How can CIOs avoid giving away the store when negotiating with technology vendors? This is an important issue, and becoming more so as product and service providers seek your annuity dollars, whether in the form of expensive software support and maintenance contracts or long-term offshore labor contracts.
CIO magazine offers three recommendations to drive a better deal with vendors:
1. Determine What the Vendor Needs From You
Outsourcing vendors and alliance partners typically have models for achieving their client's objectives. But there's always a tradeoff. For example, if the company wants labor arbitrage, the CIO needs to ensure that offshoring is on the table, and that knowledge transfer will take place effectively. But above all, the CIO needs to know how he/she will be involved in it.
2. Make Governance a Top Priority
CIOs and their deputies shouldn't look to micromanage their service providers, but they do need to ensure that the vendor is held accountable for its responsibilities. Too often, though, governance and responsibilities are left out of the up-front negotiations. Establishing those details take minimal time, but vendors tend to push the same policies they've used in previous deals.
3. Establish Stakeholder Expectations Early
In these deals, bringing in internal constituents is just as important as dealing with external partners. In turn, the CIO needs to open the discussion to include employees—especially those who will be involved—to get their input before the deal is done. That brings more ideas to the fray, and usually leads to better buy-in for the project.
The common thread is control and understanding. Your negotiating position will always improve when you accurately consider your own position, the goals of your negotiating partner, and the shared objectives you both hope to achieve. Without this common ground, negotiations can take on a negatively-charged, round-robin atmosphere where both parties become frustrated and the relationship becomes strained.
MindTools summarizes these points in an article titled Win-Win Negotiation:
Goals: what do you want to get out of the negotiation? What do you think the other person wants?
Trades: What do you and the other person have that you can trade? What do you each have that the other wants? What are you each comfortable giving away?
Alternatives: if you don’t reach agreement with the person, what alternatives do you have? Are these good or bad? How does it matter if you do not reach agreement? Does failure to reach an agreement cut you out of future opportunities? And what might the other person have?
Relationships: what is the history of the relationship? Could or should this history impact the negotiation? Will there be any issues that may influence the negotiation? How will you handle these?
Expected outcomes: what outcome will people be expecting from this negotiation? What has the outcome been in the past, and precedents have been set?
The consequences: what are the consequences for you winning or losing this negotiation? What are the consequences for other person?
Power: who has what power in the relationship? Who resources? Who stands to lose the most if agreement isn’t reached? power does the other person have to deliver what you hope for?
Possible solutions: based on all of the considerations, what possible compromises might there be?
Negotiations always take place between partners (hopefully friendly, yet sometimes adversarial) who both have a stake in the outcome. As CIO, your negotiating bag of tricks ultimately relies on research, facts, empathy, and personal communication skills.
Learn to understand the other party's needs almost as well as your own, and you'll drive better deals for your company. Not only that, your negotiations will be less stressful and more friendly, deepening rather than damaging relationships with your vendors.