Question
I am an
IT director and a member of our multinational company's IT
directors council. Several of our major US-based international
suppliers insist on making national deals and business unit deals
rather than agreeing to a global corporate deal, which would be
more cost effective for us. Any tips on how to negotiate hard to
get what we want?
Solutions
Make sure that a global deal will be
cheaper
Robin Laidlaw, president, Computer Weekly 500
Club
The first point is that you do not know that your global deals
will necessarily be better value for your company than the national
ones your suppliers want - how can you? You can bet that your
global deals will be hedged with safeguards for the suppliers that
take account of currency fluctuations and other factors that could
reduce the profitability of such a deal.
Global IT directors like to negotiate global agreements as it is
one of the justifications for their existence. It makes them feel
comfortable and secure in the knowledge that whatever the asset
might be it will cost the company the same all over the world.
Sadly, it rarely works like that. Global IT directors have to
contend with general managers, who are responsible for profit and
loss in their region. If their country's IT team can buy a product
cheaper nationally, you can bet they are going to do it. Global
suppliers likewise run organisations with regional management
responsible for target sales and profit and loss.
Global IT is going to look a bit silly if they try to complain
to the executive that some levels of management are not following
the global purchasing agreement when a national deal could save
money.
Your major suppliers probably recognise that they have less
flexibility if they are tied to a global agreement. They face
different legislation requirements in different countries and
varying levels of statutory obligations.
Better to try to value-engineer the product, be quite precise
about the technical and performance specification you expect, and
indicate to regional IT the ceiling price they should pay - well
done them if they can get it for less.
You ask how to negotiate hard. Well, you can always threaten to
walk away from the negotiating table, but to do that you have to be
confident that there are alternative suppliers who can meet your
specifications and are prepared to negotiate a global deal but in
that case, why are you not already negotiating with them?
Negotiate your deals on elements other than
cost
Sharm Manwani, head of information management, Henley
Management College
There is clearly a lot at stake here. As you have realised,
there are some industries where the power can reside more with the
supplier than the user. Having said that, there is potential to
negotiate deals that cover elements other than costs.
My first piece of advice is to consider what else could be of
value to your organisation in making these deals. For example, you
may be looking for extra support in a critical area.
In assessing your situation you may want to consult some
professional negotiators such as your colleagues in procurement.
There will also be external groups that have provided advice to
organisations such as yours that are negotiating with key
suppliers. You could also consider consulting with CIOs in your
network, although there may be commercial confidentiality clauses
to consider.
Finally, I recommend that you try to get into the mindset of the
supplier organisations. I was an IT director in two organisations
that had very different approaches to dealing with their
international customers.
In one company, the chief executive did not want to set up a
global key-account team on the basis that there would be no one
central to negotiate with. The other firm made a major investment
to build up relationships with international key accounts. You need
to understand the internal structure and culture of your suppliers
to determine the best approach.
Consider running a reverse auction
Ken Allen, technology security and risk services
partner, Ernst & Young
The assumption made in the question is that a global corporate
deal will cost you less than the individually negotiated national
or business-unit deals. If all of the other IT directors in your IT
directors council support the need for a global deal, then it
should be within your power to insist on that.
Good deals are not all about initial cost, however, particularly
for services where quality and timeliness may be important. Local
deals may well provide you with higher quality or a more tailored
product or service that better meets the needs of your business
than a one-size-fits-all deal.
If you need an internationally consistent product or service
from your supplier and a global deal helps to provide this, then
you should consider running a reverse auction.
Let the suppliers know how the process will work, and invite
them to bid for the work. Clearly set out what is negotiable and
what is not. If a global deal is non-negotiable, state this
up-front and ask them to propose on that basis.
The drawback to using a reverse auction is that price can easily
become the only differentiator. It is therefore essential to ensure
the quality of the product or service as part of your initial
assessment.
You should also ask bidders for global credentials, as a proven
track record in this area may help you build support for a global
deal with the other IT directors in your IT directors council.
Take control of the procurement
framework
Roger Rawlinson, director of consultancy, NCC
Group
There are a number of factors at play in the scenario that you
describe. In terms of cost advantages, it all depends on whether
you are taking a corporate view or a regional view.
A global deal has the potential to offer the advantage of
economies of scale, and it should be the most cost-effective
approach when considered across the group as a whole. A regional
perspective may favour national deals made based on local
conditions. These regional deals may offer an appearance of
efficiency for local operations, but the cost for the international
group is likely to be higher.
As you are the user, you should be in control of the framework
for whatever deals you wish to make. The key here is to ensure that
the corporate perspective is represented whenever deals are being
made. This may mean supplementing or replacing regional negotiators
with international representatives.
However, if you are in a situation where you are dependent on
your supplier and you have no alternative options, your influence
will be reduced. If this is the case, you need a strategy to
improve this situation and give yourself more negotiating strength
for the future.
Emphasise the potential for greater sales
volume
Ben Booth, global chief technology officer,
Ipsos
First, I recommend that you are up-front and straightforward
with your suppliers. Tell them that your business wants to do
global corporate deals where possible as this will make it easier
to ensure consistency across the group, as well as making the
management of any deals easier.
Also tell your suppliers that they will be getting some business
they do not have at the moment, meaning growth for their business,
and that you would expect their costs per unit to fall
accordingly.
I think you will find that if you approach your suppliers at the
right level this will appeal to them. They should see a global deal
as an opportunity to sell in greater volume.
There will be some smaller local sales teams that lose out, but
this should not prevent you from following your global
strategy.
Focus on the terms and conditions of the
contract
Ollie Ross, director of research, The Corporate IT
Forum
Getting a global deal from a supplier is notoriously difficult,
particularly if you are aiming to standardise price
internationally.
Regional economies and marketplaces, localised tax and
legislation and suppliers' incentive schemes can all get in the way
of achieving the global deal.
Take it one step at time and aim for consistent terms and
conditions to aid contract management and keep a hold of your legal
costs. Get your procurement team to understand the way the supplier
works and you may be able to negotiate a better deal in the
future.
Get the higher-level management on
board
Chris Potts, director, Dominic Barrow
There is always a natural tension between user and supplier
strategies, which needs to be kept in equilibrium if both sides are
going to benefit from the business relationship. It sounds like you
are concerned that your company's strategy for dealing with major
IT suppliers is balanced too much in favour of the supplier.
Some of the big IT suppliers are larger than most of their
users, meaning that users are often very tied to their products.
These big suppliers do not really need the help of a user to give
them more power in the relationship. This can limit the user's
ability to "insist" on the nature of deals that are made, or on any
other aspect of the relationship.
For those occasions where the benefits of a global deal are
really significant, your IT directors' council must engage your
company's chief executive officer and other non-IT executives in
the decision-making and negotiation processes, and do what it can
to persuade the supplier to make one global deal.
However, make sure that you also keep an eye on the risks of
doing this. You will risk putting all of your eggs in one
supplier's basket, and in one global agreement.
The Strategy Clinic panel:British Computer Society
Elite Group,Cranfield School
of Management,Dominic Barrow
,Ernst &
Young,Henley Management
College,NCC Group,The Corporate IT
Forum.
More IT management advice from the Computer Weekly Strategy Clinic
>>
Further reading
How to negotiate the best deal >>
Insist on a flexible software contract, users urged
>>
Recognise what you bring to the deal when negotiating
an outsourcing deal >>
The best ways to renegotiate your outsourcing deal
>>
Suppliers' secret stiffing techniques
>>
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