Enterprise software agreement negotiations require three things: up-to-the-minute supplier and negotiation intelligence, diligent preparation, and introspection. But what does that look like in practice?
We touch on this topic in our ebook, IT Procurement 2030 – Preparing for a New Era of Sourcing and have expanded upon it here. The list of questions below unlock critical information necessary for negotiating a world-class outcome on enterprise software purchases and renewals.
Here is a list of questions IT buyers should ask before vendor negotiations begin:
- When are our agreements up for renewal? Enterprise IT procurement teams manage dozens of renewals a year. These renewals range from departmental software to organization-wide deployments that represent tens of millions of dollars of spend. Knowing renewal dates allows IT buyers to proactively plan and avoid “autopilot” negotiations that often result in less favorable terms and pricing (as well as “toxic spend” on unused or overpowered licenses). It provides ample time to explore alternative vendors, gather usage data and requirements, perform IT price and contractual terms benchmarking, and prepare a strong negotiation strategy.
- How much runway should we give ourselves for renewal planning? The complexity of enterprise IT renewal events ranges from easy and straightforward to complex and resource-intensive. For example, prep for a Cisco renewal may take 60 days or less, while planning and preparation for a Microsoft Enterprise Agreement renewal should start at least six months in advance (if not sooner – Microsoft begins preparation for the next renewal before the ink is dry on the current contract).
Understanding how soon in advance you should prepare based on vendor and estate complexity gives you a clear advantage at the negotiation table. The challenge? Without a consolidated view into upcoming deals, tracking renewals and preparation timeframes can be a nightmare for large enterprise IT procurement teams.
- Which deals should I prioritize for negotiation preparation? Not every renewal should be – or can be – treated equally. Certainly not in today’s IT purchasing environment where deals move fast, vendors have more leverage, and IT procurement resources are overwhelmed.
Prioritizing deals helps IT buyers focus their efforts on the most impactful negotiations. It ensures that high-value, high-importance, and high-risk contracts receive the attention needed to secure favorable terms, best-in-class pricing, and stakeholder and strategy alignment.
- What behavior should I expect from my vendor at renewal? Multiple factors inform vendor behavior at the deal table: current financials, sales compensation/incentives, promotion and prioritization of certain offerings, vertical and geographical penetration objectives, recent M&A activity, market position, management and workforce changes, and more. Understanding these motivations is crucial to establishing points of leverage (what is the win/win?) and securing the best possible IT purchase and renewal outcomes.
- How does our deal compare to market? Nearly 90% of companies overpay for their IT purchases. That’s because there is no “Kelley Blue Book” for enterprise IT pricing. Why? Because context matters! Commercial terms and pricing are highly dependent upon purchase history, point in time, geography, then-current leverage points, demand trajectory (growing, status-quo or decreasing).
Understanding how your deal stacks up against similar peer purchases gives insight into whether proposed pricing and terms are competitive. It empowers IT buyers to define a target outcome (at market? better than market?), and then develop a negotiation strategy to get there.
- How flexible is my vendor on pricing? Knowing a vendor’s pricing flexibility based on in-market behavior data allows IT buyers to negotiate more effectively. It helps buyers identify opportunities for discounts, concessions, or value-added services that can enhance the overall deal.
- How much do we spend with this supplier? Understanding total spend with a supplier provides leverage in negotiations. More spending usually equals more negotiating power. This requires IT buyers to have visibility into disparate contracts with a particular vendor, which is common in many large enterprises.
- Am I choosing the right licensing/subscription options for my current and future-state requirements? IT vendors profit from complex software licensing and subscription models – and they change frequently. This makes it difficult for IT buyers to:
- Who are some viable competitors? Are they already used in my environment? Identifying viable, credible competitors and their presence in the current environment offers alternatives during negotiations. It gives IT buyers leverage by demonstrating a willingness to switch vendors and encourages better offers from current suppliers.
- How can I align stakeholders for improved negotiation outcomes? Early involvement in the buying process allows IT procurement to make sure IT, finance, compliance, legal, and departmental stakeholders are aligned on technical, usage, and operational requirements. It also allows them to closely manage vendor communications, so stakeholders don’t inadvertently share information that sacrifices negotiation leverage.
- What do I own and who’s using what? Fact-based visibility into IT solution usage – particularly software – allows IT procurement to identify unused and underutilized assets (licenses, cloud compute, hardware, etc.) that can be liberated, reallocated, and/or right-sized for savings.
- What is the vendor’s current business health and risk profile? This information is an important input to negotiation strategy, but also a foundational requirement for increasingly rigorous information security and supply chain resilience procedures. Easy access to this information is a perfect use case for AI.
Interested in learning how NPI can help your IT buying team negotiate a world-class enterprise software agreement? Contact us.
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