Category Archives: Negotiations

A Good Negotiation is Key in Technology Acquisition

But whatever you do, please don’t mistake cost savings with value generation. But, as usual, let’s backup.

A recent article over on The Financial Express on the importance of a technology procurement negotiator noted that the art of negotiation has taken on a whole new level of complexity, especially in technology procurement and that discovering the most equitable prices … is a strategic imperative at a time when maximizing returns on investments is paramount.

And this is certainly true, as are most of the other messages in their article. Specifically, such a negotiator must:

  • understand the digital disruption
  • have high intelligence, which must go beyond technical expertise
  • understand the high stakes of technology investments
  • have the personality, worldview, and knowledge to navigate the negotiation beyond the technical aspects
  • be able to reflect on the bigger picture
  • be able to sync with the project

… but the criticality of ensuring that the technology procured provides exceptional value for the money spent cannot be over-emphasized. One cannot understate the importance of understanding the product’s role, functionality, and how it aligns with organisational goals. It doesn’t matter how much you save if the product isn’t the right fit. It’s critically important to not only have the technology experts identify the products that could serve your needs, but the right configurations, the associated services that will be required, and the right partners for the organization.

Additional savings is worthless if it comes at the expense of the vendor removing a key module from the reduced offer, not including necessary implementation or integration services, limiting computing or storage, and so on. If you end up paying significantly more after implementation as a result of change-orders, you not only haven’t saved, but you’ve cost the organization more. This is what often gets missed when negotiators lead. While the eventual owners shouldn’t lead, as they’ll always go with their top ranked provider (even if three systems can do the job equally well, and it’s just a preference as to which system is easiest to use), if they’re not kept in lock stop, it’s easy to miss key details or requirements or stray away from what is truly needed for value generation and ROI in the search for the ultimate deal. This is especially true if the negotiator brings a new vendor in at the last minute for price pressure, believing the new vendor, if not perfect, meets all the key requirements, when in reality the vendor’s platform doesn’t.

This is especially important to remember in SaaS negotiations, where it’s common knowledge that most organizations that buy without using a skilled negotiator are overpaying by an average of 30% or more. This is because an average negotiator’s inclination is to drive for massive discounts to prevent overspend, which might result in not only choosing the less optimal vendor, but the less optimal agreement. At the end of the day, price matters, but ROI matters more, especially in Procurement where the right solution will generate a 5X ROI or more and the wrong solution will barely pay for itself.

Prices too High? Take a Leaf from the Green Cabbage!

Green Cabbage, formerly known as PAAS Advisors (which stood for Product Analysis and Strategy), is an interesting spend analytics offering as it is both a product and a service advisory practice. The platform provides unequalled insights into the indirect technology, contingent workforce, and clinical categories; deep invoice analytics down to the line item; market intelligence theses (MITs) on very specific indirect technology, contingent workforce, or clinical sub (sub) categories that are far deeper and fresher than any peers; and a third party negotiation (support) service (where they will negotiate at the Senior Executive/C-Suite level) to help you get the best contracts possible on key high-value contracts. That’s a lot to digest, but we’ll tackle each point in this write up.

Let’s break down the “practice and platform” part first, starting with their pricing model. Their pricing model is a variation of standard percentage of savings model — it’s a subscription model with a savings target and a guaranteed savings of at least 3X, which is better than just a straight cut of savings for you. If they don’t help you hit the savings target they promise, you will get a discount, or an extension to your subscription, but if you blow way, way, past the target (like many of their clients do), instead of paying more than 3X what you would have otherwise have paid through pre-negotiating a fixed fee for unlimited use of the platform, you pay the pre-negotiated subscription fee.

It’s important to understand their pricing model, as it drives the unique approach they take in their practice, which is designed to deliver savings to the clients that engage them for software and services as fast as possible. Most spend analysis companies start by attempting to load, cleanse, classify, and enrich all of an organization’s spend data before attempting to do any analysis or identify any savings opportunities. This can take weeks or months, which means its weeks or months before the first opportunity is identified. To allow them to start pursuing, and capturing, opportunities in just a few weeks, Green Cabbage starts by loading all of an organization’s contracts, starting with the Indirect Technology Human Capital, and Clinical Supply contracts, because the most immediate opportunities are where contracts are needed ASAP (because the organization allowed them to expire) or in the short term (as they are coming up for renewal), and in those categories where Green Cabbage are experts in finding cost reductions quickly.

