In a business world where continuous improvement is the name of the game, we often focus on what went wrong and how we can do better the next time around. This is especially true in IT sourcing. But, sometimes it’s refreshing to change the mindset and linger on what went right.
That’s something we’ve been thinking about a lot here at NPI. In the world of spend management consulting, our mission is to create a great purchase outcome for every client transaction. But, achieving that outcome typically isn’t a one-sided effort. When we meet or exceed expectations it’s largely enabled through a team effort from all parties involved in the sourcing process.
I was reminded of this as we just wrapped up a purchase where we helped a client save over $900K. The purchase involved a sizable software expansion with a global software company along with an even larger services component with the same provider. Normally, these add-on purchases don't provide great leverage. Buyers are often hamstrung by an existing long-term relationship with the vendor, and their deep knowledge of the customer’s needs, wants, budget and timeframe.
But, in this case, we were able remove these roadblocks from the purchase and negotiation. Through our collaboration, and the combination of insight and a willingness to understand the dynamics of the purchasing environment, we were able to level the playing field. Better yet, we were able to significantly reduce the purchase price and optimize contract terms.
The dynamics in sourcing may be numerous and unique to each company, but the elements of a successful purchase hold true. They are:
Fair market value objectives. What's a reasonable target for pricing and other business terms and conditions? Targets that don’t ask for anything unrealistic from the provider, but still push them to provide top tier pricing.
Internal alignment. Every company is different, but getting the hands-on IT personnel, CIO, sourcing, legal, and any PMO team members to all appreciate each other's roles and ensure they are delivering a coordinated message to suppliers is vital. From there, the combined team can take it up a notch and ensure each group actively helps to set the table for the next. Add-on purchases don't usually come with a lot of leverage, and alignment can preserve the leverage you do have and even increase it in some situations.
Pacing and timing. There's nothing better than a client who is aware of the part that timing plays in a purchase and works to play the clock just right. 'Going dark' is often a default negotiation strategy, but sometimes knowing when to apply the gas can be just as effective.
Plan, rehearse and document. Taking the time to brainstorm, rehearse and document your negotiation objectives and tactics always pays off. It’s a no-brainer, but few companies actually do it. The penalty? Well, in the example outlined earlier in this post, the penalty would have been nearly $1M. Instead, we transformed that cost into savings that can now fund other IT initiatives.
There is no secret formula for successful IT purchase negotiation. It takes insight, time, planning and – most of all – collaboration across multiple groups within the business. At NPI, we help clients coordinate people, information, processes and game plans to optimize purchases, and the results often fall into the seven-figure savings category.