ISM Presentation July 1 2009

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Negotiation Skills for IT Sourcing

Negotiation Skills for IT Sourcing

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  • 1. NEGOTIATION SKILLS FOR INFORMATION TECHNOLOGY CONTRACTS June 24, 2009 Suzanne Harris Newport Beach, CA 1
  • 2. NEGOTIATION SKILLS FOR INFORMATION TECHNOLOGY CONTRACTS Welcome! Institute For Supply Management 2
  • 3. Agenda  Introductions  Basic IT Contracts and Deal Points  Sourcing and Information Technology  Negotiation  Summary  Question and Answers 3
  • 4. Introduction To IT Contracts  Who Are We?  Strategic Sourcing  Indirect Purchasing  Procurement  Contract Department  Contract Negotiation Department  IT Contract Department  IT Vendor Management  IT Sourcing  IT  Vendor Management Organization (VMO) 4
  • 5. Introduction To IT Contracts  Your name  Company  Title  What organization do you report to  What you are hoping to learn 5
  • 6. Introduction to IT Contracts  “In business as in life, you don’t get what you deserve, you get what you negotiate”.  Chester Karrass  “90% of negotiation is preparation”.  Suzanne Harris 6
  • 7. IT Contracts and Deal Points Contracts Commonly Used in IT  *Non Disclosure Agreement, NDA  Hardware Agreement  Telecom Agreement  *Master Services Agreement  *Statement of Work  *Software License Agreement  Software Maintenance Agreement  Software as a Service, SAS and Hosted *Recommended contract templates 7
  • 8. IT Contracts and Deal Points  Non Disclosure Agreement:  Protect confidential information  Unilateral or bilateral 8
  • 9. IT Contracts and Deal Points Nondisclosure Agreement  NDA is required before company confidential information can be shared.  Defines Confidential Information  Work product resulting from or related to work or projects performed  General or specific to a project  Time Based - when does it expire  Do you have an NDA on file that is sufficient? 9
  • 10. IT Contracts and Deal Points Nondisclosure Agreement (cont’d) Who’s Paper? Theirs or yours?  Term of the Agreement  Why have term?  What is long enough?  Defines What Is Confidential  Confidential information disclosed remains property of the owner 10
  • 11. IT Contracts and Deal Points Nondisclosure Agreement (cont’d)  Non compete using confidential information  Damages for breach  State Law Governing  What is the down side? They steal your intellectual property!  Your Leverage: We can’t talk to sales without one! 11
  • 12. IT Contracts and Deal Points  The Master Services Agreement 12
  • 13. IT Contracts and Deal Points MSA  Master Services Agreement, MSA:  Professional Services  Contractors  Consultants  MSA is basis for support on all other agreements.  Defines the on-going relationship between the two companies  We do not have to repeat these terms in each SOW. 13
  • 14. IT Contracts and Deal Points MSA  Term and Termination:  Defines the effective date  Defines the term  May describe auto-renewal  Recommendation: Effective until cancelled. Can be cancelled without cause by customer with 30 days written notice. 14
  • 15. IT Contracts and Deal Points MSA  Invoicing and payment  Payment Terms  Penalties for late payment  Confidentiality  Intellectual Property:  Ownership  Indemnity for use of IP  Non-solicitation 15
  • 16. IT Contracts and Deal Points MSA  Warranty  Provides protection of the SP failing to provide quality services against the SOW.  Provides language on notice of failure and “reasonable” response to cure the failure.  Indemnification  Held harmless by SP  Limitation of Liability 16
  • 17. IT Contracts and Deal Points MSA  Insurance  Lengthy clauses detailing types and amounts of coverage required.  Professional Liability $5M  Commercial General Liability $5M  Worker’s Compensation Insurance  Employers Liability Insurance $1M  Automobile Liability Insurance $5M  Fidelity Insurance (fraud, dishonest or unauthorized acts)  Cyber Risk $5M 17
  • 18. IT Contracts and Deal Points MSA  Independent Contractor:  Defines the Service Provider, SP, is not an employee- important for tax purposes.  Defines Liability: Work Site Coverage is not covered by customers worker’s compensation, liability or other insurance. Requires SP to have a significant amount of insurance coverage.  Risk Management 18