From just the contracts, using their deep community intelligence provider benchmarks and market knowledge, they can identify the best opportunities to go after immediately in indirect technology, contingent workforce, and clinical supply categories. They can even negotiate on behalf of the client and often get savings better than their client would on their own due to their deep domain knowledge and years of experience analyzing and negotiating in these categories, usually with senior executives in the supplier organizations.

Once the contracts are loaded, only then will Green Cabbage begin to load and classify all of the organization’s spend data into their One Workspace Spend Analysis platform, which can be provided to them as flat file exports or loaded through an API. The organization can define their own categories and Green Cabbage will map the organizational spend to those categories. Once the spend has been loaded into One Workspace, the organization can build some basic spend reports to do some basic spend analysis on their own, export the clean categorized data to Excel files for local spend analysis, or use the customized workspaces with deep pre-built custom dashboards for Indirect Tech, Human Capital and Clinicals.

The Indirect Tech module is designed to help a buyer identify the current and upcoming projects based upon expired and expiring contracts that need to be renewed to support their organization. The main dashboard shows the buyer the YTD savings, the upcoming renewals by contract, the top suppliers by spend, key category metrics, and the primary actions that can be taken (such as upload a contract or request a MIT). From here, the buyer can click into the suppliers dashboard or straight to an indirect technology supplier dashboard that summarizes key metrics (last year of spend, lifetime spend, estimated spend this year, next key [contract] date, relationship length, agreement gaps, etc.), contracts, and visual timelines. From there, the buyer can click into a contract and see associated details or kick off a project.

In addition to the supplier dashboards, there are also spend analysis, renewal, project, and MIT dashboards. The spend analysis dashboard allows the buyer to create custom reports to slice the data by different dimensions. The renewals dashboard in the Indirect Tech Module summarizes the status of contracts coming up for renewal (queued, in review, out for sourcing, terminating, etc.) as well as the category breakdowns, spend by stage, and timeline summaries. The projects dashboard allows contract renewal projects to be created, assigned, and tracked while providing a summary view of all current projects. It also supports savings tracking by agreement. From a project, the buyer can click into the renewal details and access the current (draft) version of the contract for review, the reviewers, see any notes or documents they uploaded, and the activity log.

Finally, the MIT — Market Intelligence Thesis — dashboard allows the buyer to quickly access the completed MITs, month-over-month and year-over-year savings from projects based on the MITs, and key MIT metrics (in process, completed, estimated savings available, % discount from baseline, etc.). The Green Cabbage Market Intelligence Thesis is much more than just a benchmark, it’s a detailed sub-category analysis on a specific product or service of 1 to 2 pages done in near-real time by expert advisors that augments the benchmark data with deep vendor insights into the SKUs being purchased, market conditions, and negotiation strategy. The MIT is offered at three different levels:

  • lightweight: basic MIT as described above
  • comprehensive: lightweight MIT as well as a detailed analysis of standard/available terms & conditions
  • competitive: competitive MIT as well as a detailed analysis of top 3 competitors across similar SKUs and similar terms and conditions, with appropriate negotiation strategies and expected savings under different conditions

Unlike some providers which simply do this every quarter (Denali, SpendHQ, etc.) and provide this as a reporting service, or others that do fully automated real-time augmented benchmark production based on current data, trends, and standard practices based on the trends and current market conditions, Green Cabbage does a custom, semi-manual, MIT upon request within three (3) business days, and usually within one (1) business day, on every request to make sure the client always has the most up-to-date information appropriate to that client’s situation. They can do this because their platform automates the benchmark computations and their advisors are experts in the indirect technology and human capital categories and are analyzing and negotiating in the categories on a daily basis. As such, their analysts can turn around a custom analysis specific to a client’s situation in an hour or two.

However, as per our intro, Indirect Tech is not the only area they go deep. They also go deep in contingent workforce/staffing agency in their Human Capital module that more-or-less mirrors the Indirect Tech module with a main dashboard and dashboards on contingent workforce suppliers, human capital spend analysis, renewals, projects, and MITs. The main dashboard summarizes savings to date, percentage from baseline, forecasted spend (vs. actual for historical), top agency relationships, expiring contracts, and key metrics. The other dashboards are similar in purpose to Indirect Tech, but customized to Human Capital.

