Striking the right IT deal
Gary P Scholten, Senior Vice-president and Chief Information
Officer, Principal Financial Group, advises fellow CIOs on how to bargain for
the right IT deal and get the most out of it
Gary P Scholten
One of the biggest hassles that IT heads face today is not
about getting applications to talk to each other. It is not even about making
sure that things are running smoothly for their respective organisations. This
is because they have entire teams to help them in these tasks. The biggest challenge
for them lies in getting the right deal first, managing the barrage of vendors
in the market and choosing the one that seems to be the best fit for their respective
There are a lot of things to be considered for this. Money and pricing are not
the only considerations for the right deal. CIOs need to look at it in a holistic
manner. If you concentrate on one aspect alone, you end up leaving other out,
which may lead to problems in the future.
The CIO has to remember that both the companies involved in the deal want to
succeed. One wants to buy just enough to ensure smooth functioning while the
other wants to make sure it reaches its annual sales target.
Traditionally, it has always been the vendor who initiated the deal. Gradually,
things changed and organisations that need to get hardware or software have
started approaching vendors. It has been noticed that business need is becoming
the major factor influencing IT deals.
There is another thing that CIOs should keep in mind. Certain vendors may try
to talk to people within the organisation so that they can get an idea as to
what the requirements are, the budget is, and other such critical information.
It must be ensured that there are no loose lips in the organisation.
The main reason for such activity is the fact that a lot of vendors are driven
by the net present value of boththe organisation and the deal. This is
why they resort to such measures.
Drawing up the papers
To counter this problem, the organisation needs to be careful about the agreement
or contract. There must be no discrepancies whatsoever in the legal papers.
This is where the need for a relationship manager arises. He is the person who
will ensure that no one else from the organisation is involved in direct talks
with a vendor.
The other important thing to do is have standards in place. Having a relationship
manager is part of setting standards. It is a lot like having security policies
in place. As we all know, standards only help in ensuring a fair transaction
and it holds true for IT deals as well.
One size doesnt fit all
A single-tracked approach towards the deal may be the biggest problem. Be it
from the organisations side trying to save money, or the vendors
side trying to get more of it.
As far as problems are concerned, every company has its own. If we were to divide
the market into the SMB and large enterprise segments, we would notice that
these segments have distinct problems.
SMBs have fewer deals taking place, say annually. This results
in them having no standards for deals. In such cases the absence of standards
leaves room for malpractice. Missing standards mean that there will be no dedicated
people to carry on the proceedings with the vendor. This again will leave cracks
for the vendor to sidle in and start talking to unauthorised people in the organisation.
Moving on to large enterprises, since they have to make many deals on a regular
basis, their problem pertains to ensuring that the deal provides them with value-for-money.
Most large organisations work with an eye on the future, which basically means
that scalability becomes a major factor of the deal. Some even look for lifetime
scalability. Here the amounts paid are much higher and so is the case with the
need to ensure value-for-money.
Dealing with problems
The right way, and more so, the essential way to go about the deal would be
to contact and negotiate with multiple vendors. Comparisons can be made and
vendors know that the client is alert and cannot be tricked.
This will help foster healthy competition among vendors. Another benefit that
is directed towards the organisation itself is that vendors will end up getting
only the specifics of the deal. Therefore, the vendor will not try to force
additional bundles because he knows that there are always others waiting in
the queue to make the deal if he fumbles.
The fact remains that if things are not meant to work out, they wont.
There was the case of the US Internal Revenue Service deal where multiple vendors
were used. Things did not go well and it ended up becoming a recipe for disaster.
When deals go sour
Another thing that the CIO can
do to make sure that the vendor does not nullify the contract is create
a value proposition through incentives. This keeps the vendor happy with
the organisation and prevents him from wanting to end the contract
There may be instances where the vendor may threaten to nullify the contract.
There may be various reasons for this, the most common being him receiving a
better or bigger deal. In such cases, there are limited, if any options that
the CIO has.
The first suggestion would be to not get into that situation at all. Sometimes,
the organisation trying to get the deal in place may be at fault by leaving
loopholes in an agreement. This again calls for standardisation. This time around,
it has to be the language of the contract that needs to be standardised, across
organisations and deals in the same organisation. This way, the organisation
basically tells the vendor that they are not to be taken for granted and that
their homework has been done.
Another thing that the CIO can do to make sure that the vendor does not nullify
the contract is create a value proposition through incentives. This keeps the
vendor happy with the organisation and prevents him from wanting to end the
Sometimes there may be unavoidable circumstances. For instance, when disaster
strikes in the form of a flood or hurricane, the organisation may go to the
vendor asking why the disaster recovery solutions are not working. The reply
from the vendor in this case would be that he has been affected by the same
disaster and thus cannot help. All you can do in such a case is to do your homework
by thoroughly researching the vendors antecedents and be confident that
the hardware and software provided by him will work under any circumstances.
The idea remains to do background checks on the vendor, have only a few dedicated
people from the organisation talking to him, negotiate with multiple vendors
and make efforts to keep the agreement going till it expires on the contracted
date. This in short will help the organisation not just get the right IT deal,
but also keep it safe.
As told to Rishiraj Verma