Feature

Negotiation: Knowing what you want - and what the other party wants - is the key to success

Negotiation is the one skill every head of IT must possess to run their department effectively - and that is not negotiable.

According to Margaret Smith, chief executive of CIO Connect and former head of IT at Legal & General, the ability to negotiate is required at every level at which the chief information officer operates.

"A CIO has to be like a Matryoshka, a Russian doll," she said. "They have to be a conductor, devising and executing a strategic vision for IT; they have to be an innovator, able to forecast and exploit the emerging opportunities IT provides for competitive advantage; they have to be politicians, able to survive and thrive in the corporate corridors of power; they have to be accountants, delivering cost-effective IT to the business; and they have to be policemen, able to run a tight IT ship."

But all these roles require negotiating skills, whether it is with business users, suppliers or your own IT staff and managers. "Being good at negotiation is seen as a business skill, and so IT people who are good at it are more valued by business," said Smith.

However, there is negotiation and negotiation. "The old view of negotiation is that it is about haggling and hassling, beating down your opponent, getting what you want," Smith said. "I used to be nervous if the other guy had a smile on his face as it made me think he had got one across on me and I had missed something."

But that adversarial view of negotiation is counterproductive, Smith argued. "There should always be a win-win, sometimes even a mega-win - or you should walk away."

The key, according to Smith, is to know what you want and to know what the other side wants as well. There is no point demanding what the other side cannot provide, or afford to provide, as they too will have their walk-away point.

Knowing what that walk-away point is - or should be - is vital for your own protection, said Smith.

She recalled, "I was once negotiating for a new mainframe, with two companies bidding. The bids started at £Xm and went down dramatically over the next few weeks. Then, at 10.30pm one night one of the salesmen phoned to ask me just what price it would take for me to sign the next day. I told him, outrageously, a reduction of £1m. He said that price would cripple them, but he still came in the next day with that on the contract. Was this a good or bad negotiation? Within two years the company had gone under."

It is also vital to understand what the supplier's business model is, she said.

"I had some of my IT team once come to me and say they wanted to buy some software for £275,000 from a small company. But when we investigated we realised that the company would need us to spend £1m a year with them if they were going to survive," said Smith.

Negotiating only on price can be a big mistake as well. "If you are buying a one-off then it can make sense. But remember that if you do not leave them a win-win and they feel they have been done over, they will get you back."

Most negotiations are unlikely to be one-off, whether with business users, suppliers or staff. That is why it is essential to build a relationship with whoever you are negotiating with, said Smith.

"I used to believe that social chit-chat, lunching, and so on was a useless waste of time. In fact it is relationships that make the world go round. If you have a relationship with the person you are negotiating with, you will negotiate better."

Nor should negotiating skills be the preserve only of the CIO and senior IT managers.

"All IT staff should know how to negotiate. They need negotiating skills when they are discussing things like service level agreements and business requirements."

Although some IT staff are less comfortable with the idea of having to negotiate - "techies can find it distasteful," - others prove to be naturals.

"At Legal & General the then CIO, who is now UK managing director, wanted some of his team to be sent on an assessment course for the company's most senior managers, which focused on identifying skills such as negotiation. The two IT people on the course got top scores. This changed the business view of IT management."

Tips to ensure your next negotiations are successful

  • Negotiating skills are a key element in the CIO portfolio and throughout the IT department
  • IT needs to negotiate with suppliers, business users and its own staff
  • Good negotiation leaves both sides happy to continue the relationship
  • No one - IT, suppliers, users or staff - ever forgets or forgives being burned in a negotiation, so do not make enemies unnecessarily
  • Be prepared to walk away rather than accept a bad deal
  • Some IT staff make natural negotiators, others less so - they need the protection of framework agreements to negotiate within
  • Invest time and effort in getting to know who you are negotiating with - it will pay off
  • A good price is not necessarily the same thing as good value - something that business users or non-IT procurement experts do not always take on board. They may need the bigger picture explained
  • Forcing a loss-leading price out of a supplier buying market share is shortsighted if they then skimp on support or go out of business
  • Salesmen may be motivated primarily by their commissions, not the long-term good of their employer
  • Beware of suppliers targeting less IT-literate business users in a bid for easier negotiation
  • Be wary of too good an initial price - it is the total cost of the contract over term that counts (especially with outsourcing suppliers)
  • Understand your value as a customer to a supplier, to understand your negotiating strength
  • Understand what is important to you, and to who you are negotiating with - priorities may be different
  • Understand the criticality to your organisation of what you are negotiating over. A lot of software ends up highly critical, and highly indispensable, without deliberate intention. A "free trial" can prove very expensive in the long term if the software becomes critical or embedded in the infrastructure
  • Where suppliers are so powerful in the marketplace that they will not negotiate on price, ensure other "value adds" are included such as education or consultancy. If necessary, make it clear you are signing "under duress"
  • Check out all your contracts to avoid nasty surprises at renewal deadlines
  • Increase your negotiating strength by partnering with other customers to achieve more volume discounts.

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This was first published in February 2006

 

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