The main difference is in the MITs, where a contract owner / project owner can benchmark as many positions as they want in a sub-category or category for a given provider (should they be looking to renegotiate) or a small set of providers (should they be looking for true market intelligence or looking to negotiate with multiple providers and trying to figure out how to best split demand). The benchmarks are similar, wth all the benchmark data (which shows the low/medium/high averages, the service locations, the expected savings at each level) auto-generated. The only exception is the additional market/negotiation notes at the position level that is manually generated on top of the basic thesis information. Note that there is a limit to the number of positions if you want the guaranteed turnaround time, but if they have a few extra days, they have done detailed benchmarks of over 1,500 positions in the past, and with their deep insights, expertise, and negotiation skills obtained savings percentages typically only seen by providers who offer deep multi-level decision optimization across multiple national and regional contingent workforce providers. (We’re talking 30% range in some cases.)

(When you have deep benchmark data and powerful spend analytics, you can quickly divide contingent workforce needs among the providers best suited to offer those positions at a lower cost, use this data for fact-based volume-based negotiation, and shave off almost as many points as the best optimization engines without any mathematical modelling whatsoever, and not have to worry about if the split between the providers is one you are comfortable with.)

Other key features of the platform include:

  • Clinicals: which is their clinical supplies spend analysis module that is similar to their Human Capital Module (except the SKUs are clinical suppliers and not contingent workforce positions)
  • GC Legal: which maintains a standard set of Terms and Conditions clauses that specify exactly what different Ts and Cs means to the client (and helps the analysts do custom MITs and negotiation projects)
  • SKU Search: that allows the client to search for particular SKUs across their suppliers and contracts
  • Outside Data: that allows them to import additional data to augment their spend from third party products, with out-of-the-box integration options for a number of indirect tech (SalesForce, etc.) and contingent workforce (ServiceNow, etc.) providers
  • Invari: their invoices platform
  • End-to-End Security: all MITs, which are often based on organizational contracts, are done through the platform, where data is fully encrypted both in transit and at rest, and not through e-mail, FTP, or other unsafe data transmission methods employed by some other service/advisory firms

Let’s talk about Invari now. This is an analytics backed invoice management platform that allows an organization to upload, manage, and analyze invoices in real time. While it can support any category and supplier, it is designed to support their technology, human capital, and clinical supply categories and benchmarking in particular. When purchased, they request at least 3 months of invoices for all of your providers, and will accept up to 3 years of history if available in order to get enough invoices to allow them to train a custom model for every single provider so that, when an invoice is uploaded, it can be automatically parsed at least 95% of the time for immediate availability. Because models are customized per supplier per client, their system detects any issues and when the invoice cannot be parsed or key information cannot be found. When this happens, the invoice processing system kicks the invoice out to a manual processor who will fill in the missing information in under 3 hours and then update/retrain the model to prevent the same error from happening again.

In addition to allowing invoices to be immediately available for management and analytics in the future, these detailed models also allow the system to build up invoice profiles by supplier and the system can detect when an expected invoice is missing (because you always get a monthly invoice for a service by a certain date in the month), duplicated (because the spend profile is doubled in a month, etc.), or suspect (because it doesn’t fit the pattern).

The main dashboard provides an overview of key invoice KPIs (pending submission, awaiting approval, total count, unresolved, missing), an overview of missing invoices (so immediate action can be taken), a summary by providers, and a summary of top variances.

The approvals dashboard shows all of the invoices that need to be approved, along with variances from the best “prior” invoice, colour-coded on the green to red spectrum (so you can quickly see if there is a likely price issue even before drilling in to the invoice). On this screen, you can quickly pop-up the six-month history for more details on the variance and trends and pop-up the invoice summary window that summarizes billing arrangements (from the contract), line items, and sub-charges.

