ism presentation july 1 2009
DESCRIPTION
Negotiation Skills for IT SourcingTRANSCRIPT
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NEGOTIATION SKILLS FOR INFORMATION TECHNOLOGY
CONTRACTS
June 24, 2009Suzanne Harris
Newport Beach, CA
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NEGOTIATION SKILLS FOR INFORMATION TECHNOLOGY
CONTRACTS
Welcome! Institute For Supply
Management
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Agenda
Introductions Basic IT Contracts and Deal Points Sourcing and Information
Technology Negotiation Summary Question and Answers
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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)
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Introduction To IT Contracts
Your name Company Title What organization do you report to What you are hoping to learn
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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
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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
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IT Contracts and Deal Points
Non Disclosure Agreement:
Protect confidential information Unilateral or bilateral
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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?
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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
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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!
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IT Contracts and Deal Points
The Master Services Agreement
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IT Contracts and Deal PointsMSA
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.
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IT Contracts and Deal PointsMSA
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.
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IT Contracts and Deal PointsMSA
Invoicing and payment Payment Terms Penalties for late payment Confidentiality Intellectual Property:
Ownership Indemnity for use of IP
Non-solicitation
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IT Contracts and Deal PointsMSA
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
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IT Contracts and Deal PointsMSA
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
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IT Contracts and Deal PointsMSA
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
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IT Contracts and Deal PointsMSA
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.
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IT Contracts and Deal PointsSOW
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IT Contracts and Deal PointsSOW
Statement Of Work: Key components include
Effective Date: Term of the agreement Identify Attachments Project Description Objectives Status Reports Acceptance Criteria Project Assumptions
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IT Contracts and Deal PointsSOW
Statement Of Work: Key components include (cont’d)
Attachments: A-1 Project Status Report Form A-2 Change Order Form A-3 Travel Policy
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IT Contracts and Deal PointsSOW
Statement Of Work: Key components include (cont’d)
Identify Key Roles and Assignments Change Control Pricing and payment Termination Total authorized dollars
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IT Contracts and Deal PointsSOW
Statement Of Work: Key components include (cont’d)
Deliverables Estimated Due date Materials Expenses Maximum Amount Payable
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IT Contracts and Deal PointsSOW
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
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IT Contracts and Deal PointsSOW
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
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IT Contracts and Deal PointsSOW
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
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IT Contracts and Deal PointsSOW
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
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IT Contracts and Deal PointsSOW
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
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IT Contracts and Deal PointsSOW
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”
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IT Contracts and Deal PointsSOW
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
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IT Contracts and Deal PointsSOW
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”
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IT Contracts and Deal PointsSOW
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
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IT Contracts and Deal PointsSOW
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
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IT Contracts and Deal Points
Software License Agreements
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IT Contracts and Deal Points
Software License Agreement:Your greatest leverage exists during new acquisitions, or if
there is the threat of replacement .
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IT Contracts and Deal PointsSLA
Software License Agreements
First you get the pitch, promises, the power points, the white papers, the demo, then…
The Contract
“Entire Agreement” means…..
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IT Contracts and Deal PointsSLA
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
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IT Contracts and Deal PointsSLA
Software License Agreements
Too simple: Lacks critical terms
Too Complex: Difficult to administer
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IT Contracts and Deal PointsSLA
The Contract Definitions:
Affiliates, update, upgrade Term and Termination:
Perpetual was the rule Annual Multiple year
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IT Contracts and Deal PointsSLA
Software License Agreements Pricing, Payment and Delivery Delivery Invoices and payment Related Services Acceptance Representations and Warranties
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IT Contracts and Deal PointsSLA
Software License Agreements Indemnification Confidential Information Source code escrow Dispute resolution Assignment
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IT Contracts and Deal PointsSLA
Software License Agreements 90 day pilot Metrics Audits True and True Down May include maintenance terms or be
separate
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IT Contracts and Deal Points
Audits
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IT Contracts and Deal PointsSLA
Software License Agreements: Audits Revenue stream Costly How often? Most likely to? If I outsource?
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IT Contracts and Deal PointsSLA
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
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IT Contracts and Deal PointsSLA
Software License Agreements: Audits If you become knowledgeable:
Inform the CFO Potential Liability “Off Balance Sheet”
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IT Contracts and Deal PointsSLA
License Models Named User Concurrent-User Role Based Employee Based Financial Based Transaction Based
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IT Contracts and Deal PointsSLA
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
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IT Contracts and Deal PointsSLA
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)
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IT Contracts and Deal PointsSLA
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
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IT Contracts and Deal PointsSLA
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
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IT Contracts and Deal PointsSLA
Financed Based ModelThis 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
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IT Contracts and Deal PointsSLA
Transaction BasedThis 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
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IT Contracts and Deal PointsSLA
Items for consideration: License Type Discount Metrics Based No cost for
Development License No cost for cold server Escrow Reporting
ESD Payment due upon
acceptance testing Indemnification Term and
termination Bankruptcy Assignment
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IT Contracts and Deal PointsSLA
Software License Agreements Price protection for future requirements Third party usage (example: Outsource
services from India, China, Mexico) Acceptance testing Warranty True Up Audits
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IT Contracts and Deal PointsSLA
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?