  • 19. IT Contracts and Deal Points MSA General Provisions:  Force Majeure (French for "superior force"), also known as cas fortuit (French) or casus fortuitus (Latin)[1], is a common clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, or an event described by the legal term "act of God" (e.g., flooding, earthquake, volcano), prevents one or both parties from fulfilling their obligations under the contract. However, force majeure is not intended to excuse negligence or other malfeasance of a party, as where non- performance is caused by the usual and natural consequences of external forces (e.g., predicted rain stops an outdoor event), or where the intervening circumstances are specifically contemplated.  Don’t let things like “delayed transportation” slip in. 19
  • 20. IT Contracts and Deal Points SOW 20
  • 21. IT Contracts and Deal Points SOW  Statement Of Work:  Key components include  Effective Date: Term of the agreement  Identify Attachments  Project Description  Objectives  Status Reports  Acceptance Criteria  Project Assumptions 21
  • 22. IT Contracts and Deal Points SOW  Statement Of Work:  Key components include (cont’d)  Attachments:  A-1 Project Status Report Form  A-2 Change Order Form  A-3 Travel Policy 22
  • 23. IT Contracts and Deal Points SOW  Statement Of Work:  Key components include (cont’d)  Identify Key Roles and Assignments  Change Control  Pricing and payment  Termination  Total authorized dollars 23
  • 24. IT Contracts and Deal Points SOW  Statement Of Work:  Key components include (cont’d)  Deliverables  Estimated Due date  Materials  Expenses  Maximum Amount Payable 24
  • 25. IT Contracts and Deal Points SOW  Statement Of Work:  Key components include (cont’d)  Pricing methodology: Fixed fee versus estimated dollar per hour -Not To Exceed  Are Travel and Expenses authorized? If so, what is the Not To Exceed number?  Dependencies 25
  • 26. IT Contracts and Deal Points SOW Deliverables  Detailed description of Deliverables  Schedule of deliverables  Acceptance criteria for deliverables  Connection of payment tied to your acceptance of deliverables  SLA's and penalties or credits for late or unacceptable delivery 26
  • 27. IT Contracts and Deal Points SOW Most common deal points:  Clarity of scope  Delivery schedule  Locking in personnel by name  Fixed Fee versus Time and Materials  Expenses  Who’s travel policy  Change Order  Credits for late deliverables 27
  • 28. IT Contracts and Deal Points SOW Pros for Fixed Bid  Scope of work is clear  Deliverables are measurable  Timeliness is critical  Little chance of change in scope  Success is measured on the result  Clear picture of how much this costs 28
  • 29. IT Contracts and Deal Points SOW Negotiation Points:  Start With Your Templates  MSA on file or in conjunction with  Is software part of the deal  What is in it for them  Your estimate versus their bid  Determine risk factors 29
  • 30. IT Contracts and Deal Points SOW Cons For Fixed Bid  Scope is not certain  Supplier knows the scope is uncertain  Supplier inflates the price because of the “unknown” and risk is shifted to him  It doesn’t meet the “reasonable” test  The “Change Order” 30
  • 31. IT Contracts and Deal Points SOW Pros for T & E Bid  Scope of work not clear  Nature of the work is transactional  Scope will be determined after work has begun  You want to pay as you go  Significant chance of change in scope  Success is measured by making progress 31
  • 32. IT Contracts and Deal Points SOW Cons For T & E Bid  Supplier is not motivated to complete  Could increase your cost  You hold most of the risk  Deliverables are clear  The “Change Order” 32
  • 33. IT Contracts and Deal Points SOW Negotiation tips for SOW’s  Each is unique  Diagnose which is better for your situation  Use  Competition  “Make in House”  Exceeds the Budget  Future business  Time  Authorized to negotiate and make concessions today 33
  • 34. IT Contracts and Deal Points SOW Negotiation tips for SOW’s  Consider  Use your contract template  Limit the scope and plan to add on as needed  Use acceptance criteria  Identify the personnel by name  Limit personnel changes using contract language  Estimate what it should be and negotiate for that  Expenses  Letter of Intent 34
  • 35. IT Contracts and Deal Points Software License Agreements 35
  • 36. IT Contracts and Deal Points Software License Agreement: Your greatest leverage exists during new acquisitions, or if there is the threat of replacement . 36
  • 37. IT Contracts and Deal Points SLA Software License Agreements  First you get the pitch, promises, the power points, the white papers, the demo, then…  The Contract “Entire Agreement” means….. 37
  • 38. IT Contracts and Deal Points SLA Software License Agreements  One sided to protect the supplier  It takes time to identify and negotiate to eliminate and minimize risk  The process takes time. Plan for it. There is no perfect license model 38
