{"id":1393,"date":"2012-03-20T08:15:00","date_gmt":"2012-03-20T08:15:00","guid":{"rendered":"http:\/\/localhost\/projects\/horsesforsources\/good-bad-ugly_032012\/"},"modified":"2012-03-20T08:15:00","modified_gmt":"2012-03-20T08:15:00","slug":"good-bad-ugly_032012","status":"publish","type":"post","link":"https:\/\/www.horsesforsources.com\/good-bad-ugly_032012\/","title":{"rendered":"Negotiations and the deals we make: the Good, the Bad, and the Ugly"},"content":{"rendered":"

Nothing makes HfS’ own Esteban Herrera happier than helping save our clients obscene amounts of moolah when it comes to negotiating a service contract, especially when all that was needed was a prod in the right direction, and a couple of days of smart discussions…<\/em><\/p>\n

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Don't hang your advisor just yet…<\/p>\n<\/div>\n

I\u2019ve been reflecting on the last three outsourcing contracts where we were asked to coach the clients (a partial answer for those of you who keep asking: how does HfS Research make money?)<\/strong><\/p>\n

As the resident complainer about stagnation and lack of creativity in our industry, I am immediately encouraged, but at the same time also dismayed, by what I\u2019ve recently witnessed. Encouraged because I see clearly where we add value and I\u2019ve been around long enough to see some things change for the better, dismayed because I see so many things still staying the same.<\/p>\n

Without further ado, here is the good, bad, and ugly of recent deals where\u00a0we’ve\u00a0coached clients, with some critical names and dates obscured to protect the, er\u2026 guilty.<\/p>\n

The Good<\/span><\/p>\n

We have job security. The average savings on TCV for the last three deals we helped negotiate was 29%, as measured by total price of the winning bid on day 1 of negotiations and total price of the same bid upon completion of negotiations. This doesn\u2019t even take into account improvement in positions like SLA risk pools and service credits, limitation of liability, indemnification, key personnel commitments, and the other myriad terms that matter to providers and buyers alike. All kidding aside, this shows that a competent advisor armed with data and a sound negotiating approach can still make a huge<\/em> impact on an outsourcing deal. As a buyer, if your deal size is $50 million on November 15th<\/sup> and $35 million one week later, the money you probably paid the advisor who worked that deal will seem like peanuts.<\/p>\n

Even better, each of these deals has been negotiated in about a week, meaning we\u2019ve saved clients money (attorney and consulting fees) while we save them even more money (provider fees). And even the providers are not that upset with us because at the end of the day they close their deal much quicker and save oodles of time and costs on protracted discussions, allowing their deal teams to focus on winning other business. Of course, this speed is predicated on following a certain process that we\u2019ve used over years and years, but if an advisor tells you its going to take a ten weeks or more to negotiate your deal (as many still do), please, please call us!<\/p>\n

At the end of the day, our clients are happy because they saved money, but just as importantly, all the finalist providers feel we treated them fairly and gave them every opportunity to put their best foot forward and win. In an industry where win-win is always talked about and rarely achieved, I get to go home with the knowledge that my company did right by everybody.<\/p>\n

The Bad<\/span><\/p>\n

Reflecting on this last batch of deals, I still see lots of room for improvement. To begin with, why the $%^& do some providers still lob in bids that are 30% higher than what they will ultimately take to do the work?\u00a0 Do they still naively hope clients are that dumb? \u00a0Why do we spend so much time negotiating benchmarking when less than a quarter of the deals in the industry ever <\/em>get benchmarked, and more importantly, when zero-termination fees has become the norm? Why is the contract still thousands of pages when the paper from one deal to the next resembles each other so much? And why are providers still insisting on shirking data privacy and protection accountability?<\/p>\n

Buyers aren\u2019t immune to irrational behavior\u2014like double dipping on transaction-based pricing (where they pay only for successful transactions) and still expect SLA credits for failed transactions, or requesting levels of insurance that would have saved Enron. Or requesting exuberant and unnecessary SLAs. The industry could have fairly standard paper (in fact, it already does) if buyers did not insist on bespoke clauses and contracts for things that are at this point de facto standards.<\/p>\n

Inevitably, someone will get emotional. While this makes for great happy hour conversations it\u2019s a clear indication that an opportunity to take a valuable break was missed.\u00a0 Emotion always, always compromises leverage, so it\u2019s not even a good business move\u2014some people think that getting angry is intimidating to the other party. It is the job of the advisor (or a designated even-keeled colleague) to diffuse the situation with humor, mediation, and\/or a break in the action.<\/p>\n

The Ugly<\/span><\/p>\n

While \u201cthe bad\u201d is passable and even to be expected, the ugly is a case-by-case example of incompetence. In the last few deals, I\u2019ve seen the following:<\/p>\n