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Issue of October 2006 

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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 organisations.

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.

Getting Need-Driven

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 both—the 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 doesn’t fit all

A single-tracked approach towards the deal may be the biggest problem. Be it from the organisation’s side trying to save money, or the vendor’s 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 won’t. 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 contract.

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 vendor’s 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

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