CIO —

Do you find yourself getting into "fire-fighting" mode when deals need to be finalized? Forrester has found it's not uncommon for sourcing professionals to have contracts thrust upon them by impatient business or IT users that "must get signed in the next two days" or similar situations.

[Experience Base: Vendor Negotiation
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Forrester regularly assists its clients on matters relating to contracts, pricing and negotiations. While software, hardware, telecom and services deals have their own unique characteristics, We have developed the following five-step approach that can be used regardless of IT category. The approach will help you avoid mistakes brought on by hectic schedules and conflicting user demands:

Phase I: Market Overview. In this phase, sourcing executives and their teams will analyze the external market — both at the product/service level and at the broader category level. For example, a client making a major SAP purchase would look for information on SAP as a company, but also its immediate competitors, the enterprise resource planning (ERP) category in general, and any emerging technologies that could affect the ERP market, like Software-as-a-Service options. Factors to keep in mind during this phase are market players, market dynamics, trends and end-user comparisons. A core step in any market overview is understanding what other firms are currently doing and getting in their negotiations.

Phase II: Internal Preparation. After completing the market overview, sourcing executives work with the relevant internal stakeholders to put together a high-level approach to their negotiation, including proving the decision to do the deal at all by re-examining the business case developed earlier in the sourcing process. Why is this Phase 2 and not Phase 1? Because sourcing executives need to understand what's possible and reasonable before crafting an internal response. If internal preparation and strategy happen before understanding the market, the sourcing executive and internal constituents could find they've wasted a lot of time building an approach that can't be executed, and then would have to redo the internal preparation and negotiation strategy phases.

Key steps in this phase include: assembling the negotiation team and assigning responsibilities, setting negotiation goals, taking a first pass at strategy objectives, justifying the decision, and creating decision support framework.

Phase III: Negotiation Strategy. With internal preparation complete, it's time to work with key stakeholders to construct a negotiation strategy. This phase involves considering how to proceed with the negotiation — for example, your strategy will be different if the deal must happen regardless versus if there is the potential to walk away from the negotiation if it gets bogged down or it becomes apparent that the vendor has incompatible goals that will very likely cause the deal to fail. You should understand alternatives or consequence of no agreement or change of scope. A key part of a negotiation strategy is to understand the alternatives to signing a particular deal. Additionally, during this phase you should validate and prioritize scope and commercial needs and requirements, validate RFP or RFQ responses against requirements, assess pricing models, and finalize negotiation strategy.

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