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ITFMA Journal

Negotiation in Large Organizations

Jon Maxim, President
Maxelerate Systems Ltd.

For the sake of simplicity every negotiation consists of four Phases:

• Preparation

• Negotiation

• Management

• Competitive Environment

The first three flow in sequence and the third eventually feeds the first. The fourth is actually applied throughout the negotiation. So we really need to look at it as a cycle that consists of Preparation, Negotiation and Management.

Within each Phase there are Tasks that need to be performed. Not every Task is used in every negotiation but most negotiations require elements from these Tasks. A large expensive mission- critical complex project (e.g. a major business process outsourcing) should implement all of these Tasks in detail. A simpler acquisition (e.g. cartons of pencils) can follow a simplified fast- track internal process that uses the same principles but is much less labor intensive. The Tasks are listed under each Phase:


• Develop Skill Level

• Implement Process

• Establish Need

• Decide Requirements

• Own The Contract

• Assemble Negotiating Team

• Determine Negotiation Strategy

• Acquire Vendor Knowledge


• Selecting Vendors

• Obtaining Proposals

• Award Contract


• Administer Contract

• Enforce Compliance

• Optimize Vendor Performance

• Control Unmanageable Vendor

• Direct Long-term Relationship

Competitive Environment

• Maintain Competition

The following is a brief overview description of each Task.



Develop Skill Level

It is not uncommon to find that large organizations lack the skills required to conduct a successful negotiation. This is less common in small businesses since the negotiator is usually the proprietor who has a very keen interest in getting the best deal! Vendors understand this. They train their salespeople extensively in the art of negotiation. Salespeople use techniques that exploit lack of negotiating knowledge in different areas of an organization. They avoid knowledgeable negotiators such as Procurement departments and employ techniques with names like "Divide and Conquer”.

To counteract this you can train your employees internally, employ an outside training company or hire experts in the field of negotiation. The ideal approach is to use all three at the appropriate time.

Implement Process
The best training in the world is totally worthless if it is not applied. We have observed many people emerge from training courses, seminars, etc. highly enthused and determined to apply what they have learned… only to find that, upon return to their desk, they lapse back in to the same behaviors and routines as before. People in IT departments have long known that managing change is integral to the success of any new system or process.

The key is people. People need communication, training, conviction and a clear understanding of what their new role is. They may also need coaching and mentoring. Usually they will work in teams and have interactions with other areas. Once they have learned the new process, care must be taken to provide them with assistance in these areas. Sometimes this is a HR responsibility, sometimes a functional responsibility and most usually falls on the shoulders of the individual managers affected.

Establish Need
Do you need this product or service? Or has a persuasive salesperson excited a naïve department into acquiring something that already exists in the organization? This Task is essential to both making sure you are getting the right product or service and getting the best deal.

Decide Requirements
Determining the specifications for a product or service is easy. Anyone in the organization is likely to say so. Ask several people that are part of using, implementing or merely affected by the decision and they will be happy to give you the specs. The likelihood that they will agree, however, is small. Vendors exploit this.

The specifications must be comprehensive, accurate and clear. But they must also be accepted by everyone that is likely to come in contact with a vendor in order to get the best deal. This requires meetings including all affected parties led by someone with very good Meeting Facilitation skills.

Own The Contract
We are amazed by the proportion of vendor generated contracts that are signed virtually unchanged by their customers. This is particularly prevalent in the high-tech sectors such as computers, software, telecoms, medical equipment, etc. A far better proposition is for you to determine what terms and conditions YOU want and present them to vendor for signature. This should be done calmly in the office at an early stage and not during the heat of the negotiation.

Assemble Negotiating Team
The best defense against vendor’s attempts to exploit organizational division of opinion is to get everyone on board. This Task is critical. You must identify all the people that are likely to come in contact with vendors and affect the purchase decision. They must all become committed to support the actual person or team that will be doing the face-to-face negotiation. The use of a skilled Meeting Facilitator is very useful at this stage.

