Second in a series on Enterprise Vendor Management
Selecting IT sourcing partners and negotiating effective contracts are key to the success of your organization’s IT sourcing strategy. Failure to dedicate enough time to these items will almost certainly lead to issues down the road, either in project failure or not achieving intended goals. In this the second blog on Enterprise Vendor Management, we will review some foundational steps to get you started in the right direction. (Read the first part on Framing a Better Sourcing Strategy)
Selecting a partner
Before deciding who you want to purchase services from or partner with, you must clearly define your goals and requirements including timeframe and budget. If possible, do this without a specific partner in mind to avoid tailoring your requirements. Depending on the scope of your project, you may want to issue a formal request for proposal (RFP).
Although you may already have a short list of partners in mind, do your homework and make sure they’re a solid “fit” for your project before engaging with them. You need qualified partners to be successful…don’t include a vendor just because an executive recommends them. Once you open the door, it can be difficult to close, particularly if the partner also purchases goods and services from you – and the balance of trade becomes an issue. Do your research thoroughly early on in the process. By doing so, you may identify better partners and at the very least weed out the ones who are not solid players. Eliminating non-contenders saves both you and the partner significant time.
To help narrow down your candidates, I suggest using a weighted comparison matrix, similar to Figure 1 below. As part of building your requirements, apply a weight/value to each of your feature and functionality requirements, and then rate the partner’s ability in each area.
In addition, complete your due diligence by checking references and looking at their company financials.
Negotiation – “The art of letting others have your way”**
This is a journey not a race—if this is a partner you plan on working with for a long time, negotiate for the long term. Anyone can beat up a vendor for a one time deal and perhaps get a good price, but their service and support from the account team will likely suffer.
You should start building the relationship now. Of course you want the best value for your company, but you want them to succeed as well. On occasion you may have to concede something important (not critical). Choose carefully, you may find it gets repaid down the road when you absolutely need something that is not negotiable to you. Remember, for a successful long-term relationship, the process needs to be a win-win scenario. Each party must walk away from the table believing they have won something.
Things to keep in mind as you go through the negotiation process:
- What’s really important to you? Know in advance which items you’re willing to concede on and which you are not.
- What are your requirements after go-live? Be sure to include these.
- Don’t argue early in the negotiation; it forces others to defend their position.
- Never say “yes” to the first offer, pushback is expected and built into you vendor’s strategy.
- What Service Level Agreements (SLAs) and assurances are being offered? What are your requirements? What are the penalties for lack of delivery? Most contract templates include SLA language which appears impressive, but rarely has any teeth. This is the time to include language around SLAs and penalties. Once the contract is signed, it’s too late.
- No one wants to think about exiting a contract before it’s signed, but you have to plan for the “what if.” What would it take for you to have to exit the contract? What is the impact to your business if vendor X fails to deliver? Build terms into the contract now; if a vendor is reluctant to stand behind the product before you sign, you have bigger concerns.
- What happens if the company goes out of business? In the case of software, will they give you the source code?
- Establish precedents for pricing and services. Use sources such as benchmarking data (internal and external), Gartner, and if possible other company divisions or affiliates.
- Be careful what you say as you can’t take it back. Don’t concede or set a precedent that will bite you later…this goes both ways.
- Put yourself in their shoes; understand what their goals are. They need a win too or it will impact the relationship down the road.
- Talk less, listen more…listen, listen, listen!
Silence is powerful…and can’t be argued with. Overall, Partner Selection and Negotiation (shown in Figure 2) is much more than just getting the best deal possible.
**From a quote by 19th Century author and Italian diplomat Daniele Vare.