Negotiation Skills are Critical to Long-Term Commitments

By Daniel Gingras

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Anyone who’s held a senior position in an IT organization has faced a situation where they’re negotiating with vendors. Unfortunately, most of these negotiations tend to be one sided: on the one side there is a professionally trained sales person who’s attended numerous “selling” schools and seminars, on the other is someone who, in general, has spent most of his life working with technology and business.

Perhaps it’s time we begin to add courses on negotiating to our training as IT managers. Clearly, as we move to more senior positions, we spend more and more time negotiating, either with employees, vendors or even our own management and customers. Unfortunately, we’re ill-suited to handle most of these negotiations because we’ve simply never been trained.

There are a number of courses available on both selling and negotiating, which , you might argue, are different sides of the same coin. The ability to successfully negotiate a software contract will certainly benefit your employer, and successfully negotiating a raise will undoubtedly benefit your bottom line.

Negotiating 101

Successful negotiating is a subject requiring comprehensive study, but it may be helpful to cover some essential elements of negotiating:

The bargaining range: “Know your enemy and know yourself and you need not fear the results of hundred battles” said the great warrior-philosopher Sun Tzu almost 2500 years ago.

That advice is an essential element of successful negotiating today.

Knowing the motivation of the person on the other side of the table is the first element a negotiation: What does he or she want from the transaction? Maybe you’re buying software and the salesman is intent on making his quota for the period. This sale may mean the difference between keeping his job and unemployment, or it may put him enough over quota to get the big bonus and the big boat!

Remember that the other person is listening to radio station WIFM—what’s in it for me.

Knowing your own position is also important. How important is this negotiation for you? Purchasing software for your company will not impact you directly, but negotiating for a raise is somewhat more personal. The key is to know your BATNA , a professional negotiating term meaning the best alternative to a negotiated agreement.

This is your fall back position, where you will be if you do not strike an agreement. Knowing your BATNA is critically important because it draws a line in the sand beyond which you will not go. Unless you think of your BATNA, you may agree to more than you want, or give away more than you should.

The negotiation: Since each party has a BATNA in every negotiation, the space between these two “drop-dead” zones is called the zone of possible agreement or ZOPA.

The objective is to move the negotiation closer to the other person's BATNA while staying in the ZOPA. Sounds a bit like the language of Sun Tzu, Chinese, but in fact these are common negotiating concepts.

A common approach to reaching an agreement in any negotiation is to work from slightly beyond where you think the other person’s BATNA is located hoping to get towards the middle of the ZOPA; each giving up something in the process.

This is better known in America as win-win negotiating. The software vendor might open with a price of $300,000 for the software, hoping to get $200,000. You’ll offer $100,000 also hoping to get to $200,000. Ironically you’re both negotiating towards the same goal, just from different ends of the ZOPA.

The concept of win-win dictates that you’ll both give up a little ground and reach the middle.

There is a school of though that believes that win-win is inappropriate for certain situations, particularly in negotiations where future dealings are unlikely. Since the basis of the negotiation is not to build a future relationship on trust, than the objective is to gain the most advantage regardless of the other party’s position.

You should remember however that this type of hard bargaining is inappropriate in situations where you will have to build a future relationship with the other party. You might be able to get the software vendor to $100,000 for the software, but the deal may not leave him any room for helping you if you get into trouble implementing it, nor will he be inclined to give you future deals on enhancements or extensions.

You should consider the future of the relationship when you negotiate with the intention of gaining all of the advantage.

Creating alternative scenarios: Although you may know the bargaining range, a way to change the dynamics of a negotiation is to create alternatives.

You may be negotiating on the price of a software package, but by adding additional elements to the negotiations you expand the range of the negotiations and you can create or extract (depending on which side you’re on) more value.

In addition to the price of the software, you also have to discuss future maintenance contracts, and perhaps implementation support. Now you have three elements to bargain, and depending on the motivation of the other party, you may be able to change the dynamics of the negotiations.

A software salesman might be willing to lower the price of the software if you were willing to pre pay a multi-year maintenance agreement. He or she might get more commission off maintenance than the actual license because maintenance represents ongoing revenue. He might be willing to “throw in” implementation help because it represents “soft dollars.”

Negotiating with implementation in mind: Much of the negotiating we do as IT managers requires us to establish long-term relationships, so you should always negotiate with that in mind.

You should be scrupulously honest in your dealings remembering that it’s a small community and while you might gain temporary advantage with a vendor through deception, it will almost always come back to haunt you—what goes around comes around.

Daniel Gingras has been CIO of five major companies and is a partner at Tatum Partners, a nationwide professional services organization of senior-level technology and financial executives who take on leadership roles for client companies. He has more than 30 years of IT experience and teaches computer science at Boston University. He can be reached at dan.gingras@tatumpartners.com.