  • 39. IT Contracts and Deal Points SLA Software License Agreements  Too simple: Lacks critical terms  Too Complex: Difficult to administer 39
  • 40. IT Contracts and Deal Points SLA The Contract  Definitions:  Affiliates, update, upgrade  Term and Termination:  Perpetual was the rule  Annual  Multiple year 40
  • 41. IT Contracts and Deal Points SLA Software License Agreements  Pricing, Payment and Delivery  Delivery  Invoices and payment  Related Services  Acceptance  Representations and Warranties 41
  • 42. IT Contracts and Deal Points SLA Software License Agreements  Indemnification  Confidential Information  Source code escrow  Dispute resolution  Assignment 42
  • 43. IT Contracts and Deal Points SLA Software License Agreements  90 day pilot  Metrics  Audits  True and True Down  May include maintenance terms or be separate 43
  • 44. IT Contracts and Deal Points  Audits 44
  • 45. IT Contracts and Deal Points SLA Software License Agreements: Audits  Revenue stream  Costly  How often?  Most likely to?  If I outsource? 45
  • 46. IT Contracts and Deal Points SLA Software License Agreements: Audits  Contract Language  Notice  No interruption of work  Scope  Cost of the audit  Confidentiality  Effect of finding of out of compliance  Outsource provision 46
  • 47. IT Contracts and Deal Points SLA Software License Agreements: Audits  If you become knowledgeable:  Inform the CFO  Potential Liability  “Off Balance Sheet” 47
  • 48. IT Contracts and Deal Points SLA License Models  Named User  Concurrent-User  Role Based  Employee Based  Financial Based  Transaction Based 48
  • 49. IT Contracts and Deal Points SLA Named User  Advantage:  Traceability  Additions not required for multiple instances, failover or backup  Easier when combining after a merger  Disadvantage:  Definitions of Name user can be misinterpreted  If the older, unused login ID’s the vendor could count those as well  Multiple people can not user the same login ID 49
  • 50. IT Contracts and Deal Points SLA  Concurrent User:  Cost effective for multiple time zones  Cost effective for the “occasional” user  Disadvantage:  Often this term is not well defined in he contract and subject to interpretations (average users versus maximum users) 50
  • 51. IT Contracts and Deal Points SLA  Role Based:  Professional, employee, casual, normal, super users  Multiple role-based user models reflect the value used  Disadvantage:  Tracking usage can be difficult  It can be difficult to maintain the number of licenses required for reach category  Contract language can be vague 51
  • 52. IT Contracts and Deal Points SLA Employee Based  Advantage:  The number of employees reflect the value received  Simple model for tracking purposes  Simple contract language  Predicable increases and decreases  Disadvantage:  The term “employee” can have multiple definitions  The contract needs clear language about the impact of employee downturn  If a merger or acquisition happens cost can go up immediately 52
  • 53. IT Contracts and Deal Points SLA Financed Based Model This model uses total revenue, operating budget, or cost of goods sold.  Advantage:  The vendor can track the metrics for annual reports and public information.  Usually just one number to track  Easy to budget for  Disadvantage:  No correlation between revenue and value received  Customer cost of doing business can go up without a decrease in software cost  Surveys show that customer is perception that this model increases cost 53
  • 54. IT Contracts and Deal Points SLA Transaction Based This model is becoming popular in the application software space.  Advantage:  Customers can negotiate the cost per transaction  Disadvantage:  Transaction costs may not accurately reflect the value  Often poorly defined in the contract  May be difficult to count  May vary from month to month, quarter to quarter making budgeting difficult  Suppliers want increases but no decreases in cost 54
  • 55. IT Contracts and Deal Points SLA Items for consideration:  License Type  ESD  Discount  Payment due upon  Metrics Based acceptance testing  No cost for Development  Indemnification License  Term and termination  No cost for cold server  Bankruptcy  Escrow  Assignment  Reporting 55
  • 56. IT Contracts and Deal Points SLA  Software License Agreements  Price protection for future requirements  Third party usage (example: Outsource services from India, China, Mexico)  Acceptance testing  Warranty  True Up  Audits 56
