IT Asset Management

Getting to “Win” in Your Contract Negotiation ― Part 1

By Steffani Lomax

Everyone wants to “win” when they enter into a software contract negotiation. Your software supplier seek to maximize revenue while your organization strives for the most cost-effective agreement that includes only the products and services that are absolutely necessary, along with fair contract terms and conditions.

But years of negotiating experience have taught us that good dealmakers reach agreements, not compromises, and that this is true from both sides of the negotiating table. A strong, negotiated “win-win” agreement attains your goals but also contains elements important to the publisher.

When you negotiate a contract with your software supplier, do you know if it is a good deal for your company? What should you do to prepare for the negotiation and ensure that the final agreement is the best possible outcome for your organization?

To maximize the chance that you’ll end up with a good deal, it is important that you ask and answer the following question up front: Where’s the value line for your company? If you fail to remain focused on the answer to this question, you could continue the negotiation process unnecessarily, potentially losing leverage gained beyond your estimated value line.

What are some key techniques to ensure the successful execution of a software agreement that is the right size and includes the most favorable terms and conditions for your company?

Limit Interaction with the Publisher

It’s very important that you don’t tip your hand nor let your employees unwittingly sabotage the deal. Often times, publishers talk to people at buying companies before the negotiations begin, then steer the negotiation towards the budget and products they learn about during these conversations. Implement a quiet period across the company, limiting any communication and interaction with the publisher.

Assemble Your Negotiating Team

One of the most critical steps in preparing for a contract negotiation is to assemble an experienced contract negotiation team. Form your company negotiating team early because nothing kills more deals than bringing in the team at the last minute.

Establish a fully-represented, cross-functional team to gain complete insight into the requirements and desired outcomes.  This entire team does not necessarily need to be present at the negotiating table, however the requirements and priorities of each member must be understood and represented.  The contract negotiation team may consist of end users, financial approvers, technical experts, high-level stakeholders and legal counsel.

One of the essential roles on the team is the Contract Analyst who is responsible for understanding the specific terms of the agreement between the parties and ensuring that the legal language in the contract accurately reflects these terms. Additionally, the Contract Analyst reviews and interprets existing contract provisions, and advises on potential harm or disadvantage that may result from the proposed language. Finally, the Contract Analyst will recommend areas that require greater clarity by way of a re-draft or amendment.

Many organizations pay legal counsel to do this type of work for them.  But in most cases, these attorneys are not directly involved in the negotiation and subsequently draft language based on input they receive.  The advantage of including the Contract Analyst in the negotiations is that this individual hears all of the conversations first-hand to gain an understanding of what the parties agreed to, which leads to more accurate draft agreements.  It is particularly beneficial if the Contract Analyst has some commercial contract management background or experience to call upon in order to advise on the potential legal implications of particular proposed contract terms.

While there is an entire contract negotiation team in place for the end user organization, there should only be one “voice” or individual leading the negotiations. Make sure that everyone on the team agrees on who this “voice” will be.  This limits possible miscommunication on the part of the end user organization, as well as the ability for the publisher to engage various members of the team to “divide and conquer” during the negotiations. Whenever possible, hold the meetings on your premise and avoid attending social events with your software supplier during the negotiation period.

In next week’s blog, we’ll talk about some more techniques to ensure a positive contract negotiation outcome.

The People Factor: How to Make Your ITAM Tools More Productive

By Steffani Lomax

When you buy sports equipment, such as golf clubs, a tennis racquet, a soccer ball or a basketball, you can’t get the most out of it without some training on how to use it. Even if you own the best equipment, you need to learn how to use the “tool” to your best advantage and understand the strategy of the sport to optimize your performance.

It’s the same with ITAM tools. Many tools are very effective but complex. After you purchase a tool, there is still significant up front work that needs to be accomplished, as well as training and ongoing activities.

Tools are a key component of your ITAM program. They are essential for automating processes such as discovery, license and lifecycle management. However, these tools need to be deployed, run and managed by people. The human factor is critical to ensure that tools are working properly and that the data they generate is accurate and correctly interpreted.

Over the past 10 years, various research and industry analysts have stated that an effective ITAM program should rely 20% on tools and 80% on people and process. This formula can be applied to any tools implementation such as inventory, software license management or ITAM repository.

What makes the implementation of a tool successful? Success depends on good data, solid planning and skilled resources. The tool must generate complete and accurate data, but without good planning, an organization is unable to leverage the full benefits of the solution. People are also critical – not only for implementing the solution, but for reviewing, evaluating and normalizing data for accuracy and completeness. People play a key role up front and perform ongoing tasks to ensure that the tool is updated and generates accurate data.

How should an organization approach the rollout and management of an ITAM tool from a people perspective? Let’s say that your company just purchased a software license management system. What do you do next?

We have published a white paper that describes a 10-step process to make the rollout of an ITAM tool successful, from a people perspective. In the paper, we describe the roles, responsibilities and skills required to help organizations realize the maximum return on investment (ROI) from their tools. To learn more, you can download the white paper.

Building the New Business Case for ITAM ― Part 3: The Components of a Business Case

By Steffani Lomax

To continue with our series, what are the key components of a standard business case?

Executive Summary – states the reason for the business case and a high-level description of the recommendation

Business Requirements – describes the detailed needs of the business that must be addressed

Financial Analysis & Benefits – calculates the expected financial savings and/or cost avoidance and includes the Cash Flow Analysis, Payback Period and Return On Investment (ROI)

Alternatives and their Business Impact – presents additional options to the recommended approach and how these options will affect the business, both positively and negatively

Recommendations with Implementation Plan – outlines the proposed approach and specifically how it will be deployed

Timeframe to Realize Benefits – indicates the points in time that specific financial and soft benefits will occur

Typically, the financial analysis and benefits component is the most challenging section to create. In this section, it is important to include a Cash Flow Analysis, Payback Period and Return on Investment (ROI). Here are some specific tips:

  • The Cash Flow Analysis should consist of proposed as well as “business as usual” pricing, and answers to these questions:
    • What is the problem you are trying to solve?
    • What is the business opportunity?
    • What risks are associated with each option?
    • What is the risk of doing nothing?
    • What business value is generated from each option?

  • It is imperative to use your company’s standard Cash Flow Analysis model rather than create a new model unfamiliar to your Treasury, Finance and other Senior Executives.

  • Know and understand how your company views real and soft savings included in your Cash Flow Analysis.

  • Be aware of the business and budget planning cycle. Even the strongest financial analysis could be rejected outside of your planning cycle.

  • Produce both a summary and detailed version of the Cash Flow Analysis, retaining the detailed model for non-executive discussions.

  • The Payback Period should be 12 months or fewer, or the financial team may lose interest.

  • The ROI section should include an assessment of cost and savings, measure real and soft ROI, establish a value to these measurements and provide both the Net Present Value and the Internal Rate of Return.

  • Selling the Business Case

    Once you have completed the business case, it is time to present it to your leadership team. Selling the business case is just as important as building it. It is important to understand and counter objections, understand each stakeholder’s reservations and have a plan of attack to address each one. Work with your champion to continue to sell after the business case is approved. Finally, prove that the recommended pilot project is delivering the expected benefits.

    In conclusion, make sure that your business case addresses a pain point that the decision-makers are experiencing. Understand both the hot buttons and objections of your target audience and be in a position to address each one. Use a financial model to calculate the cost savings and factor in risk and compliance issues. Establish a pilot program that will quickly demonstrate value. Finally, measure and communicate the results of the pilot project to promote further executive buy-in and sponsorship of your ITAM program.

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