Understanding Consulting Provider Negotiation Strategies: 5 Common Tactics

hand moving pawns on circuit board

Ensuring that you have a successful transformation program is something your organization needs to plan for.  To execute a successful digital transformation initiative, you are likely to establish consulting provider relationships.  A key step in creating an effective and meaningful relationship is establishing mutually aligned expectations and a commercial agreement.

Unfortunately, many organizations are finding themselves susceptible to the tactics used by consultants to manage their risk and optimize a commercial arrangement to their benefit.  The following are the primary tactics organizations must be aware of:

1. Establishing Relationship Leverage:  Providers will leverage a combination of tactics to increase relationship leverage.  These tactics can be implemented across multiple established relationships – with senior leaders that previously worked for the consultant, relationships developed via prior projects, and relationships established with the consultant at a prior company.  Consultants recognize that program leadership is not naïve to the nature of these executive-level relationships and are likely to flex this relationship leverage during commercial negotiations with the program-level team.

For example, the consultant will seek to test the strength of their relationship with executive leadership against the strength of the program leadership team.  The consultant will try to understand any potential lack of confidence in the core project team capabilities, project direction and commercial positions and leverage any uncertainties during the negotiation.  This effectively drives a wedge of uncertainty between senior leadership and the project team, positioning the consultant with a higher degree of confidence entering negotiations.

In addition to internal relationship leverage, the provider will make efforts to demonstrate the strength of their relationships within the industry itself, including their demonstrated ability to influence industry direction and the network of executives they are influencing.

Essentially, the consultant will shift the nature of the interaction so that it minimizes the value of your opportunity relative to the consultant’s broader influence in the industry.  This attempt to marginalize the value your organization presents will certainly translate into the commercial negotiation posture taken by the consultant.

2. Leveraging Credibility and Capabilities: In addition to establishing relationships, consultants will work to demonstrate the credibility of their team within the industry and their ability to deliver on the transformation.  This is appropriate and common across providers.

However, organizations fail to understand that the consultant is also conducting a thorough assessment of their prospective or existing customer teams’ capabilities and their perceived credibility with executive leadership.  This assessment may not be readily apparent to the client, but rest assured it is happening; the provider will be taking note of issues related to credibility based upon prior projects and the internal reputation of program leaders.

Additionally, companies should expect that, based on their objectives, consultants may leverage core team weaknesses for the benefit of establishing a higher degree of credibility with executive leadership.  Consultants will also leverage their confidence with senior leadership to strengthen their ability to expose program risks and mitigate risk to their firm.

Although a more aggressive tactic, certain consultants will even leverage this confidence to undermine the negotiation posture of the core negotiation team through offline executive interactions.  These interactions are intended to raise certain concerns outside of the negotiation session itself.  Unfortunately, this pattern can proceed from the negotiation and contracting phase of the program into the execution phase and can contribute to a host of relationship and governance issues.

3. Positioning the Strategic Imperative:  Consultants will continuously refer to their client’s broader strategic initiatives and business benefits to minimize the importance of achieving a best-in-class commercial negotiation for their services.  In many respects, executive leadership shares this point of view and sense of urgency to respond to market demands and commitments made to its board of directors and stockholders.

The consultants use this sense of urgency to apply direct and indirect pressure to the client’s negotiation team and “get the deal done.” Then, organizations can proceed with the true strategic imperative and drive toward the promises associated with the business case.

The problem with this dynamic is that the customer’s team is also being tasked with presenting a high degree of accuracy regarding the scope, approach, and total cost for the program while also being asked to achieve a highly favorable commercial outcome.  Typical challenges include previously established project timelines and commitments at the executive level that do not provide the time necessary to achieve such outcomes.

In addition, this situation is further complicated by executives that do not communicate to consultants that both the strategic imperative and a mutually beneficial agreement must be achieved.

4. Employing Delay Tactics and Speed:  Once the foundation of the above three tactics are set, providers may use traditional delay tactics as a response to the client’s request for further scope definition and consideration on commercial terms to apply pressure to the client.  These delay tactics are not necessarily overt in nature.  In many cases the consultant will use a lack of clarity with respect to process and expectations to delay a response.

Alternatively, the consultant will cite a lack of clarity with respect to program scope and approach to delay a substantive response to a commercial request.  In many cases, it’s the customer’s lack of sophistication that allows the consultant to justify a delayed response and commercial negotiation process.

Once the parties are ready to proceed with the negotiation, the consultant will certainly welcome an opportunity to accelerate the pace as they count on the client requiring more internal preparation to conduct effective negotiation sessions.  This is due to their experience in such negotiations and their potential lack of capability and internal alignment.

Combinations of delayed consultant responses with well-timed and orchestrated acceleration of negotiation sessions plays to the advantage of the consultant.  Consequently, this tactic forces the client to decide between delaying the negotiation session due to lack of preparation against the pressure of getting the project started.  A lot is at stake for the core project team at this early stage of the project and the consultant is fully aware of the potential credibility loss internal teams may suffer as a result of delays coming out of the gate.

5. Creating a Sole Source Negotiation:  Every consultant’s primary goal at the beginning of a program is to avoid the downstream RFP process.  There are several tactics providers use to create the potential for a sole source environment.

First, they orchestrate the proposed project timeline in a manner that leverages the strategic imperative to start the program as soon as possible.  Coming out of a Phase 0 approach, it is difficult to find a consultant-delivered project roadmap that provides the time required to take the program to market via an RFP.  The most adept consultants will overlap traditional Phase 0 activities with actual project mobilization and so-called “early wins” to guide the program into a sole source environment.

The second tactic is to leverage their established relationship strategy and credibility established with executives and the core project team to create uncertainty with transitioning to another vendor.  Their goal is to call into question the overall value of going to market and the risk of transitioning from the current provider that conducted a Phase 0 to a new provider that does not have that level of executive credibility and knowledge of the project and company.

Steps Organizations Can Take to Counteract Provider Tactics

In the same way that your consultant is going to protect their interests through these tactics, there are several countermeasures an organization can undertake to address the above tactics and protect their own interests.  First, companies must assign a highly credible leader to lead the transformation initiative.  This leader must have the full support of executive leadership both internally and in the eyes of the vendor, as well as a credible cross-functional team in business, IT, legal, finance, procurement and third-party advisors supporting their efforts.

Second, executive leadership must demonstrate to the consultants that this leader is fully empowered and has the full confidence of executive leadership.  These messages must be delivered early and reinforced often to avoid “divide and conquer” strategies.

Third, an integrated sourcing strategy and timeline must be established in the context of the overall project plan – one must move with the other.  This plan must be established well in advance, so organizations do not find themselves having to make an “either/or” choice.  The strategy and process must be set up so that it enables a successful consultant evaluation, selection and negotiation process as well as a timeline and approach that enables the mobilization of the transformation initiative itself.

The Bottom Line

Organizations that do not understand the tactics of consultants are highly susceptible to these strategies and are very likely to achieve suboptimal negotiation and project outcomes.  At the end of the day, consultants have much at stake taking on your transformation program, so they are going to use strategies to ensure their risk is minimized and commercial opportunities are maximized.

Taking time to understand your consultant’s motives and the tactics that stem from those motives can help you best prepare for negotiations and ensure your program is oriented towards your program goals.

Reprinted with permission. © IDG Communications, Inc., 2022.  All rights reserved.