Strategy clinic: getting a supplier to agree to a global corporate deal

Experts offer advice on IT directors' management dilemmas

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 >>

Comment on this article: computer.weekly@rbi.co.uk

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