The Art of Negotiation

A war is a mission that is not over till the objective is achieved and battles are mere interludes that help as small goals to move forward to the final objective. This holds true for any CIO on the negotiating table with the IT vendors.

As enterprises get constantly bombarded with new and emerging technologies, the role of CIO is often discussed and debated. They have evolved from the humble EDP/MIS managers to what they are today and the CIO has to don many hats. The networker, the learner, the risk taker are all essential attributes of a successful CIO. Yet, to address the growing operational needs of his enterprise or to deliver a transformational business impact by cashing in on the right technology, a CIO often has to don another hat-that is of being the negotiator.

With technology sophistication gaining new heights, procuring IT has become a daunting task for the CIO. The complexities in negotiating IT contracts have grown manifolds. Also, with innumerable cases of failed IT contracts coming to the fore, it makes the role of a CIO as a negotiator extremely significant.

Although every CIO would have negotiated a vendor contract at some point of time in his career, not everyone succeeds in bagging the best deal. So what is it that is essential to be a good negotiator? Ashok Cherian, CIO, JK Cement says, "Your ability to place yourself in the driving seat in a negotiation is one of the key qualities that makes you a good negotiator. This comes with a clear understanding of the market and the players."

Agrees G Radhakrishna Pillai, CIO, SRL, "A knack of understanding the pulse of the vendor can help CIOs in getting the best deals for their organization."

A contract is the starting point to a relationship that is often intended to be a long term one. If the start itself is shaky, reaching a long term partnership becomes questionable. Hence, it makes a lot of sense to use the negotiation process effectively and look at it as an opportunity to come out with favourable outcomes, which are not just focused on short-term goals but on the long-term objectives.

As most IT contracts are usually one-sided, favouring the vendor, it requires a lot of prudence on the part of the CIO to see that he does not burn his hands in the deal. And with stringent rules relating to contract termination, getting out of a nightmare contract will be next to impossible.

Having said that, the negotiation table should also not be mistaken as a place for fight or useless discussions, where the objective is to simply defeat the other side. To ensure best results, it is important that a contract is favourable to both parties and fairly allocates risk between them.

Industry experts point out that a strategic approach and informed view in negotiation can go a long way in attaining the desired results. It is important to identify the business need and objective. Today, there are multiple technologies and vendor options available, but buyers should know what works best for them rather than merely following the hype. Yugal Joshi, Practice Director, Everest Group, a research and consulting firm, points out, "A CIO needs to understand the digital transformation and traditional IT capabilities of service providers. Over focusing on one of these could be dangerous."

While considerations could vary for different enterprises, some basic tenets remain the same. The negotiation process should ideally start much before you come to the negotiation table, and actually even before you decide what you want to buy. Starting with insufficient time and preparation is a big mistake. CIOs may not be able to drive a good bargain, if the need is urgent and there are not too many vendor options to choose from. In such cases, the vendor will sense the urgency and will not be willing to give high discounts.

Identifying and clearly articulating the objectives to other members who will be eventually implementing or using the technology is one of the most essential aspects of negotiation. Only when the objectives are clearly laid out, you will know what points to fight for and where to compromise.

To be a good negotiator a CIO should also know the pros and cons of each vendor so that he knows which lever to press during the negotiation. Prasanth Puliakottu, CIO, Sterlite Technologies says, "First and foremost consideration is the capability of the vendor, then comes the mutual working need. If the vendor can work as a partner then there is a long way to go". To negotiate effectively, a CIO must be aware of his company's requirements and its strengths and weaknesses in comparison to the suppliers. This gives him a relative bargaining power that can be used in getting the desired terms from the vendor.

Vendor selection plays a key role in the negotiation process. Joshi points out, "A CIO should approach vendor discussions with an open mind without assuming that one technology/service provider who is good in traditional IT will not be good in next-generation digital services or vice-versa." Successful negotiation does not mean getting the lowest price from the largest suppliers. In the past, companies that have solely focused on bringing down the price have faced adverse results.

The price factor needs to be balanced with long-term objectives and it is important to look at the total cost of ownership rather than just looking at the near term cost. V. Balaji, CIO, Tata Technologies states, "I try to remember that the actual cost of the purchase order is often a small part of the overall cost of the initiative. Getting both customers and partners to focus on a single goal, on the total cost of the initiative, and ensuring that the success criteria are aligned is a critical part of vendor negotiations."

LONG-TERM PARTNERSHIP, NOT A ONE-HIT WONDER

The negotiation process should not be looked at as a one-time procedure. It can rather set the foundation for a long term partnership if there is open communication and transparency. "We work to share our overall roadmap, our key IT Priorities and specifically the key challenges that we are having with vendors," says Balaji.

Also, it is important to see that the contract is not favouring one side and has something to offer to both parties. Ramnath Iyer, CTO, Crisil says, "Successful negotiations cannot be one sided. By that definition, all our negotiations are successful. "Negotiating a win-win situation can ensure long-term benefits. The vendor should be seen as a long-term partner, and it becomes important to take into account the sustainability factor. Only if the company that you are working with is profitable, there will be sufficient funds to meet ongoing support needs and also for investing in future product enhancements. Puliakottu adds, "I look at working with a partner rather than a vendor, with proper governance in place, engagement in place, and mutual agreement to support each other."