Fore more details on costs and variances, you can dive into the invoice analytics dashboard that provides a variance report across suppliers over the past X months (on a green – red spectrum that represents decreases to increases) that also clearly identifies new charges (in yellow) so you can see where regular billings start or change. From here, you can dig into a supplier and see the same breakdown by line item / SKU, and then, in that breakdown, you can drill into a particular line item / SKU and see the same breakdown across the sub-charges. For example, at the top level, you see all your providers. When you drill into Your-BroadBand-Provider, you see High Speed Service, Mesh Network Rental, Taxes and Fees. When you Drill into High Speed Service, you see monthly service fee, modem rental, and fixed IP lease. And, of course, you can also search across contracts for specific SKUs and set up alerts when new variances are detected off of new invoices.

At this time it’s worth pointing out that in Indirect Tech, Green Cabbage does true micro-SKU benchmarking, unpacks all of the different offerings in a SKU offered by a tech provider who might include multiple modules in a SKU or a broadband provider who will pack in rentals with subscription fees, and can tell when a provider changes a SKU description or composition. This allows it to do price benchmarking (or at least price range benchmarking) across individual products and services and provide more finer grain details and guidance than the majority of its peers, even in the specialized SaaS market.

And while Green Cabbage might not be a common name in S2P, or one getting a lot of buzz from the analysts, they are bigger than you think. Serving eight (8) of the top ten (10) private equity firms in the US and four (4) of the top private equity firms in Europe, global consultancies like KPMG and BCG, along with other big name Fortune 1000 clients, they have over 500 Billion of spend under management (which is sizeable when you consider that Coupa, that claims to have the most, only has about 4 Trillion in global business spend data), over 1.25 Billion data points, and over 13,000 benchmarkable suppliers in their categories of expertise. That’s very significant, very powerful, and allows them to identify large cost reduction opportunities and negotiate them for you at contract renewal time. (And if you don’t have the volume on your own for significant savings, they also have a group purchasing offering called Receptio that you can look into. Note that since this blog covers technology, we won’t be covering Receptio in this write-up.)

The main weakness right now is that the API is only for getting data in. They are working on extending it to get data out, but there is no timeline for that yet. This is critical for a number of reasons:

  1. their contract management is limited to file uploads and metadata and it would be very useful if they could push rates, benchmarks, and standard Ts and Cs to a contract management/governance platform to support creation, negotiation, and ongoing management of contracts outside of renewal projects
  2. spend export is limited to Excel / flat file dumps; while their tool is good, it’s not BiC for generic spend analysis, especially outside their core categories, and neither is their categorization knowledge beyond their core categories — depending on the spend, it’s not guaranteed to be accurate beyond level 2 or 3 (of a 4 to 6 level UNSPSC or equivalent hierarchy), so if the organization has some very specific or detailed indirect or direct categories it needs deep categorization for, this will have to be done in an external tool (where you can classify to a lower level, do more detailed analytics, and then push the refined data back) and you need Green Cabbage to be the single source of truth (because it allows you to do invoice management and deep invoice analysis and keep your spend data up to date)
  3. you can mark a category or contract as in Sourcing, but there is no connection to an external sourcing tool

We will note that they have indicated they are working on expanding the API for pushing/pulling data out, and that their first priority is to push appropriate data to a contract management platform to allow for contract creation, negotiation management, and governance (as all the platform supports around contracts is file-based uploads and meta-data). Hopefully they finish this by the end of the year and can start extending the API for export of all data in the first half of next year as an organization needs a single source of spend truth and there are lots of great DiY spend analysis tools (like Spendata) that could connect to the Green Cabbage platform for one-off category analysis where Green Cabbage doesn’t provide detailed benchmarks (or support easy/refined classification).

In other words, if you are in an industry that makes heavy use of indirect technology (SaaS, Cloud, etc.), the contingent workforce, and/or clinical supplies and you want a service-based spend analysis offering that can help you find deep savings based on real-time competitive benchmarks and on-demand category analysis, and even use their manpower to capture those opportunities for you, you really should check out Green Cabbage. There’s really no one like them in their categories of expertise.

Molly Fletcher’s 5 Mistakes Everyone Makes in Negotiations

Yesterday at Jaggaer Rev 2019, the best presentation was the guest keynote speaker. While the vision from Bonavito was interesting, and an overview of the enterprise technology journey to date from Zahiri was illuminating for those who haven’t been in tech for almost three decades, neither were very enlightening with respect to how current and potential customers could do a better job of Procurement right now.

