Category Archives: Market Intelligence

Market Realities and Mind Games in Technology Negotiations (Software Acquisition Insider Tips V)

By Vinnie Mirchandani

Abruptly end a meeting mid-stream to make a point? Make the salesman sweat at quarter-end to squeeze a few extra discount points? Scream emotionally that you are going to report their price gouging to the regulators? Yes, I have used all of these techniques and many more in the negotiations/background deal advice I have contributed to as a Deal Architect. And I’m not proud of any of them.

My ideal way of conducting a negotiation is identifying an empowered executive in each of the competing (finalist) vendors and “signaling” where the economics and t’s&c’s should roughly come in. I would rather finish the negotiations weeks before quarter end and have the grateful sales executive move on to some other negotiation’s set of mind games.

No, I am not a walk over. My “signals” are based on a continuous monitoring of market trends. If you read my Deal Architect blog, I am into disruptive vendors and economics and very critical of “empty calories” in the price and performance of many of the industry’s large vendors. And lest I under play the complexity of the deals — plenty of legal, procurement, financial and, of course, IT folks are typically involved — the “signals” I am talking about are not stuff you can communicate in a 140 character Tweet.

My two favorite negotiation tools — vigorous bid competition and emerging market benchmarks — apply broadly across technology sectors. I will bring in SaaS economics to play into outsourcing deals. Telecom early termination clauses into SaaS contracts. Cloud computing benchmarks of availability and recovery/response times when negotiating support expectations from on-premise software companies. E. European and S. American competitors when Indian competitors only expect to see their peers in competition. On my other blog, New Florence, I am constantly looking for innovations in technology that are a rich source for the “unorthodox competition” I like to bring to negotiations.

The one humbling principle I live by: implementing technology is exponentially more difficult than negotiating it. So, I am constantly pacing myself to get the negotiation out of the way of implementation. It breaks my heart to see some buyers delay a project for months for another 2-3% in savings which should be far offset by the benefits the implementation team could have leveraged in that time frame.

Of course, not every client I work with is willing to be that “innovative”. Often I am stuck with a short “approved vendor list” to run the bid with. Worse, when it comes to renewals, many clients hurt themselves by not considering any alternatives to the incumbent. Some clients have transparency requirements which make my “back-channel” conversations difficult.

And even more so, it is tough to find enlightened vendor executives who accept the concept of market reality. Many are trained to rotely repeat things like “we have never accepted that price point or legal clause“. Unbelievably, many will pull out their quarter-end, blue plate special when I have told them I want to be finished of the negotiation way before quarter-end. Often they will adopt the Letterman version of “stupid salesman tricks” I have written about before. Others will take advantage of your offer to debrief why they lost the deal to try and claw their way back into the deal.

But when the deal is allowed to be driven by market realities more than mind games, I can tell you magic happens. It’s like a well fought chess game. There are rules and time constraints and each side is civil (at least somewhat) to each other.

But more importantly, both sides walk away feeling they won. Or at least tied. And us negotiators can scurry on out and let the business folks get on with making their magic with the technology they just bought.

At Gartner, and since with his sourcing advisory firm, Deal Architect, Vinnie Mirchandani has negotiated or advised clients on over $ 5 billion in software, offshoring, hosting, telecom and other technology and BPO contracts.

Seven Innovative Paths to Consumer Products Success

Last fall, Strategy + Business published an article on The Unique Advantage that pointed out the trick to succeeding in consumer products industries isn’t necessarily being first to market, but being hard to copy. When you consider that eighty percent of new product introductions in a typical mature industry yield less than $7.5 Million in sales in their first year, it can take a while to recoup that R&D investment, and being hard to copy becomes critical to long term financial success.

So how do you gain that advantage? One way would be to start with the seven suggestions offered by Strategy + Business in the article, which I find to be particularly relevant as, with a few simple tweaks, you can also use the suggestions to transform your procurement organization into a procurement leader as these “best practices” are “hard” to copy without a significant amount of effort and forward thinking by your peers.

