The Art of the New Deal

Take it from the masters of vendor management: Despite a looming recession, now is the right time to push vendors for a better deal and to make industry consolidation work for you.

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Stir the Pot

UniGroup, a $2.3 billion transportation and relocation services company, keeps a stable of key vendors: IBM, Verizon, Microsoft and Cisco, among others. But CIO Randy Poppell regularly puts out requests-for-proposals seeking bids from those vendors' competitors. He's been able to shave costs this way and gain more services for the same money, he says. (For more on this subject, read "Why You Need More Than One Software Vendor".) IBM, for example, recently lost some of UniGroup's IT business; Poppell gave it to another smaller vendor, but he declined to provide details. Pitting one vendor against another in an effort to keep your incumbent lively and responsive is a classic vendor management tactic. Classic for a reason: It works.

But there are more creative ways to harness angst.

A few months ago, Mitchell Habib, executive vice president of global business services at The Nielsen Co., asked his vendors—including those with whom he doesn't do much business—a question: If you were competing with me, how would you set up your ideal IT infrastructure? In his challenge, he gave the vendors 30 days and 30 of his own people to work on the project. Habib is now considering some of the ideas dreamed up by Oracle, Accenture, Sun and others as he picks his way through a major reconstruction of how Nielsen manages technology. Habib—who has been a CIO at Citigroup, General Electric and Ryder—was hired a year ago to plan and oversee the IT overhaul at the $2.5 billion information and media company. At Nielsen, he's introducing new software platforms and last October signed a 10-year, $1.2 billion outsourcing deal with Tata Consultancy Services.

Each vendor brought back ideas to Habib that showed off their own technology, of course. But because they worked closely with technology and business analysts from Nielsen to come up with those ideas, they were tailored to the company.

The best part? It was all free. The vendors are so hot for Nielsen's business, they volunteered their time and people. It doesn't hurt, either, that Habib is on a first-name basis with the CEOs at those suppliers.

"People want to help. They just don't want to be taken advantage of," he says. Too often, CIOs move quickly to throw a vendor proposal out on price, says Ed Hansen, an attorney who specializes in negotiating technology deals at Morgan Lewis & Bockius in New York.

Habib, however, was shopping not for lower prices but for high concepts. He was probably able to learn a lot more about how those vendors work and what their capabilities are, Hansen speculates, than if he were out looking to scrape a few percentage points off his costs.

The Lesson:

Don't get tangled in dollar signs. "Eliminating someone on price without knowing what's behind the price—that will kill you in three years." Ed Hansen says. "That's when a new challenger comes along and you've got the old, uncreative, cheap vendor in there that you have to rip out at high cost."

Manage for Tomorrow

So take a breath. Don't let this recession talk scare you into making mistakes in how you manage vendors and advise CIOs and negotiators (see "Reprogram Your Reaction to Recession"). History shows that recessions typically end within one year. That's a short period of time in the life of a technology deal. A five-year contract for telecommunications services that buys you savings this year but escalates costs in 2009, 2010, 2011 and 2012 isn't smart. Nor is forgetting that you and your vendors both must navigate economic downturns.

As Hansen puts it: "Be very, very careful not to do things that have long-term impact that you'll regret simply for a short-term gain."


Copyright © 2008 IDG Communications, Inc.

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