Seven steps to successful negotiation for IT buyers

Nigel Owen of training consultancy Huthwaite International provides some key tips for benefiting both seller and buyer when negotiating a sale or purchase.

Winston Churchill knew nothing about IT, but he was a master of negotiation and strategy, writes Nigel Owen of training consultancy Huthwaite International. In the early years of the Second World War, he needed all his skills to persuade the US to enter the conflict. While deploying his great personal charm, he also prepared meticulously and was acutely aware of the balance of power with President Roosevelt. Above all, he planned how to execute his strategy: "Those who plan do better than those who do not plan," he said.

The world has changed since 1945. However, the fundamentals of negotiation remain the same, whether you are heads of state or IT professionals haggling over the best price for a support package. When negotiating a sale or a purchase, it is essential to be clear about your objectives, and to understand what the person facing you is trying to achieve. Negotiation is really about finding out what is valuable to the other side; in other words, both sides must feel they are getting a good deal.

Effective negotiation

The downturn has placed IT suppliers under the cosh. Margins are under severe pressure as markets shrink and sales opportunities become scarcer. This is compounded by the commoditisation of many IT products and services, which has left customers struggling to differentiate between them. This problem is even more acute for UK companies, because they have to compete with an influx of new competitors from low-cost economies.

In this environment, the ability to negotiate effectively becomes even more important, because striking the best deal is not simply about selling or buying at the right price, it is also about securing long-term value for your business.

One way providers have tried to do this is to wrap their hardware and software sales up with a broader solutions and consultancy sell - perhaps including a service plan as part of the package. This can work well, especially when selling to a fellow IT specialist who understands the concepts and challenges involved in making an IT solution work within the business.

However, it can be much harder to justify the consultancy element when the buyer is a procurement professional - especially one of the new breed whose main goal seems to be getting more for less by putting the squeeze on suppliers.

The challenge for the seller is to stand out from competitors and demonstrate the best and most relevant value for the buyer, with a "win-win" for both sides. Here are some key tips for achieving that.

1. Work out who has the power

It is not necessarily always the buyer who holds the stronger cards, especially in specialist areas such as enterprise resource planning where there are only a few companies able to meet the buyer's specific requirements.

However, one side is likely to start the negotiation in a stronger position, and it is essential to work out in advance where the power balance lies. If you fail to do this, you risk not being able to manage it effectively during the negotiation itself.

Two examples show why this is important. First, you need to identify when to walk away from the negotiation - this can be tough to do, especially when your company is under pressure, but no deal will always be better than a bad deal. Second, it is important to deal with any unreasonable behaviour by the other party, without derailing the negotiation completely.

2. Prepare and then plan

Do not confuse preparation and planning. Average negotiators are good at preparation, working hard in advance to pull together lots of data, proof sources and statistics. The problem is, they then think it is job done - and they are in good shape for the negotiation.

All this effort only really pays off if you then plan how to use this information to best advantage. For example, the best negotiators use all the data to hand to explore what the best trades will be - such as possible concessions on additional product options, delivery or service support - which cost the business relatively little but may be of significant value to the other party. So, identify these potential concessions in advance, know their value and understand how to make the most of them - and never give them away for free,

3. Remember your strategic objectives

When the pressure is on, do not be tempted simply to get a deal that works now. Take time to consider the longer-term impact of any agreement on your business. If you are purchasing, it is a false economy to buy the product only, if you then have to pay a much more expensive, alternative supplier to service it.

4. Determine if it is a price or value sale

It is best to decide early in the negotiation if you are involved in a price or value sale. Some IT products are now commodities, so both the buyer and the seller will be willing to do a quick, simple deal based on price. However, the purchaser has a more difficult task if they need to achieve best value from the deal. They need to identify the best combination of features to meet the business's requirements - from price, functionality and robustness to consultancy, pre- and post-sales support and maintenance.

5. Create a positive dialogue

All the research confirms the importance of creating and maintaining an effective dialogue, and an atmosphere of trust and confidence. Empathy is key. Consider what it would be like in the other person's shoes by asking them as many questions as necessary to understand their needs and challenges in full.

6. Do not abuse your power advantage

This may seem a naïve thing to say when as a buyer you are under intense pressure to cut IT budgets and seem to have the power balance in your favour. However, exploiting any imbalance of power to squeeze the supplier will more often than not deliver a lose/lose result.

The reason for this is simple. The deal will be less profitable to the supplier, which will have to decide what supporting services to cut to make it affordable. The downside is that best value is compromised, as the buyer's operational colleagues will not get exactly what they need to improve performance.

7. Develop your face-to-face skills

Great negotiators have a wide range of behavioural skills. They listen as well as talk, asking lots of questions to be clear where the other party stands. Ensure you understand the other's needs, make sure the process is clear and build trust at all times.

To sum up, buyers should avoid reducing everything to price, especially in the area of IT procurement. This short-sighted approach may fail to identify the solution that is exactly right for your needs. Similarly, sellers should be clear about where they can deliver the best value and concentrate on communicating these benefits. We cannot all be a Winston Churchill, but we can all follow the key rules of negotiation.

Nigel Owen is business director, IT, at training consultancy Huthwaite International.

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