measurement developers did not conduct a quality walk-thru or test runs prior to information distribution.

Lack of clarity

Don’t speak “geek.” This is heard often, especially in the technology world. The language of the measurements must be understandable by the end-consumer. MIPS, MTTR, GIGABYTES, might be familiar terminology to the data creators. However, such abbreviations and technical terminology has little meaning to the customer. The Information Technology culture is saturated with “TLAs” (three letter acronyms). We need to use customer language, not the language of the technologists.

Sometimes, calculations can also be so complicated it takes an advanced accounting skill to interpret them. It can take many hours reconciling and validating. There needs to be simplicity to computations

Too many objectives

What is important? Suppliers do want to be successful and please their customer by satisfying their expectations. How many objectives are enough? Caution should be taken to avoid generating too many objectives. With too many objectives the supplier’s efforts become too diluted and there can be confusion on what is important. It is better to have a few objectives with high focus. Obviously, they can and will be modified and changed over time.

Silo thinking can lead to an inordinate list of objectives. Objectives grow, because every client has their special interests on what to measure. For example, if 5 clients are interviewed and they each identify 5 objectives, the count can quickly grow. Without a prioritization process, the objective portfolio can become too overloaded.

There needs to be a purging process for obsolete objectives. Otherwise, a measurement portfolio can grow and become uncontrollable. As measurement programs mature, new and improved measurement objectives will be created and older measures become less important. Those that are no longer as important need pruning. A lack of pruning can waste valued resources and provide information that no longer relevant, has little value and can confuse importance.

Inadequate Staff Continuity

Lack of staff training and experience are certainly important concerns with any program. However, I have observed inattention to staff continuity can be a major problem for measurement programs. Clear responsibility and accountability need to be identified.

But, what happens when that person in-charge moves to another assignment? It has been my observation the measurement process can “fall into the cracks” Either no clear successor is available, or there is a lag time finding a replacement. Regardless of the reason, measurement programs falter when they are allowed to wander and go unattended.

Summary

Supplier performance is either improving or declining. How do you know unless you measure that performance? Lack of an effective measurement programs can become highly emotional and frustrating. They can have detrimental effect on the business.

We can learn from other’s mistakes. If we do not learn from the past we are likely to repeat it.

 

Bibliography
Cope, James. “12 Ways to a Better SLA,” Computerworld, November 12, 2001.

Erickson-Harris, Lisa, Multi-tiered SLAs: Juggling Layers of Commitments, Research Director, Enterprise Management Associates, May 2002

Kass, Elliott, Director of Marketing, The Do’s and Don’ts of SLAs: When they’re executed correctly, service-level agreements help enhance IT’s credibility with the rest of the business by iCan SP, Inc., a Computer Associates Company, May 2003

Kuhn, Janet, ITSM: A Customer-Focused, Process-Oriented, Cost-Justified Approach to Success, ITSM Product Manager, InteQ Corporation Mauer, W., R. Matlus and N. Frey, “Guide to SLA Development,” Strategic Analysis Report, R-11-3353, Gartner Group, October 16, 2000.

Peterson, Brad. Partner, Mayer, Brown, Rowe & Maw, Ten Key Questions for Developing Effective Service Level Agreements, – Everest Partners, L.P.

Stanley, Shally Bansal. “Strengthen service-level agreements,” Network World, May 06, 2002

Strum, Rick. President and CEO, Enterprise Management Associates, Inc. “Are You Ready for SLAs?” Network World Fusion, February 2002

Underwood, Ryan. “10 essential ingredients for a solid service-level agreement,” 2003, DocumentIQ.com

Wickman, Robert, Director of Enterprise Monitoring Managing Service Level Agreements with C.A.R.E , Solutions, Empirix, 2003

Van Grembergen, Ph.D., Wim. “The Balanced Scorecard and IT Governance” Information Systems Control Center, Governance Institute, Rolling Meadows, Illinois.

Callaghan, Gary. “Project Dashboard,” DPI – Project Management Seminar, Public Works and Government Services, Canada, February, 2002.

Qaymumi, Mohammad. “Balanced Scorecard at CSU Northridge,” California State University, Northridge.

Neubert, Gilles, and Laure Pichot. “Performance Measurement for the Supply Chain – Mythology to define a supply chain dashboard”. University Lyon II – IUT Lumiere, Department O.G.P., Born, France, October 22, 2002.

Wang, Greg, PhD. “Value Learning: The Measurement Journey,” James Madison University, Educational Technology (2003), 43:1, 32-37.

Brown, Mark Graham, “Customer Satisfaction Measurement Mistakes,” Panorama Business Views, 2001

Performance Measurement & Dashboard Sampling

• Dashboards or Scorecards – What’s the Difference?
http://www.intelligententerprise.com/online_only/smith/010907.shtml

• Executive Dashboard – An interactive performance management & knowledge tool
http://www.anabasis-straub.com/dashboar.htm

• Digital Dashboard Business Process Assessment Guide from Microsoft and Spectria
http://www.spectria.com/docs/wp_bpag/BPAG.htm

• Snippets Active Dashboard
http://www.snippets.com/

• Defining e-Business Performance Management
http://www.cio.com/analyst/112000_hurwitz.html

• @McKinsey – ePerformance: Benchmarking global operating performance
http://www.atmckinsey.com/services/eperformance.html

• Keynote – The Internet Performance Authority
http://www.keynote.com/

The Procurement Assessment

Note:  This article originally appeared in a 2002  issue of ICN’s Tools & Tactics and has been updated for presentation here.

