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Improving
the IT Vendor Selection Process
Phase Three: Negotiation
By James A. Browning
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As
midsize businesses (MSBs) extend technology infrastructures
to support the business, a structured approach for
selecting IT products and vendors is essential. Gartner
recommends a three-phase vendor selection methodology
for MSBs going through a technology acquisition which
entails a needs assessment, a vendor capabilities
analysis, and a two-to-three week negotiation period.
First
and foremost, IT procurements should be made to address
business needs and problems, and to ensure this we
recommend:
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You
purchase technologies required by end users to
perform their job functions – nothing more,
nothing less. |
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You
use a cross-functional team for vendor selection
and negotiation. |
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You
always make the bidding process competitive. |
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You
improve negotiation skills to save money, reduce
risk and provide long-term contract protections.
|
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You
establish a technology oversight process that
provides insight into how the vendor has performed
during the life of the contract. |
Preparation
for negotiation with vendors is essential, and MSBs
should implement a team strategy that includes representatives
from purchasing, legal, IT and finance organizations,
and most importantly, the end-user organization. The
vendor will have more difficulty in circumventing
the process when all negotiations are handled by this
integrated team and the vendor is limited to a single
point of contact within the organization.
Negotiation
is best done with a solid understanding of the vendor’s
market position and reputation, pricing model and
current market conditions before negotiations begin.
For example, the negotiating team should be knowledgeable
of the vendor’s pricing structure and what levels
of discounting to expect. If a vendor is known to
discount heavily within a certain vertical market
or when competing against a low-cost competitor, you
may find more opportunities to gain concessions. Too
often, midsize enterprises perceive that they are
getting a good deal based only on the initial price
of a license, only to find out later that the flexibility
of the contract for future use is restrictive and
expensive.
Even
more important in the negotiation process is that
the team directly confront the vendor with any deficiencies
in their product capabilities and services, and work
to resolve them or gain financial renumeration for
them. In fact, MSBs should maintain the flexibility
and leverage of considering multiple products or product
sources as a contingency. Planning is 80% of the negotiation
process, and until the contract is signed, the leverage
lies with you. Keeping a runner-up in the wings in
case negotiation falls through will keep the process
competitive.
Contract
Development
There are several basic – but critical –
elements to contract development.
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The
first key element is to establish a list of critical
terms and conditions and define these around results-based
metrics, such as the successful deployment of
a pilot application or proof of concept.
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Second,
all the key issues in the request for proposal
should be included and resolved in the contract
before signing.
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Finally,
be sure to respond in writing to any changes
in contract terms, and do not authorize any
vendor paperwork, commitments or project starts
until the final contract is signed. |
For
more negotiation tips and detailed contract terms
and conditions to consider, click
to attend the free Webinar, Midsize Business Road
Map for Selecting IT Vendors now.
Click on the links below to learn more about phase
one and two of the vendor selection process –
the needs assessment and vendor analysis
- phase
one
- phase
two
James
A. Browning is Vice President and Research Director
in Gartner Research, where he is part of the Small
and Midsize Business Research organization at Gartner,
Inc.
References
Webinar
Midsize Business Road Map for Selecting IT Vendors
Broadcast: July 28, 2003
Authors: Kenneth Chin and James A. Browning
Article
Top View
An SMB Road Map for Selecting IT Vendors
Publication Date: May 13, 2003
Authors: Kenneth Chin and James A. Browning
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