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IT Contracts and Deal Points
Software Maintenance
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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
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IT Contracts and Deal PointsSoftware Maintenance
Maintenance Agreements Services: Upgrades: Previous versions/platforms
supported Customizations and required support SLA's: Term: Pricing and Payment Term
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IT Contracts and Deal PointsSoftware 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.
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IT Contracts and Deal PointsSoftware 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
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IT Contracts and Deal Points
Software MaintenanceSoftware 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
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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
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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
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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
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IT Contracts: Sourcing and Information
Technology
“A match made in heaven.”S. Harris
“Begin with the end in mind”.Stephen R. CoveyAuthor, The 7 Habits of Highly Effective People
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IT Contracts: Sourcing and Information
Technology
Mission statements drive goals. Common goals drive teamwork.
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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
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IT and Strategic SourcingMaturity 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.
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IT Contracts: Sourcing and Information Technology
Two Types of Negotiation
Internal Negotiation
External Negotiation
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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
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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!
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Strategic Support is being a Trusted Business Partner
Attributes of Sourcing Support: IT Knowledge Strategic Plan Budget Shared Goals Contract Expertise Negotiation Skills
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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?
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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.
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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.
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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
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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
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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.
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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
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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
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Soft Skills and Hard Skills
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Soft Skills and Hard Skills
DriverAnalyticalAmiableExpressive
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“The Social Styles Handbook” by Wilson Learning
ANALYTICAL DRIVER
AMIABLE EXPRESSIVE
Task
People
AskTell
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Preparing To Gain Contract Approval Business Summary Template Show the work Show the savings Approvals versus signature How does the signatory want to
interface?
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.
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IT Contracts: Negotiation
Basics of Negotiation Anybody can negotiate Attitude Preparation Relationship Rule Time The Iceberg Practice Knowing what you are up against
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How is IT negotiation different?
Reporting structure Pace Impact to the business Cost and perception Niche
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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
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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.
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IT Contracts: Negotiation
The Iceberg Rule
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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
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IT Contracts: NegotiationFormal Formal Team Written Objective
Statement/Goals Milestones and status Consensus Slower Strategic Increased Visibility Requires a fully
documented business case
Informal Members as needed Fewer deciding members Renewals Smaller new deals Not seen as strategic Information, RFI
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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
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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….
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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?
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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
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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
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IT Contracts: Negotiation
From the Software Sales Point of View:
Professional Services Scope Risk Deliverables Acceptance Dependencies Penalties
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IT Contracts: Negotiation
From the Software Sales Point of View:
VSOE
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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
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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
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From the Software Sales Point of View:
“What don’t we ask Sales that we should?”
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From the Software Sales Point of View:
Our Preparation: What questions do we ask Sales?
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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.”
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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!
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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
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Negotiation Opening, Target and Bottom Line
55% with metrics 65% with metrics 82% with metrics 90% with no metrics
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Negotiation The power of competition
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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
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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
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Negotiation The power of time
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Negotiation The power of time
$1.1M in professional services Opening $800K Target $900K Bottom line $1.1M
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Negotiation The power of silence
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IT Contracts: Negotiation
Negotiation The power of silence
House hunting S250K offer
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Negotiation The power of third party research
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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:
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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
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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
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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
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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
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Preparation For Formal Project
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Formal Project Scope: Develop the team Objective Statement: Musts Versus Wants Develop the objectives Request For Proposal
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Preparation For Formal ProjectPart 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
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Preparation For A Formal ProjectPart 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
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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!”
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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)
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Part Four Meet with the supplier Reassess Repeat until concluded
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Term License Models: Grant Of Usage
Enterprise Perpetual Annual Concurrent User Term per user
Which one for which deal?
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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”.
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IT Contracts: NegotiationMaintenance 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
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IT Contracts: Negotiation
Maintenance Cost: Planning Communication Timing Sourcing to contact supplier and convey:
Shock Opening Communication
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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
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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
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Maintenance Cost: Supplier Response Supplier submits Expedite
Savings is $800K annually
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Example Two: Enterprise SoftwareList Price $100M
Iceberg Preparation Delivery Results
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Example Three: ESD Three year agreement showing “Deliver
Media” Total Tax implication: $900K.
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Example Four: ABC John’s Hosted solution Incumbent, 10% reduction last year Renewal is due in < three months Preparation Tactics Used Result
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Example Five: Financial Systems Software Incumbent Annual software maintenance renewal in three
months Preparation Tactics Used Result Supplier response
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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
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Research the supplier base IT recommendations Gartner For IT Leaders Forrester Tower Group Supplier websites
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Cost Savings:
Hard Cost Savings
Soft Cost Savings
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Cost Savings:Hard Cost Savings From budget From previous buy From first proposal*What you caused to happen
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Cost Savings:Soft Cost Savings Payment terms Penalties for late Limited potential future increases
*What you caused to happen
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Cost Savings:
What is the biggest problem here?
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Summary
Each contract is different Goal alignment Preparation is key to success Practice negotiation Declare Hard and Soft cost savings
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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
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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
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Time For Q & A Questions and Answers
Contact me at: Suzanne Harris
[email protected] 831 332 3450