You’ve trained and coached your staff, coached key executives and IT project managers, made presentations, developed form agreements, created a deal repository . . .  But, are those involved in evaluating, buying and paying for technology acquisitions actually following your processes?  Have you changed your organization’s culture, making sure that the new procedures are “stick-ing”?  How much success are you having in negotiating those deals?

There is no doubt that best-in-class technology procurement organizations have processes and tools in place, and their personnel are both trained in the methodologies and use the tools and re-sources available.  Their results demonstrate cost savings, vendor management, resource and fi-nancial control and short and long-term risk avoidance. 

A Procurement Maturity Model (PMM)  might take this form:

How do we measure the maturity of your procurement organization?  The Procurement Assess-ment is the most comprehensive way for an organization to audit its current utilization of the methods, tools and resources you’ve put in place.  A Procurement Assessment will measure your progress toward achieving best practices and will help you establish annual goals for your or-ganization.

Look at the following four areas:

Level 1 Level 2 Level 3
Initial Efforts Methodology Established Integrated Method-ology, Standards
Common  language   established

Cultural and management change initiatives

Integrated  methodology establishedCross-functional teams Cultural and management supportPolicies established
     
Issues addressed organization Focus on individual projects Intangible benefits made apparent
     
Training Level 1 Tangible benefits   made apparent Form Agreements
     
  Training Level 2 Deal repository
     
    Training Level 3
Level 4 Level 5
Comprehensive Continuous Improvement
Integration of resources, tools, culture Continuous learning, process improvements
   
Vendor policy     and management Lessons learned, knowledge transfer
   
Qualitative and quantitative measurement of results Strategic planning
   
  Mentorship
   

• Processes.  Robust processes based upon sound industry best practices provide the requi-site infrastructure to move a procurement organization forward. Processes provide consis-tency of approach and the organizational discipline that assure that best practices are syn-thesized within the organization.

• Resources. Appropriate, experienced, knowledgeable and professional resources must be available when required. An organization must commit to attracting top talent or out-source the IT procurement function to knowledgeable experts.

• Tools. Effective tools provide consistency of approach and also streamline the overall procurement process. Some of the more important tools include deal checklists, standard form contracts, templates for Requests for Proposals, Requests for Information, vendor evaluation matrices and so forth. These tools and others must be fully integrated into pro-curement processes.

• Organization. There must be organizational commitment that supports and nurtures the development and use of an IT procurement function.
Determine the effectiveness of your organization

The Procurement Assessment works as follows:

Develop the Survey Tool. The procurement management team develops a survey that will elicit responses from the organization on current practices and knowledge in the four categories:  proc-esses, resources, tools and organization. The survey asks a series of questions to ensure compli-ance with the required processes and procedures or to evaluate current practices as they relate to industry best practices. Although the internal procurement organization may perform this audit in some companies, having an outside party perform the audits gives the process a measure of inde-pendence, avoids “turf wars,” and may provide more focus for senior management.

Determine Survey Population.  The size of your organization will determine the number of par-ticipants.  Generally, a sample of ten to fifteen individuals from a variety of functional roles should be included.  A representative cross-section of people from the CIO office, procurement, vendor management, IT project managers who are involved in procurement activities, finance, end-user deal makers and legal should comprise the survey population.

Conduct Kick-off Meeting.  An initial meeting with the survey population to explain the proc-ess and answer questions is an important step in preparing them for their participation.

Conduct Interviews.  Using the customized Procurement Survey described above, interviews of the survey population are conducted.  Interviewing in-person on a one-on-one basis enables par-ticipants to be more candid in their responses. (Complete candor may be achieved when a third-party conducts the survey.) 

Summarize the results and prepare the findings.  Following completion of the interview phase of the survey, the obvious next step is to analyze the results and prepare a report that sum-marizes the current status of the company’s processes, resources, tools and organization. The outcome of the analysis should be a reliable indication of your company’s progress towards achieving a best-in-class technology procurement organization.  Based on the levels of the find-ings, the team can determine the maturity of the procurement process and create (or update) the plan to reach the next level. 

Conduct Executive Briefing.  The results of the Procurement Assessment, next action items, strategies and recommendations should be discussed in a briefing with appropriate personnel.  Because executive buy-in is critical to a successful implementation of best-practices procurement processes, the results should also be summarized and sent to the technology procurement stake-holders including the CIO, the procurement management, legal and key senior business manag-ers.

By performing a number of assessments over time, you can gain a sense of whether processes, tools and resources are being successfully integrated into your procurement organization and take appropriate corrective action if necessary.

Our experience has proven that most businesses can benefit – financially and functionally – when they evaluate the quality of their existing procurement programs.  By implementing the right procurement methodology, you can realize considerable savings with minimal impact on your core business.