Since no IT deal is created equal, there is no single metric that could be used to effectively evaluate the competitiveness of your deal or establish the foundation of your IT negotiation strategy.
In reality, each organization has its own set of circumstances, objectives, and requirements that establish the basis by which they make decisions on each IT transaction. At any given time, these objectives and requirements may vary which means that, through no fault of the vendor, a deal done today may look completely different six months later.
While most organizations recognize this truth, they almost universally focus on “price” and/or “discount %” as the sole indicators of whether a deal is competitive and should be executed. But to that, I ask the following key question:
Is a deal with a great discount and unit price a good deal if you are required to buy ahead, include products you do not need (or both) to obtain the discount?
The answer is “it depends”. Truthfully, price and discount % are poor indicators when looked at in isolation. If you are required to overbuy, buy well in advance of deployment, or settle for insufficient flexibility, do you still feel good about your low price and high discount %? Maybe in the moment, but soon you will realize your TCO is in the ditch before you even got started.
What truly great IT deals do require are balance and a deal construct that addresses an organization’s key objectives. To negotiate a competitive IT agreement, start by shifting your focus away from price as the barometer of a good deal and instead focus your negotiation strategy and deal evaluation on how well your deal manages the following four objectives of a balanced IT deal.
1. Alignment of Cost & Value
It is important to ensure that the costs you are paying are not only aligned to the value you receive but also when you receive it. Alignment of cost and value allows you to meaningfully manage TCO and validate deal timing. In most cases, your best means of managing TCO is knowing what you need, when you need it, and having the willingness to align your deals accordingly, as opposed to closing deals on a vendor’s timeline with a vendor’s proposed bill of materials.
2. Transparency & Predictability
Contract ambiguity is the worst enemy to a budding strategic partnership as it introduces an unnecessary level of risk to any deal. It is important to drive transparency into each parties’ obligations and the key components of the commercial/financial framework. Additionally, such financial frameworks should be predictable and tied to something easily measurable, both inside and outside of the committed term (i.e., renewal terms).
Given the pace of change in the IT market today, your ability to exit and/or transition commitments are a fundamental element to ensure a deal can flex to meet your needs throughout the term. The more your requirements and volume needs are unclear or subject to change based on various market forces, the more focus should be placed in driving the requisite levels of flexibility. This will ensure that significant areas of spend are not orphaned from their intended value.
4. Management of Risk
Service levels, performance measures, and overall general contract terms should also be reviewed and aligned to your overall internal risk profile to ensure there are appropriate means to measure and hold a vendor accountable for delivery. Key areas typically include service & performance levels (SLAs, SLA exclusions, and credit/penalty structures) and master terms (i.e., indemnity, setoff and recoupment, liability, IP rights, audit provisions, data security, confidentiality, warranties, and step-in rights).
In my experience, these objectives transcend vendor type, IT spend category, company requirements, and fiscal years. No single objective is more important than the others, but all should be negotiated in concert within one another to drive a balanced deal. If you align your deal requirements and negotiation strategy to these four objectives, you’ll find yourself negotiating better deals in less time and increasing your relationship capital with your vendors.