Careless talk: undermining your software vendor negotiations

Author: Chris Gough, Chief Strategy Officer, Livingstone Group

We know that getting into negotiations with vendors is a daunting process. There are many facets to consider, from having clarity on product requirements through to having a market view of what commercial terms you should be able to achieve. Being confident in your commercial position is a must, yet it can often feel as though you don’t always have the upper hand in the conversation, and you come away from negotiating a deal without the outcome you were after, as though the vendor had a sixth sense of your commercial and bargaining position.

One of the biggest reasons we’ve found that customers are losing out in negotiations, is that they have an intelligence leak, or even several. While this isn’t – for the most part – a malicious kind of leak, the problem is that negotiators are finding that vendors have many channels of communication with many different internal stakeholders, to an extent that it isn’t difficult for the smallest bits of information to be unintentionally divulged. It’s therefore relatively straight forward for the vendor to build a picture of the actual commercial situation of your organisation. This is how the most able of account managers operate with their customers, and with the commercial stakes so high, why wouldn’t they?

Indeed, we’ve come across numerous examples of companies conceding strong negotiating positions through staff members giving away information that they shouldn’t about the company strategy relating to the vendor. As well as making it extremely difficult to keep track of who’s said what, when and where, this mass dialogue with vendors can have significant consequences further down the line.

Careless talk costs money

During WW2, the US Office of War used the slogan “Loose Lips Sink Ships” to campaign against careless talk undermining the war effort. Whilst the objectives here are very different, there is most definitely a case for negotiators to ensure that careless talk to vendors is avoided by everyone. The challenge is stopping the leaks from happening weeks and months in advance, as well as during the negotiation process. The vendor will spend a lot of time intelligence gathering, especially if there are some large sums of money at stake

The first rule of vendor negotiations is to make sure the vendor doesn’t know your commercial and consequently your negotiating situation. If you have no option but to purchase something, the last person who should know that fact is the salesperson, especially if there is little transparency on how the item is going to be priced. If a vendor knows in advance that you are going to be deploying their product before you have purchased it, it leaves little incentivisation for them to offer you a good deal.

Another problem that could arise from vendors knowing a little too much, is that you could be flagged for a licence audit. It is quite common for vendors to analyse support calls or question technical staff to establish if there is a real prospect that the organisation may be non-compliant, immediately triggering the risk of an audit being used as negotiating leverage.

From a value point of view, it’s not just the immediate price where the pain can be felt. As OPEX-based subscription models become more favoured by vendors, so the rewards in getting you into one increase. An interesting observation that we have made is that, whilst to a degree you select the products that you use, the vendor ultimately has the greater control of what you spend and how you spend it, unless you totally get across your contract management and negotiating process.

Furthermore, this is not just related to contract negotiations. If you are in the middle of a transformation project, you could also find yourself in hot water if you cannot control the information flow. You certainly do not want the vendor in control of the investment strategy when it comes to such new innovation. If they’ve been made aware that a transformation is imminent, you’ll not only loose strategic control (expect purchase decisions to have been already made) but commercial control too, as you’ll not be getting the best value your business could achieve. Indeed, misplaced information costs money and the consequences can last many, many years.

Taking back control

To ensure that staff members are not divulging commercial details, organisations need to implement rigorous control processes when it comes to vendor communications.

Alignment

It is no good just a handful of people within an organisation knowing how to engage and handle speaking with vendors. Determining vendor rules of engagement are a must to safeguard strategic and commercial decisions. Vendor stakeholders must be in alignment on all engagement aspects and must be cognizant of what to expect when engaging with a vendor. The objective is to run a tighter ship overall and to keep an eye on vendor activity where information leaks could be at risk.

Communication

It all starts with defined lines of communication, both with employees and vendors. Educate and provide staff members guidance on what they are not allowed to discuss where there are direct lines of communications with vendors. If they find themselves in a conversation with a vendor, make it clear that they should not discuss the organisation’s commercial situation in any regard, much like never disclosing security policies. Similarly, with vendors, when engaging in account management discussions, make them aware from the very beginning where you stand when it comes to communication and your expectations of their modus operandi when engaging with your organisation.

Governance

If you know there is a major negotiation coming up, implement a command and control plan. Communicate reminders to key stakeholders and explicitly ask people to refrain from any discussion that could compromise the negotiation. Being in control is vital, so ensure that you have watertight lines of communication and a secure approach to control during the engagement process. Control who sees and has access to information and where it goes. Make it clear to vendors to whom they should be directing their commercial queries. Create a shared agreement with the vendor so that you both know who is running the ship and what conduct is expected.

To have the upper hand with vendors, you must be able to be confident in your commercial situation. Keep your cards close to your chest and ensure that stakeholders know what they can and cannot say. Ultimately, it will also reflect on your performance as a negotiator as it will put you in a far better position to achieve the outcome you are paid to deliver.

About the Author: Chris Gough, Chief Strategy Officer, Livingstone Group

Chris has worked in the IT Industry for over 20 years, starting as a consultant he then took on more senior practice management roles, focusing on networking, security, data centre and unified communications and in recent years specialising in data centre optimisation and particularly in software licensing. Having worked with large enterprise organisations, Chris understands the challenges faced in data centre licensing and the lack of expertise in the marketplace.

Having founded the Derive Logic business until its acquisition by the Carlyle Group in April 2019, Chris is now on the senior executive board for the world’s largest independent IT Transformation Assurance and Software/Cloud Risk Management business, Livingstone Group.