STRATEGIES THAT WORKED

Clearly its a combination of factors that makes a good negotiator. While some qualities like communication skills and convincing personality can be inherent, others are learnt and acquired on the way. Experience surely plays a role here and even though one learns the finer nuances and techniques with time, there are some tried and tested strategies that can help.

One common advice is not to give in too quickly even if the price is good, so that vendors do not get the feeling that the product is being sold for too less. A CIO of a UK-based enterprise, when questioned about his negotiation tactics says, "I'm somewhat reluctant to give up my secrets here. Also, most contracts I have negotiated have confidentiality clauses." He indicates that a basic beginner's tip is to use your poker skills, and not reveal your whole hand all at once. He adds, "One key approach I have used is not to talk about what my target looks like until I have squeezed every last drop of negotiated position out of the supplier, and then reveal that my CEO won't accept anything less than a further x% discount. A common tactic I am sure, but it works if the supplier really wants the business."

Another strategy that could work on some occasions is to look for areas that are important to you but not that much to the vendor. These are points where you can easily convince the vendor without giving him the feeling of losing out.

Balaji reveals a strategy that he believes in, "One of my prior managers, an experienced CIO used to follow this technique; complete all the negotiations so we get the final pricing well negotiated. He would then go back and say-if I could not give you another 10-15%, what sort of training can you throw in for my team, how can you do a better job training the end users-or driving marketing campaigns so the solution is well accepted."

Open discussions on key IT priorities and challenges of the company and the vendor's overall strategy and business model will ensure that the both parties are on the same page. "Things which generally work include an open conversation on end-objective of the business rather than an obsession with underlying technology," adds Joshi.

Pillai stresses upon the importance of networking. "Networking with peer group plays a critical role in getting a good understanding of products and pricing. It cuts down the effort required at the negotiation table to get the best deal."

CIOs who have a good knowledge of the market often manage to beat the vendors down on pricing. Cherian comments, "We have managed to get good discounts many times, by doing our groundwork well and telling the vendor about the knowledge we have on the different options available."

Also, negotiations deliver better results and avoid delays if decision makers from both sides are involved in the process. Being fully transparent, and involving not just IT but all the relevant stakeholders ensures that both parties jump in with eyes wide open.

CHALLENGES & PITFALLS

Negotiation is a complex process as it involves divergent thoughts and it is often difficult to bring all these to point of consensus. There are innumerable factors to consider and numerous terms and conditions to deal with. Miscommunication on part of any the parties can cost heavy damages in future and disputes are likely to arise on various matters like service level agreements, contractual performance targets and so on.

Industry experts suggest that accepting a standard vendor contract as it is, without any modifications could be inviting trouble, as it is quite likely to be crafted to their advantage. Hence it is advisable to clearly lay down your objectives to each of the vendors and choose the one that best suits your requirement. A CIO should not be afraid to walk out of the negotiation if the terms are unsatisfactory and there seems to be no scope for resolving differences.

CIOs point out that the biggest challenge in the IT product space is not having clear benchmarks or data to make comparisons. "You never know that the deal you are getting is the best or someone else is getting a better deal. There is lack of clarity in pricing," says Cherian.

At the same time, there are instances when things backfire when CIOs try to put too much pressure on the vendors in order to get the best deals. Its important to remember that the vendor's commitment to a non profitable contract will always be questionable and you might end up paying more in future.

There is a thin line between bargaining hard and bargaining right. At times, buyers try to be too demanding, knowing that the vendor side would be under pressure to meet their sales target. While this might offer a sense of short term achievement, it can put a strain on the vendor-supplier relationship even before it takes off. A situation that is best to avoid. Iyer adds, "Negotiations converge to a mutual consent. The concept of ‘hard bargain' has little relevance. Sometimes hard bargains could lead to reduced commitment on future support and delay in delivery."

Balaji also shares a similar experience where bargaining too hard had its repercussions. "We have had cases where we have negotiated very aggressive discounts, and while at the time we believed we succeeded based on the discounts and price, looking back a few years down the road-when we evaluate what the true cost was, whether the vendor went the extra mile to support the broader change initiative-we have realized the importance of keeping all aspects of governance in perspective," he adds.

Often there is a hidden cost attached to a very hard bargain that would only be discovered later. Hence it is important to know where to draw the line. Cherian says, "It is good to have a realistic understanding of the sort of discount rates you are looking at, stopping where you should so that it does not get into a negative territory."

Another very important point to consider in negotiations is the provision for termination of contract. As the market gets more and more unpredictable, business requirements could change or the whole relationship might not work and in both cases, you would end up looking for an exit route. So it is better to discuss this point upfront and allow provisions for easy termination without having to pay huge penalties, even if that means paying a little extra along the way.

FIGHT THE WAR NOT THE BATTLE

The key to success in negotiations is in being able to differentiate between fighting a battle and a war. The negotiator should be able to see the larger picture and set his eyes on the long term objective. Most of the times CIOs tend to come to the negotiation table to fight battles on less significant factors like implementation cost, procurement price etc, while the true war should be for attaining the larger objective of total cost saving and business transformation.

Balaji rightly puts it, "The decisions and concessions that are made at each negotiating table for each battle need to be made in the context of the bigger objectives (that of the war)."

And to win this war, you do not have to necessarily defeat those on the other side. Understanding and openly communicating what is important to you and what is important to the them can help in fighting a war that both sides win.