  • 57. IT Contracts and Deal Points SLA Negotiation Points To Consider  Who are the vendors under consideration  Is their more than one?  Could we “make” the solution?  What discounts have they offered?  When is their end of quarter, end of year?  Can you get a third party to provide contract guidance?  What other motives does the supplier have? 57
  • 58. IT Contracts and Deal Points Software Maintenance 58
  • 59. IT Contracts and Deal Points Software Maintenance General Guidelines for Software Maintenance  Ranges from 15% to 25%  Computed off of list or discounted price  Include price caps  Include language on what happens after caps  Include language to drop support on unused  Select the appropriate level  Penalties for not making SLA’s 59
  • 60. IT Contracts and Deal Points Software Maintenance  Maintenance Agreements  Services:  Upgrades: Previous versions/platforms supported  Customizations and required support  SLA's:  Term:  Pricing and Payment Term 60
  • 61. IT Contracts and Deal Points Software Maintenance  Maintenance Agreements  Price Protection  CPI  Security/System Access:  Personnel/Subcontractors: No subcontractors used unless authorized by your company  Co-terminus maintenance for staggered license deployments. 61
  • 62. IT Contracts and Deal Points Software Maintenance Maintenance Agreements  Inventory review  Is it global?  Biggest spend  Same supplier versus same product analysis  Can we co-term agreements  Identify maintenance we wish to terminate 62
  • 63. IT Contracts and Deal Points Software Maintenance Software Maintenance and Shelfware  Standard Shelfware: Never deployed  Under-Utilized Shelfware: Little usage  Bundled Shelfware:  Purchased together but not all launched  Each software module is embedded  Shadow User Shelfware: Purchased for all geographies but not fully deployed  Shadow Device Software: Licensed to run on several devices, used on one 63
  • 64. IT Contracts and Deal Points Software Maintenance  Finding Shelfware:  Why:  Reduce maintenance cost  Reduce administrative cost  Understand first hand what not to do in the future with license agreements 64
  • 65. IT Contracts and Deal Points Software Maintenance  Finding Shelfware:  How:  Make it visible  Follow the money  Analyze the user base  Check client, serve, mainframe and cloud 65
  • 66. IT Contracts and Deal Points Software Maintenance  Actions on Identified Shelfware:  Renegotiate support  Stop using and cancel  Start using of the software to drive value  Lessons learned 66
  • 67. IT Contracts: Sourcing and Information Technology “A match made in heaven.” S. Harris “Begin with the end in mind”. Stephen R. Covey Author, The 7 Habits of Highly Effective People 67
  • 68. IT Contracts: Sourcing and Information Technology  Mission statements drive goals.  Common goals drive teamwork. 68
  • 69. IT Contracts: Sourcing and Information Technology  If 90 % of negotiation is preparation, then internal preparation is the key to success.  Preparing with relationships  Preparing with data  Preparing with a strategy 69
  • 70. IT and Strategic Sourcing Maturity Model Maturity Model  Step A- Survival –Administrative interface with Purchasing  Step B- Aware — Realization that infrastructure and operations are critical to the business-continued administrative interface with Purchasing  Step C- Committed — Moving to a managed environment, tactical interface with Purchasing  Step D- Proactive — Gaining efficiencies and service quality through standardization, policy development, governance structures and implementation of proactive interfacing with tactical interface with Purchasing. The start of cross-departmental process alignment.  Step E- Service-Alignment — Managing IT like a business; customer-focused; trusted IT service provider and interface with Strategic Sourcing.  Step F- Business Partnership — Trusted partner to the business and sees Strategic Sourcing role for increasing the value and competitiveness of the business process. 70
  • 71. IT Contracts: Sourcing and Information Technology  Two Types of Negotiation  Internal Negotiation  External Negotiation 71
  • 72. IT Contracts: Sourcing and Information Technology STRATEGIC SOURCING and IT DEVELOPMENT MODEL  Diagnose your relationship with IT to determine how to negotiate with your internal Customer/business partner:  Administrative or Tactical  Strategic 72
  • 73. IT Contracts: Sourcing and Information Technology Administrative or Tactical Role  Supports IT by:  Issuing purchase orders  Some administrative negotiation  Expediting orders  Clearing disputes with Accounts payable  Providing purchase order copies  Retaining documentation  Your Role: IT is your customer  Their Attitude: Just get it done! 73
