How to Win at the IT Outsourcing Negotiating Table

How to Win at the IT Outsourcing Negotiating Table

If CIOs want to get the most from IT outsourcing deals, they need to treat negotiation as an organizational business process–with training, tools, and processes–rather than an IT purchasing arrangement.

Who’s your best outsourcing deal negotiator—Hank, the ‘people guy’ that everyone loves? Is your negotiating tool kit limited to your RFP templates and supplier scoring sheets? Is your goal to get the lowest prices for the highest SLAs in the shortest span of time?

That kind of ad-hoc negotiating behavior leads to failed outsourcing deals time and again. But there’s a better way—and one that should be natural for process-driven IT organizations. It’s time to start treating IT negotiations as a business process that permeates the entire IT organization, says Jeff Weiss, partner at Vantage Partners, a Boston-based negotiation and relationship management consultancy, who also teaches the science of negotiation to cadets at the U.S. Military Academy at West Point and MBA candidates at the Tuck School of Business at Dartmouth College.

And those skills, tools, and processes will reap rewards not just at the negotiating table, but in the complex day-to-day interactions the IT organization have with end users, customers, suppliers, and partners, says Weiss, who worked closely with the authors of Getting to Yes: Negotiating Agreement Without Giving In during his days at the Harvard Negotiation Project. talked to Weiss about how to build a business process that increases IT’s return on negotiation. Why is it important for IT leaders to build negotiating capabilities at an organizational level? Isn’t having a handful of skilled negotiators enough?

Jeff Weiss, Partner, Vantage Partners: Most IT organizations are engaged in many, many negotiations each day, both internally and externally. Negotiating effectively is critical for much more than structuring big deals, like systems integration projects, or large BPO or ITO contracts. There are important interactions with suppliers, partners, customers and end users on a daily basis, and many of those interactions involve working through differences or even contentious issues. Almost everyone in the IT organization is negotiating in some manner every day, and to enable their effectiveness takes providing organizational support.

Even if one is solely focused on that smaller cadre of people doing strategic negotiations, there is a common fallacy that if we have good “people” people, they’ll get the job done well, or that an experienced negotiator can get it done on his or her own. Far too often skill alone simply does not carry the day. To be efficient, creative, and negotiate tough on the merits, negotiators need to be supported by a true negotiation process with defined activities, accountabilities, tools, and check points. IT certainly has defined processes for application development, testing, and rolling out new systems. CIOs need to start treating negotiation as a business process. Where should a CIO who wants to embed negotiating capabilities into the organization start?

Weiss: The organizational capability has to begin with the culture- the context created by the top leaders of the IT organization. It will always be driven by the messages that leaders send, what they pay attention to, what they measure, what they incent. If they consistently send the message to go out there and kick the heck out of suppliers and reward price reductions at all costs, they will get negotiation behavior consistent with this.

If they send the message that the most important thing is to reduce total cost of ownership with certain suppliers or to build new forms value with other strategic suppliers, they will set of the context for a very different negotiating approach. People will pay the most attention to those cultural messages, so CIOs need to make sure the messages they’re sending line up with the outcomes they want to achieve. Negotiating as a business process—what does that look like?

Weiss: It only starts with above. Many best in class IT organizations have a defined process for negotiating—a series of steps that take place whether they occur over days, weeks or months. They vary by organization, but tend to include defined activities and tools for preparation, pre-negotiation, negotiation, mid-course correction, closure, review and lesson sharing. I don’t hear a lot of CIOs talking about negotiation post-mortems. Why is that important?

Weiss: There are loss reviews, but rarely success reviews—and even the former are often focused more on assessing blame than true learning. Systematic deep dive negotiation reviews are far too rare.

I advise negotiating teams to step back at the end of the negotiation, and sometimes at key junctures throughout it, and spend at least a couple of hours going over what they learned. What strategies worked? What creative solutions were developed or persuasive standards were uncovered that might be reused? What did we learn about this supplier’s underlying interests, their approaches to negotiation, and their internal pricing and solution development processes?

What did we learn about how to most effectively keep our organization aligned throughout the negotiation? Developing organizational capability to effectively negotiate involves teams going through each stage of the negotiation process and extracting what worked and what didn’t, capturing the key lessons, and sharing these with the other negotiating teams. Some organizations even create negotiation lessons-learned databases. If you asked the typical IT leader what tools his team uses to conduct outsourcing negotiations, he’d probably pull out his RFP template. Are there better tools for negotiation?