Determine Negotiation Strategy
Are the vendors really your partners as they say? Is negotiation a win-win? Is it adversarial? These questions are best determined before negotiation starts. They affect the negotiation strategy to be employed and will affect the success rate.

Acquire Vendor Knowledge
Have you noticed how the vendor often seems to know more about your organization than you do? Or at least more than it is reasonable for them to know? They have been highly trained to obtain information about you before the negotiation even starts. Best Practices buyers have learned the value of doing the same to their vendors. A thorough understanding of their strengths and weaknesses relative to their competitors, their organization, their decision making criteria and many other factors will lead to a successful negotiation.


Selecting Vendors
Sometimes the array of vendors available for a product or service can be overwhelming. Before immersing yourself in an unmanageable number of proposals to evaluate, it helps to select the vendors that are most likely to be able to meet your requirements. This pre-selection stage is also helpful when it is not clear what the market has to offer in the way of specifications, products, services, etc.

Obtaining Proposals

A Request For Proposal is most often employed at this point. You also need to establish a process that is less cumbersome for smaller purchases.

Obtaining Proposals
A Request For Proposal is most often employed at this point. You also need to establish a process that is less cumbersome for smaller purchases.

Award Contract
There are a number of techniques that can be used for the selection of a short list of vendors and evaluation of the suitability of their respective proposals. Also, the organization must remain committed to support the negotiating team at this point. This can be hard to accomplish if different factions in the organization perceive that a decision will be made for an alternative they don’t like. Again, the use of a skilled Meeting Facilitator is very useful at this stage.


Administer Contract
Imagine you have carried out a long hard negotiation where you succeeded in obtaining a great price and significant warranties and remedies. What if the vendor bills you an incorrect (it always seems to be higher) price and underperforms? What if your Accounts Payable department pays the bills anyway and your company never gets the remedies stipulated for not meeting the warranties? Sound far-fetched? We regularly come across such instances. At one company alone they started saving $3million a month when they started matching invoices to contracts. The key is to set up a person or department skilled in Contract Management whose sole responsibility is to ensure that you know whether you are getting the prices and terms that you negotiated for.

Enforce Compliance
Knowing that you are (or are not!) getting what you negotiated for may not be enough. The Contract Management area may be able to rectify errors of billing, etc. by simply notifying the vendor and obtaining restitution. However, for more complex contracts or relationships, you usually need the assistance of Vendor Management personnel to enforce the terms and manage the relationship with vendors. This will vary by size and complexity of organization. Typically it will require a certain amount of participation from very senior corporate executives assisted by staff to perform the actual work of Vendor Management. This gives the vendor the message that you "mean business”.

Optimize Vendor Performance
How about getting more than what you bargained for? You can use the techniques of Incentive and Relationship Management to obtain even better performance once the contract has started. These are beneficial both for you and for the vendor. However, the key here is not to pay for performance you don’t need.

Control Unmanageable Vendor
What if the vendor is simply unable or unwilling to live up to the terms of the deal? This is where a skilled Vendor Manager really helps. The skill is the usage of advanced leverage, financial, market, legal and relationship techniques at the correct time and in the appropriate way.

Direct Long-term Relationship
Skilled negotiators have long realized that the negotiation never stops. Once the contract starts, what follows forms the foundation and sets the tone for the next round of negotiation with this and other vendors in the future. Long term relationships with a supplier can have its benefits. To reap them it requires the use of the Value Chain, Constant Change, Strategic Alliance, Quality, Continuous Improvement and other disciplines. However, if these cannot be achieved with a given vendor you need to have a careful exit strategy and set up the next round of negotiation. Which brings us right back to the beginning!

Competitive Environment

Maintain Competition
By far the most important principle in negotiation is the requirement to maintain your leverage. Different methods are used at different points in the negotiation flow. However, the underlying principle is to make each vendor aware that before, during and after what they perceive as the actual negotiation, they are always at risk of losing the business to a competitor. They must constantly be earning your business.

Copyright © 2011 by the IT Financial Management Association. 


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