  • 74. IT Contracts: Sourcing and Information Technology Strategic Support is being a Trusted Business Partner Attributes of Sourcing Support:  IT Knowledge  Strategic Plan  Budget  Shared Goals  Contract Expertise  Negotiation Skills 74
  • 75. IT Contracts: Sourcing and Information Technology Sourcing Managers preparation should:  Understand your company goals  What has happened so far  Budget  Technical specifications  Third party research  Time  Who are the major players  What do we want and need out of this? 75
  • 76. IT Contracts: Sourcing and Information Technology  Supplier Negotiation:  Expert Negotiator: Understand sales tactics and how to maneuver around them.  Planning: Acting as a partner with IT agrees on the action plan between the supplier and the company.  Leadership: Takes the lead with the negotiation process.  Communication: The supplier sees you as the decision maker and the central point of communication for business issues. IT supports this by not allowing the supplier to go around you.  Supplier Identification: Uses previous experience and knowledge, including third party research, to identify potential sources of supply. 76
  • 77. IT Contracts: Sourcing and Information Technology  Supplier Negotiation:  Roles: Understands and clarifies roles and responsibilities between the team members when necessary.  Teamwork: Attends IT planning and status meetings.  Sourcing: Understands the strategic plan and the implications of how the plan impacts the sole and single source limitations to supplier selection and negotiation.  Example: Oracle  Preparation: Understands and demonstrates the 90% preparation rule.  Goal Accomplishment: Shares in credit and failure. 77
  • 78. IT Contracts: Sourcing and Information Technology  Sourcing Manager Role For Projects:  Identifies the SME/PM goals and objectives  Contacts Legal for participation  RFP as required: example corporate policy:  3 bids for purchases over $100K)  Utilize your company standard contract templates  Non disclosure agreement  Master Services Agreement  Statement of work  Software license and maintenance agreement  Leadership for negotiating price, terms and conditions  Receives the teams final agreement  Administrative retention 78
  • 79. IT Contracts: Sourcing and Information Technology ROLES AND RESPONSIBILITES Typical Cross Functional Sourcing Teams  Strategic Sourcing  “The Business” owner  IT Subject Matter Expert  IT Operations  Project Manager  Legal Counsel  Others as assigned 79
  • 80. IT and Strategic Sourcing Development Model  Step A- Survival –Administrative interface with Purchasing.  Step B- Aware — Realization that infrastructure and operations are critical to the business with continued administrative interface with Purchasing.  Step C- Committed — Moving to a managed environment, developing a tactical interface with Purchasing.  Step D- Proactive — Gaining efficiencies and service quality through standardization, policy development, governance structures and implementation of proactive interfacing and tactical interface with Purchasing. The start of cross- departmental process alignment.  Step E- Service-Alignment — Managing IT like a business; customer-focused; trusted IT service provider and interface with Strategic Sourcing.  Step F- Business Partnership — Trusted partner to the business and sees Strategic Sourcing role for increasing the value and competitiveness of the business process and risk mitigation. 80
  • 81. IT Contracts: Sourcing and Information Technology TIPS FOR IMPROVING TEAMWORK  Understand their business  Develop your negotiation skills  Relationship building: Honey versus vinegar  Presentations: Get to know them  Ask for suggestions on how to improve the working relationship 81
  • 82. IT Contracts: Sourcing and Information Technology TIPS FOR IMPROVING TEAMWORK (Cont’d)  Roles and Responsibilities  Corporate Policy  What is in it for them  Examples of wins and show value  Responding within their time frame  Understanding what you are buying  Don’t have bureaucratic procedures  Display leadership on business issues 82
  • 83. IT Contracts: Sourcing and Information Technology Soft Skills and Hard Skills 83
  • 84. IT Contracts: Sourcing and Information Technology Soft Skills and Hard Skills Driver Analytical Amiable Expressive 84