  1. Technology
    Technology innovations can yield significant returns in revenue, brand growth, and margins. For example, in health care, new products that match a new technology with a new market need deliver a median brand growth of 11%, double the median growth of 5% for products that address only an existing need. And in procurement, advanced sourcing technologies typically yield 12% savings, while traditional technologies do good to yield half that. Furthermore, technology innovations take time to copy.
  2. Claims
    Claims can add substantial value when they are tied exclusively to a product and can be held for a significant period of time. For example, in 2006, Mars developed a new line of chocolate bars, CocoaVia, which it labeled “heart-healthy” because of the demonstrated cardiovascular benefits of flavanols, a natural antioxidant in cocoa beans. The claim provides a sustainable point of differentiation because Mars owns patents related to processing technologies that are designed to retain higher concentrations of flavanols than regular chocolate manufacturing processes. Similarly, if you adopt a sourcing or procurement technology which an analyst firm hs found to regularly save similar organizations 10% or more, you are much more likely to get quick buy-in across the board, which is necessary for the promised returns.
  3. Ingredient Synonymy
    You can carve out an enviable market position by becoming virtual synonyms for your category — like Kleenex and Planters. Similarly, you can carve out an enviable organizational position of organizational innovator by getting involved in NPD early and helping the development team identify alternative low-cost sources of high-quality materials that can be used in product development.
  4. Unique Brand Characteristics
    Strong brands can build an identity in consumers’ minds that transcends products. This type of positioning can act as a springboard for new opportunities, as it did for Coca-Cola with Zero, Singapore Airlines with “Asian values”, and ESPN in themed-dining. Similarly, if your procurement department is viewed as a leader with unique cost saving capabilities, you’ll become more involved in every aspect of the organization as you’re asked to lead cross-functional teams that will help the organization identify new operational paths that will cut costs and raise revenues.
  5. Product Experience
    Successful products have an emotional component that builds a bridge to consumers, becoming part of their lives. Consumers want the product, and not a cheap imitation. Similarly, successful procurement methodologies and technologies make a user’s job so easy that they want to use the product.
  6. Packaging
    Packaging innovation can leverage technology, emphasize unique brand characteristics, enhance the product experience, and prove very difficult to duplicate. Similarly, a good procurement initiative is packaged in a very effective B2B 3.0 wrapping that promises to make a user’s life easier while improving their value to the business.
  7. Vertical Integration
    If you can keep a tight rein on your unique methods and processes, you can maintain a significant advantage in the consumer goods marketplace. Similarly, if a procurement department can insure that its best practice methodologies are applied consistently and not corrupted, it can ensure that expected savings are realized, making it a corporate hero.

And if you apply leading technology that supports claims of success, become synonymous with innovation, demonstrate a unique aptitude to cutting cost, make your users’ lives easy, package the experience, and keep the chaos under control, since you will, by the very application of these methodologies, also be:

  • Addressing TCO
  • Increasing Spend Under Management
  • Getting a Handle on Procurement Operations Costs
  • Increasing the number of NPDs/NPIS where you have a material role early in the development cycle
  • Managing your Customers and Suppliers

You will be increasing your mastery of procurement, and on your road to becoming the leader that Accenture and Hackett regularly praise in their surveys and book of numbers.

The Value of Market Intelligence in a Down Economy

A recent Sourcing Interests newsletter contained an article on “the value of obtaining market intelligence in a down economy” that should not be overlooked, especially since many organizations might be tempted to eliminate (or at least severely reduce) the budget for market intelligence in difficult economic times.

The article makes a good argument for the retention of the effort (and associated budget):

  • the utilization of market intelligence is an integral part of the sourcing process
    (and without it, how likely are you to know what the true cost of a good or service is)
  • the intelligence gathering process is a reiterative one
    it’s not a “one and done” approach, which should be obvious since market conditions are constantly changing and the big winners are those who sense a change early
  • it enables ongoing supplier relationship management
    which is key in difficult times; look at the auto industry: the American automakers (who consistently score less than 200 on the OEM-Supplier Working Relations Index[WRI]) are all failing while the Japanese (and Korean) manufacturers, who coooperate and collaborate with their suppliers, are doing much better (and rocking the WRI charts)
  • it isn’t as expensive as you think it is
    a lot of the data and information you need to spot trends and focus in on the core issues and data points is low-cost, and often free; consider the following providers of low-cost market intelligence

    • Professional Organizations
      the professional organizations you belong to usually have large collections of quality information and data that is free to member (organization)s
    • Trade Publications
      for a subscription that literally costs a few dollars a month, you can often get unlimited access to the complete publication archive on its website
    • Your 401(K)
      Most 401(K) plan websites post analyst reports, which are free to investors. (And those that don’t post on the website usually make the reports available for the cost of postage.)
    • Conferences
      Most conferences these days include a CD with the complete presentation archive, and many conferences are starting to record the presentations and making the DVD(s) available to attendees for a few hundred dollars.
    • Industry Professionals
      If you attend a conference, seminar, or workshop where an individual or organization presents his, her, or its work, chances are they’ll be more than happy to share their research and / or data with you if you just ask.
    • Your Supply Base
      Chances are that your suppliers, who want you to succeed because they need your business, will be more than happy to share any insights and data they have with you (that pertains to your joint business) if you just take the time to talk to them.
    • Your Internal Experts
      Your people on the front lines probably have a decent sense of what’s happening before management does. Talk to them, and let them steer your analysts in the right direction.
    • The Blogs
      Bloggers delight in providing you with free information.

Market Intelligence is critical for good decision making. It identifies risks before they materialize and insures that your contracts have appropriate risk mitigation clauses built in. It leads to savings and cost avoidance that would never be identified without it. And it doesn’t require multiple high five-figure subscriptions to analyst firms … just some elbow-grease, intelligence, and smartly selected memberships and limited-access plans with the appropriate analyst firms that allow you to access the key research you need (identified from lower cost sources) and leave the research you don’t.

