7 Deadly Sins Common in Software Negotiation

7 Deadly Sins Common in Software Negotiation

In today’s competitive business environment, there has been a growth in the emphasis among corporations in negotiation training and expertise for their employees. There are classes and extensive research conducted at major universities on effective negotiation methods. Without conducting my own formal negotiation research, I have assisted hundreds of companies in negotiating with software vendors for over 20 years. From my observations, negotiators commonly incorporate the seven deadly sins in software negotiation which are:

  1. I Need A Big Discount – the measurement for successful software negotiators has always been the discount. The greater the discount, the better the negotiators thinks they did. Negotiators would rather buy 1000 licenses at a 60% discount than 350 licenses at list price. The reality is that the best discounts often have the greatest waste. As is common with most consumer goods, if you want a greater discount, you need to buy more regardless if you need the extra quantity.
  2. I Want to Win – It is easy to want to “win” over the vendor. The perception is that there is one winner and one loser, and the vendor is the adversary. Since the feeling is that software vendors are the cause for high costs of software spend, it is common to want to feel like you won the negotiation battle. Yet, extensive research has shown that a “win-lose” strategy will always result in both parties ultimately losing and getting less than the best. Only a “win-win” attitude where both sides win will result in getting the best possible deal.
  3. I Represent Company XYZ – When negotiators approach a negotiation with the attitude that they work for famous Company XYZ, they will inevitably start the negotiation process with an inflated price. There are 500 Global 500 companies, and unless you represent the software vendor’s largest revenue annuity, don’t expect to be given special treatment. Major software vendors sell to every large data center in the world, and just because you work for a large company, doesn’t mean that you are equally large to their total revenue.
  4. I Have Years of Negotiation Experience – Some of the worst software deals are from data centers that depend on negotiation skills to manage their software budgets. The result is that the primary cause of excessive software costs are due to inefficiently deployed licenses accounting for the majority of the software costs, not overpriced contracts. When the focus is on negotiating, the majority of the savings opportunities, smarter technical purchases and deployments, is overlooked. Smart negotiators doesn’t rely on their negotiation expertise to get a 95% discount, when they could can use alternative licensing methods and efficient license deployment to pay 50% less than the best discount without negotiating.
  5. I Have a Budget Requirement –Almost every data center claims they have budget issues, therefore, vendors have to reduce what they are charging. Ironically, when I go buy a new cell phone, automobile, clothes, groceries or a movie ticket, the seller never cares about my personal finances. Why should software vendors be concerned about a company’s budgetary issues? They hear that excuse from everyone. They have revenue requirements, so does the reverse logic apply that therefore a company should pay more for their software? Software vendors will tell you if you can’t afford their products, don’t use them.
  6. I Only Have A Short Time – Negotiation deals are often rushed due to lack of planning. If you want to negotiate the best possible deal, it requires months of planning, benchmarking, financial and technical analysis. You need to know all the possible financial and technical scenarios, industry cost benchmarks, and business requirements. If you haven’t done your homework, know what the industry benchmarks are, and have time to migrate software, upgrade hardware or configure hardware if needed, you will always pay more than necessary.
  7. I Don’t Need Industry Benchmarks – I heard from one of the top professional sports writers that the greatest sports teams and athletes make a habit of always knowing what the most critical benchmarks are, how the best got there, and then how to benchmark themselves against the best. When a recent football team won the Superbowl, the coach immediately called a coach of a previous multiple Superbowl winner and asked how they were able to repeat. The answer was to never rest on your successes, always benchmark yourself against others and strive to improve against the best benchmarks. Fortunately, industry software cost benchmarks are readily available. Unfortunately, too few use them to their advantage.

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