  • 85. IT Contracts: Sourcing and Information Technology “The Social Styles Task Handbook” by Wilson ANALYTICAL DRIVER Learning Tell Ask AMIABLE EXPRESSIVE People 85
  • 86. IT Contracts: Sourcing and Information Technology  Preparing To Gain Contract Approval  Business Summary Template  Show the work  Show the savings  Approvals versus signature  How does the signatory want to interface? 86
  • 87. IT Contracts: Negotiation . 87
  • 88. IT Contracts: Negotiation Basics of Negotiation  Anybody can negotiate  Attitude  Preparation  Relationship Rule  Time  The Iceberg  Practice  Knowing what you are up against 88
  • 89. IT Contracts: Negotiation How is IT negotiation different?  Reporting structure  Pace  Impact to the business  Cost and perception  Niche 89
  • 90. IT Contracts: Negotiation Contract Templates:  Provides a baseline of terms acceptable  Provides a starting point in the RFP  Provides a a standardization of terms which you are the expert 90
  • 91. IT Contracts: Negotiation The power of attitude:  “They have more power than me.”  “It is just company money.”  “I can’t ask for that.”  “No time to plan.” We lose sight of the fact that we are up against a skilled negotiator. 91
  • 92. IT Contracts: Negotiation  The Iceberg Rule 92
  • 93. IT Contracts: Negotiation Negotiation Points To Consider  Who are the internal players  Is the budget approved  When is it needed  What have we done so far  Is the project Formal or Informal  What are the goals of the business owners  What are the goals of the IT owners  What are your goals 93
  • 94. IT Contracts: Negotiation Formal Informal  Formal Team  Members as needed  Written Objective Statement/  Fewer deciding members Goals  Renewals  Milestones and status  Smaller new deals  Consensus  Not seen as strategic  Slower  Information, RFI  Strategic  Increased Visibility  Requires a fully documented business case 94
  • 95. IT Contracts: Negotiation How does the supplier prepare?  Starts with looking at your home page  Are you profitable  Do you have budget  Who will talk to him  What is their leverage  Who is the competition and what is their motivation  They start high to see what they can get 95
  • 96. IT Contracts: Negotiation From the Software Sales Point of View:  They spend 90% of their time preparing  The “Real Estate” mind set  If we are:  Adversarial  Ask for unreasonable concessions  Don’t appear to be a decision maker  What do they do…. 96
  • 97. IT Contracts: Negotiation From the Software Sales Point of View:  What motivates them to give you the best deal?  What are the chances?  Real estate mind set  What about you motivates them to give you the best deal? 97
  • 98. IT Contracts: Negotiation From the Software Sales Point of View:  What about you motivates them to give you the best deal?  Homework  Your business acumen  Their perception that you have decision making power  They are unable to go around you  You share what needs to be done to get it done  Tough, but respectful  Make reasonable requests  Know when enough is enough 98
  • 99. IT Contracts: Negotiation From the Software Sales Point of View:  90 day increments  Predictable  Identify who has the relationship  Most have a significant base salary  License price versus maintenance cost  Lose early  Qualifying questions  Cross validate  Two weeks before end of quarter 99
  • 100. IT Contracts: Negotiation From the Software Sales Point of View:  Professional Services  Scope  Risk  Deliverables  Acceptance  Dependencies  Penalties 100
  • 101. IT Contracts: Negotiation From the Software Sales Point of View: VSOE 101
  • 102. IT Contracts: Negotiation From the Software Sales Point of View: VSOE: Vendor Specific Objective Evidence  What is it?  How does it impact software sales and contracts?  AICPA Statement Of Position (SOP) 97-2, Software Recognition 102
  • 103. IT Contracts: Negotiation From the Software Sales Point of View: VSOE: Vendor Specific Objective Evidence  Example:  Customized or configured software delivered but requires professional services  Software Agreement  SOW  Example:  Software shipped to the VAR or SP  Parked software 103
  • 104. IT Contracts: Negotiation From the Software Sales Point of View: “What don’t we ask Sales that we should?” 104
  • 105. IT Contracts: Negotiation From the Software Sales Point of View:  Our Preparation:  What questions do we ask Sales? 105
  • 106. IT Contracts: Negotiation What should we be asking Sales?  “Help me understand….  “What are the discount thresholds?”  “What puts me in a different tier?”  “Every company is different, how does your work?”  “We appreciate the time you have spent getting to understand us and our requirements. I would like to understand how to best work with your company.” 106