Weiss: Yes, they’d probably pull out their spreadsheets, trade sheets, RFP templates or supplier score sheets. Each of these has a purpose, but they should only make up a small part of your negotiator’s toolbox.

There are better tools for preparing for negotiation, aligning internal stakeholders, choosing and responding to negotiating tactics, and making adjustments. Many of our clients have developed negotiation playbooks. Some are focused on systematically preparing for different kinds of negotiations.

Others are focused on choosing the right strategies for any given negotiation or “changing the game” when facing tough tactics. Some have defined methodologies for conducting pre-negotiations. Still others have developed simple, yet powerful mechanisms for assessing progress and making adjustments during the negotiation.

Some companies use these just for big, complex negotiations, but many have standard negotiation preparation, job aids, and templates that they provide to all of their negotiators.

If you’re going to approach an outsourcing deal saying, these are the SLAs, we want to use these are the benchmarking clauses, and the price and terms must be this; hear the vendor’s counter offer; and then split the difference — you don’t need much of a negotiation process. But if you’re trying to reduce total cost of ownership, create new forms of value, jointly manage risk, or innovate, you need an organizational discipline that enables your negotiators to uncover interests, develop creative options, employ persuasive standards, develop trust, and successfully align stakeholders.

This is what skilled negotiators get paid to do, and they need to be supported by a consistent set of incentives, an efficient enabling process, proven tools and strategies, and an organizational decision-making process in line with these goals. So if I send the right messages about what I want from my negotiators and put the right tools and processes in place, will everyone in my organization be a good negotiator?

Weiss: Skills are required, too. You need people who are not just effective at using the preparation tools or strategy playbook, but are skilled at the negotiating table.

Shy of someone who is simply doing commodity purchases, negotiators need creativity. They need to be capable of having value-creating conversations. They need to be able to extract what the other side’s actual interests are, not just their positions or demands. They need to be joint problem solvers. They need to be willing to consider another angle. (Being open to persuasion, ironically enough, actually makes you more persuasive.)

These skills can be taught and practiced. And the process, tools, and mindset pieces must come together in an integrated way to drive consistently successful negotiated results—what we call “return on negotiation.” That ability to see things from multiple angles and consider alternatives can easily get lost when negotiating under stress—when an IT leaders is looking seeking a price reduction from a supplier, for example. How important is it for IT negotiators to seek win-win solutions?

Weiss: I’m not a fan of the term, win-win. It’s a loaded term. And if you went into a conference room and asked six people to define it, you’d probably get at least five different answers. Far too often, in business and even in governmental negotiations, people view negotiation as all about compromise. I give a little, you give a little, and we both win. As an organization rooted in the writing of Getting to Yes, we’ve been accused of being the fathers of ‘win-win.’ But making trades is not what we meant.

Negotiation needs to be about creativity. It’s about everyone putting their heads together to coming up with something even better than any of us originally imagined. Does that always happen? Of course not. However, good negotiators make it happen far more often than not. If enabled to, skilled negotiators can uncover and build new forms of value for all parties. They aim to expand the pie, not simply make sure everyone has a piece of it. You say people skills aren’t sufficient. But clearly successful negotiation is about relationship building of some sort.

Weiss: There are so many parties involved in a negotiation. Simply put, there’s you and your constituents and critics; the supplier and their constituents and critics; and often their subcontractors or suppliers with their constituents and critics. A good negotiator needs to facilitate effective conversations among all of those parties (even ones he or she may never speak to directly). That requires building at a basic degree of trust, having difficult conversations, and the jointly solving problems.

This can be left to the supplier to worry about, but a good negotiator will lead the way. They will never give in on the substance for the sake of the relationship—If you were a good partner, you’d just accept this price increase or key term—but they will treat others with respect, explore their views, dig for their interests, consider their ideas, and solve problems side-by-side. They don’t do this because it’s “right”; they do it because it makes the negotiation far more effective. Even if they need to talk about their walkaway alternatives, they explain the why’s and how’s, and leave the other party’s room to respond.

You don’t have to like the other party or play golf with them or go for a beer, but how you manage relationships will have an enormous impact not only on your current negotiations, but also future negotiations. It will not only impact the contracting negotiation, but all the negotiations that will occur during implementation. It’s not just about negotiating terms and conditions, scope, metrics, pricing, and the like, but also about building strong relationships.

Source: CIO

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