Do you have any idea what you're committing to?
According to HfS analyst Esteban Herrera, he’s seen weeping, object-throwing, suicide threats, uncontrollable roll-on-the-floor laughter, walk-outs both staged and unplanned, and even a handstand.
So let’s hear more from Esteban about about that strange place – the negotiation table…
As an outsourcing advisor for about a decade, my favorite part of any deal was the negotiations phase. Now, I realize that for many of you, that sounds like a serious illness, but it was, without a doubt, where I had the greatest impact in building a healthy relationship between two enterprises that would actually last. I’ve had the opportunity to work with some great attorneys, colleagues, clients and providers. I’ve also worked with some that would not be accurately described by the last sentence. With triple-digit deal negotiations behind me, I’ve learned a few tricks of the trade, including how to manage my famously fiery temper!
There are hundreds of great books on negotiating theory and practice, and HfS is not here to rewrite any of them, but we can shed some light on how to apply these tactics successfully in an outsourcing negotiation. A big part of it comes from saying what you mean, but it also requires accepting that buying outsourcing is not like buying a car, or toilet paper, and that your experience at the local Chevy store or purchasing MRO may not give you enough to be successful.
Negotiations need not be miserable:
- I once negotiated an applications deal in a day and a half. There were five people in the room. The entire contract including all exhibits was less than 100 pages. That relationship is in its fifth year, has been renewed, and is working out great by both parties’ accounts.
- I may be the only advisor to ever agree to help clients negotiate on a fixed price basis. It can and has been done, and it aligns your interests with the advisors very well.
Esteban Herrera, SVP Enterprise Sourcing Research
That said, I do believe most enterprises undervalue the importance of expert advice at the negotiating table—the people on the other side of the table do this for a living, whereas even the most outsourcing-leveraged enterprise doesn’t negotiate much more than a deal or two per year.
Overall, we’ve made contracts and process to get to them more complicated than they need to be. I once showed an astute client who had been living in a hellish ITO relationship for almost five years the thousands of pages of wonderful artifacts my firm would produce. He said “I had those last time, and look where it got me!” He made an excellent point—it’s not the detail in the agreement that will make a relationship tick—it’s the commitment and the individuals who live it every day. HfS Research is committed to helping our clients conduct simple, productive, relatively painless negotiations.
To read our Best Practice report on Real World Negotiations, click here. And feel free to share your war stories too!
Posted in : Business Process Outsourcing (BPO), IT Outsourcing / IT Services, Sourcing Best Practises
We’ve been at the provider end of outsourcing for almost a decade. We’re not in IT but in engineering and architecture. As one would expect over the long period mentioned, we have dealt with a variety of clients, ranging from two-partner firms to Fortune 500’s with tens of thousands of employees.
Large clients rightfully discuss the scope of a proposed outsourcing arrangement in considerable detail. These discussions have always been pleasant, and we have never found their expectations or behavior unreasonable. We have forged relationships with such companies that have lasted for more than five years without a single hiccup.
In contract negotiations with the partnership firms, however, we repeatedly find that we are more concerned about defining deliverables than the client (but we gladly develop the said definition in conjunction with these clients in order to build a robust outsourcing arrangement).
However, in more than one instance, we have found the partnership firms lacking professional courtesy. In one case, when we quoted a small repeat client a price, his response was, “What?! Are you NUTS? That’s a ridiculously high price for such a simple drawing. I will only pay $xxx, and that’s it.”
Our first reaction when we hear such incivility is that the poor guy probably thinks we live in trees and beg for a living. Our second reaction is that we would not be able to sustain a meaningful relationship with such an unreasonable, impolite individual. So our response in this and similar cases is always, “We’re sorry, Mr. ABC, but we do not think that we can have a mutually beneficial engagement with you over the long term. Thank you for being in touch.”
Couldn’t agree more, Esteban. Over-complicating a contract with a telephone book-sized diatribe of terms and conditions is making money for the consultants and lawyers who bill a fortune for compiling it, when only a handful if these details really matter – not to mention the pain and emotion caused compiling it and working the competitors! I have lost count of the number of clients who have drawn up hundreds of SLAs, only to later declare that barely a dozen really mattered to the business. If customers and suppliers spent more time discussing the higher-value activites of working together (i.e. governance, process transformation), and less on administivial claptrap that does nothing except waste time, money and cause angst, we’d all be better off,
Warren Clarke
Have to agree with Lucky that the intermediaries often create a toxic atmosphere during negotiations (but I have noticed some of them adopting a smoother approach lately). They’re not the ones who have to spend the next five years living the experience!
Jeff
@ Warren–thanks! The best practice report that was referenced in the article backs up your perspective. And don’t even get me started on SLA proliferation…it seems to be getting better but the case, I thought, was made conclusively against too many SLAS quite conclusively about five years ago. I hate to think that it still happens.
@ Jeff–Exactly! Our Best Practice Report backs you up too! Intermediaries have conflicting motivations with their clients, and any deal not negotiated with the relationship “principals” from both sides in the room is very, very likely to fail.
Sounds a whole like romper room experiences rather than collaborative professional negotiations, but that is life… or is it? Is it new found POWER GONE WILD and if the deal is won (or you get your way) are you willing to accept the consequences when delivery (or service provider failure) go bad?
Truth is that we often enter these discussions with way too much on the table. There are obvious points that we already agree on, and there are those where we have a ways to go with. Maintaining a health atmosphere, only enough negotiation points to consume a short period of time (say 2-4 hrs.), and maintaining total flexibility based on a total supply chain understanding will make tons of differences in reach a suitable contract relationship. You aren’t buying a commodity you are buying a specialized service that will be to your exacting specifications.
It’s hard to imagine, but it happens all too often, that rate expectations are set based on internal operating costs, past contractor relationships, or benchmark surveys that are not reflective of what it will take to deliver your service. Trying and understand the specific supplier mechanics as to how the rate or contract amount has been reached. You should expect that they will deserve margin, and it’s not for the buyer to compress to fulfill a desire to win.
The new paradigm is the true paradigm. The client and provider should play for the same side if the relationship is to be meaningful.
That implies having shared goals, shared strategic discussions and shared outcomes.
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