  • 107. IT Contracts: Negotiation What Sales people want to say to us….  Adversarial  Your professional acumen  Reasonable  Ask for it all but….  Maintenance discounts  My concession on free professional services  When you ask to change your sales person  What is in it for me! 107
  • 108. IT Contracts: Negotiation Negotiation  Opening, Target and Bottom Line  The power of competition  Consolidation: Co-terminus maintenance  Using competition (when you don’t have it)  The power of time  Silence  Third party research  Focusing communication 108
  • 109. IT Contracts: Negotiation Negotiation  Opening, Target and Bottom Line  55% with metrics  65% with metrics  82% with metrics  90% with no metrics 109
  • 110. IT Contracts: Negotiation Negotiation  The power of competition 110
  • 111. IT Contracts: Negotiation  Competition:  Do they know it? And can you keep it from them if they don’t?  If they don’t know, act as if there is competition  If they do know it acknowledge it 111
  • 112. IT Contracts: Negotiation Consider using the following:  We may not buy it at all  It may exceed our budget  We may elect to make it in house  It may not be confirmed in our Strategic Plan  We need to make the decision or recommendation now  Don’t call him back  Tell him you that there is a perception that other customers of his received a better deal 112
  • 113. IT Contracts: Negotiation Negotiation  The power of time 113
  • 114. IT Contracts: Negotiation Negotiation  The power of time  $1.1M in professional services  Opening $800K  Target $900K  Bottom line $1.1M 114
  • 115. IT Contracts: Negotiation Negotiation  The power of silence 115
  • 116. IT Contracts: Negotiation Negotiation  The power of silence  House hunting  S250K offer 116
  • 117. IT Contracts: Negotiation Negotiation  The power of third party research 117
  • 118. IT Contracts: Negotiation Negotiation  The power of third party research  $100M list price enterprise software  No price protection for future purchases  Opening: asking for three years  Target: One year  Bottom Line: No years  Achieved: 118
  • 119. IT Contracts: Negotiation Benefits of Gartner or other third party services:  Annual named user seat holder license  Research papers on specific technologies  “Magic Quadrant” for suppliers  Analyst provide guidance:  Pros and Cons  Pricing  BIC Contract terms 119
  • 120. IT Contracts: Negotiation Third party research benefits:  Who are the major players  How are the major players ranked  Leaders, niche, visionaries, challengers  Pricing targets  Contract term targets  Negotiating tactics  The suppliers motivation  Changing product line  Competition is coming 120
  • 121. IT Contracts: Negotiation Third Party Research Telecom:  Add a business technology migration clause  Add a business downturn clause  Add a rate review clause  Data circuits: identify and negotiate the biggest usage 121
  • 122. IT Contracts: Negotiation Tactics  The power of “We don’t need it”.  The power of “We are thinking of making it internally.”  Good guy, bad guy  Asking Sales, “What is the best you have ever given another customer like me?”  Asking Sales, “How are you compensated?”  The budget  Requiring higher authority approval, reluctantly 122
  • 123. IT Contracts: Negotiation 123
  • 124. IT Contracts: Negotiation Preparation For Formal Project 124
  • 125. IT Contracts: Negotiation Formal Project  Scope:  Develop the team  Objective Statement:  Musts Versus Wants  Develop the objectives  Request For Proposal 125
  • 126. IT Contracts: Negotiation Preparation For Formal Project Part One:  PMO Leads  The Objective Statement  “To select the best software application to manage OUR Company financial operations”.  Musts and Wants  Selection of who is on the bid list  Consider incumbents, suggestions from research with third parties, suggestions from team  RFP- include your contract templates  Taylor questions so that answers will be quantifiable 126
  • 127. IT Contracts: Negotiation Preparation For A Formal Project Part Two:  Analyze the responses  Provide a copy to your third party adviser (Gartner)  Determine the two (or one) on the short list  Spreadsheet their offer(s) against your goal  Review with Legal 127
  • 128. IT Contracts: Negotiation Negotiation Points:  Type:  Enterprise, single user, concurrent  Does the supplier offer different choices?  What are the costs of these choices?  What is the strategic plan?  Why are you recommending one of the other?  Ownership Language:  What happens if you are sold or taken over?  “Sure, I will sell it to you again!” 128