Free Trade Pact: Challenge or Opportunity?

As pointed out in an article in Global Logistics & Supply Chain Strategies last summer, a proliferation of bilateral and regional trade agreements in recent years has made it more difficult than ever for companies to understand the many duty-avoidance options they might leverage to lower the total landed cost of imported goods, which is important given the current downturn and the fact, as pointed out in Sourcing Innovation’s recent Illumination on “Why You Need Trade Visibility”, that global trade losses can be significant if your cost-avoidance options are not maximized.

While bilateral (and regional) trade agreements go against the WTO‘s support of broad, multi-lateral trade pacts, the (agonizingly) slow pace of the Doha multilateral negotiations (which broke down last July after failing to reach a compromise on agricultural import rules and which were suspended until sometime this year) has made the (relatively) rapid time-to-benefit of bilateral agreements an attractive option (and many WTO members are already party to 10 or more such agreements). These agreements are so attractive that the WTO estimates that there will be around 400 such agreements by 2010.

These preferential agreements offer significant savings opportunities to companies that are able to manage them effectively. For example, Black & Decker increased it’s NAFTA savings by 240 percent, from 3M to 7M, simply by insuring that over 95% of eligible products are taking advantage of NAFTA benefits. An importer who took advantage of Free Trade Zones to accumulate multiple shipments imported during a 7-day period and combine them into a single shipment and saved hundreds of thousands of dollars in broker’s fees and merchandise processing fees (as detailed in “Creating a Competitive Advantage in Global Trade” by GDM). But these benefits are available only to those who know how to find them … and for that, you need an appropriate trade visibility system.

Winning Though The Downturn as a Small Business

Last fall, both Chief Executive and Industry Week published some good articles on how to survive the downtown — and win — that are worth a quick review.

In “Winning through the Downturn”, Chief Executive starts off by telling us that as far as your business is concerned you should be seeking to harvest cash and be really hard-nosed about any investment. In tough times, an investment must generate an adequate, and expeditious, return on investment. It also tells us to be super cautious with the banks – they caused a good deal of the [current financial] problem and that we should not assume that we can trust them at this time. Hear! Hear! (I’ve read too many stories about how mortgage resellers during the housing boom convinced people making 40K a year that they could afford 400K homes. Not being a trust-fund baby, I know from personal experience that it is tough to afford a 200K home on 80K a year if you have a family to support! So how could a family making half as much afford a home that costs twice as much?)

Other advice it gives is to consider outsourcing as opposed to increasing head-count, to consider increasing inventory in consumables when they start rising in cost (which currently makes sense for certain metals and plastics categories where the storage and capital cost are less than the expected monthly rise in raw material cost), and to make sure you are being tough enough with your suppliers. (You need to be fair, and always, always, always, pay them on time, but that doesn’t mean that they shouldn’t partner with you and share the pain of the current economic climate.) You should also focus on providing products and services that will make your customers go “wow” — as those are the products and service that they’ll spend their money on.

In “Keeping Small Business Up, While the Trends are Headed Down”, Industry Week tells us that a little bit of innovative thinking and belt tightening can go a long way and offers up eight suggestions. they are:

  • Show Me The Money!
    Now, more than ever, you need to get paid on time. Boldly (but respectfully) emphasize what you did, how much you are owed, and when payment is due.
  • Tech-Savviness
    Use technology efficiently and consider web-based accounting and CRM software, video conferencing, and multi-function office devices that keep costs down and productivity up.
  • Boost Sales
    Focus on selling more to current customers, who will be an easier sale than a new customer.
  • Market Smart
    Use targeted pitches through targeted mediums that are already reaching your audience. (For example, if you wanted to reach the sourcing, procurement, and supply management space, a great way to get visibility would be a Sourcing Innovation sponsorship. After all, it often comes up #2 for “sourcing” on Google.)
  • Stay Visible and Helpful
    Keep in touch with your customers and be their supplier of choice.
  • Inventory In Motion
    Unless it’s actually cheaper to buy in bulk when costs are rapidly rising or rapidly falling, keep inventory to a minimum. For most products, the storage costs and costs of capital are way more expensive than just spot-buying what you need when you need it.
  • Keep Workers Working
    Workers waste time on trips to the supply store, the post office, and Starbucks. Use on-line ordering and next-day delivery (which is typically free for business orders), use Stamps.com or a similar service for postage and courier services that pick-up, and buy that $500 cappuccino machine (but I’d avoid the $5,464.31 Inox) — you’ll make up the cost in increased worker productivity in the first week!
  • Don’t Cut the Perks (Completely)
    If necessary, reign them in and keep them reasonable, but free juice, soda and lunches (which keeps a worker in the office more and working more), the occasional party, and small bonuses for a job well done keep morale up, and productivity up. They should not be cut. (On the other hand, if times are tough, do you really need that private box at the track/ball-palk?)

But if you’re really serious about how to weather the downtown, consider checking out “10 Secret Strategies to Recession-Proof Your Business”, a recent Executive Whitepaper from Coupa.