  • 129. IT Contracts: Negotiation Part Three  Schedule a negotiation preparation meeting  Identify items for negotiation  Legal  Business  Opening, target and bottom line  Who is on the negotiation team (roles) 129
  • 130. IT Contracts: Negotiation Part Four  Meet with the supplier  Reassess  Repeat until concluded 130
  • 131. IT Contracts: Negotiation Term  License Models: Grant Of Usage  Enterprise  Perpetual  Annual  Concurrent User  Term per user  Which one for which deal? 131
  • 132. IT Contracts: Negotiation  Example One: Maintenance Cost  Four Years ago bought a $5.0 M software license package (perpetual) with maintenance cost of $1.0 M per year  Maintenance is up for renewal in 3 months  In 3 months it is the suppliers end of quarter  License Application suite is for Marketing  Documentation showed 10 different applications  Supplier threw in the other 8 for “free”  This is called “shelfware”. 132
  • 133. IT Contracts: Negotiation Maintenance Cost: Preparation Meeting  Meet with IT and reviewed the history  Did we still need it?  Will we need it in the future?  Can we buy another product cheaper?  How many times have we called for support or updated:  How many of the ten applications have we launched?  Will we ever want the other eight?  Cancellation Requirement: Requires a thirty day written notice 133
  • 134. IT Contracts: Negotiation Maintenance Cost: Planning  Communication  Timing  Sourcing to contact supplier and convey:  Shock  Opening  Communication 134
  • 135. IT Contracts: Negotiation Maintenance Cost: Supplier Response  First thing supplier does  SME calls Sourcing  IT steps in  Supplier provides first offer  Asks about internal process 135
  • 136. IT Contracts: Negotiation  Maintenance Cost: Our Response  CIO does not take rushes on his desk.  30 day cancellation letter  Call the supplier  We don’t need it for that price.  What we are ready to do 136
  • 137. IT Contracts: Negotiation Maintenance Cost: Supplier Response  Supplier submits  Expedite  Savings is $800K annually 137
  • 138. IT Contracts: Negotiation Example Two: Enterprise Software List Price $100M  Iceberg  Preparation  Delivery  Results 138
  • 139. IT Contracts: Negotiation Example Three: ESD  Three year agreement showing “Deliver Media”  Total Tax implication: $900K. 139
  • 140. IT Contracts: Negotiation Example Four: ABC John’s  Hosted solution  Incumbent, 10% reduction last year  Renewal is due in < three months  Preparation  Tactics Used  Result 140
  • 141. IT Contracts: Negotiation Example Five: Financial Systems Software  Incumbent  Annual software maintenance renewal in three months  Preparation  Tactics Used  Result  Supplier response 141
  • 142. IT Contracts: Negotiation Preparation  Research the Current Situation  Is there a budget, if so what is it?  Understand what you are buying  What has already been done by IT  What are their goals?  Make or Buy  Sole, single or multi source 142
  • 143. IT Contracts: Negotiation  Research the supplier base  IT recommendations  Gartner For IT Leaders  Forrester  Tower Group  Supplier websites 143
  • 144. IT Contracts: Negotiation Cost Savings: Hard Cost Savings Soft Cost Savings 144
  • 145. IT Contracts: Negotiation Cost Savings: Hard Cost Savings  From budget  From previous buy  From first proposal *What you caused to happen 145
  • 146. IT Contracts: Negotiation Cost Savings: Soft Cost Savings  Payment terms  Penalties for late  Limited potential future increases *What you caused to happen 146
  • 147. IT Contracts: Negotiation Cost Savings:  What is the biggest problem here? 147
  • 148. Summary  Each contract is different  Goal alignment  Preparation is key to success  Practice negotiation  Declare Hard and Soft cost savings 148
  • 149. Summary  Suggestions:  Compile data on renewals  Look for co-terminus opportunities  Look for “shelfware”  ESD  Use third parties  Sharpen the Saw on soft and hard skills  Strive to be “Strategic”  Create or review templates  Use formulas or definitions for cost savings 149
  • 150. Summary Training For IT Contracts  Shadow others  Contract Templates, line by line  Learn how to research sources of supply  Develop a process to determine financial stability  Attend IT meetings  Ask to see the strategic plan and understand the budget  Network with those that know how  Teach someone 150
  • 151. Time For Q & A  Questions and Answers  Contact me at: Suzanne Harris suzanneha@yahoo.com Cell 831 332 3450 151