On the other hand, Molly Fletcher’s talk (of the Molly Fletcher Company) really hit home and didn’t overlook the fact that at the end of the day, every strategic engagement will be between people who will put the final touches on a contract that, once signed, will govern a relationship for years to come. Moreover, when you negotiate a good contract, both parties understand up front what the other is looking for — and this usually means that you can literally set and forget the contract until renewal time (but still have confidence and assurance on the off chance something goes wrong).

So what are the mistakes? And how do you overcome them? We’ll get to them. But first, it’s only fair to tell you that we’ll be trying to explain the five mistakes — and corrections — in source-to-pay terms, as opposed to the much more exciting — and real — sports (negotiation) terms that Molly, a sports agent rock star, used. (In other words, her presentation is exciting and engaging … and you really should see it if you get the chance, or, even better, organize it when you get the chance.)

1. Not Knowing Who You Are Negotiating With

Some negotiators think that who you are negotiating with doesn’t matter — it’s all about the negotiation and getting the best deal. And while it can be all about the negotiation and getting the best deal if that’s what both sides want, this is only going to work if both sides are interested in (almost) the (exact) same thing. If both sides only care about the number at the end of the day, it might work. But if one side only cares about the number but the other side cares about the future direction of the organization they are partnering with and how the product, service, or overall relationship is going to improve and grow, then the negotiations aren’t going to go anywhere.

On the other hand, if you know what matters most to the other organization, and what they want at the end of the day, and address that continuously during the negotiation, you have a much better chance at a negotiation that is not only smooth, but truly profitable. If what the other side wants the most is not the most important factor to you, a few concessions on the other party’s wants can lead to more concessions against your wants. If the other side just cares about the price, and you waver a little bit, they might throw in more services or better delivery terms or R&D support.

2. Negotiation is a Transaction

The outcome is a transaction in the form of a contract, but the negotiation itself is not a transaction. The negotiation is a relationship where both parties want to continue the interaction with the goal of coming to an agreement that will see both parties working together for months, to years, to come. If you overlook the relationship, you may never get to the transaction.

3. Getting Offensive

All offensiveness does is cause the other party to become defensive. And defensiveness never results in an open dialogue where the other party is looking for a way to overcome the disconnect between the desired outcomes of both parties and cross whatever perceived impasse has been reached. The solution here is to instead get curious, ask questions about possibilities, or orthogonal opportunities, that will instead get the other party to open up about what they really want or what they might be able to do if they can’t meet your need in a direct fashion.

4. Everything Has to Happen Now

Presuming you are starting a negotiation before you need the product or service, or a contract renewal before the contract ends, you have time — and usually more than you think (even if you have to expedite a shipment). Just because your timeline says you should finish in a week, that doesn’t mean you have to. Sometimes the other party just needs time and a little time can make all the difference — and the more strategic the negotiation, sometimes the more time you need. And even if it means you are without an agreement for a month or two, or buying from the spot market, it’s not always the right thing to rush a strategic negotiation. If the negotiation could result in a 5 year long-term deal that is more valuable than any extra costs you’d pay in the short term as a result of a short delay, especially if the supplier or partner could be strategic and bring innovation and value to your organization you could not get otherwise, can often be more than worth it.

5. Not Asking with Confidence

Always ask with confidence. Do your research. Know your facts. Know what you are asking for is reasonable. And then ask with confidence. Not only will you not get what you don’t ask for, but you won’t get what you do ask for if the other party has any sense at all that you expect you might not get it. Be confident … always. (But don’t be foolish. It doesn’t matter how confident you are, you won’t get a price below the supplier’s cost of goods, for example. But it never hurts to challenge the margin.)

If You’re Still Negotiating With the Carrot and the Stick …

… you’re not getting anyone’s attention but good ol’ Bugs. And, generally speaking, giving all the hijinks he causes, it’s best if his attentions are focussed on your competition.

So how should you be negotiating? With facts. Preferably binders of facts (but they can be in e-form on your tablet — no need to kill trees unnecessarily.)

Facts that show:

  • you know what the product should cost to make,
  • you know what margin should be healthy for the supplier,
  • you know what value-add services the supplier can offer more economically than you,
  • you know what performance metrics are reasonable, and
  • you know what the market offers are right now (and whether or not the supplier can beat them).

Suppliers don’t respond to sticks if they believe you really need them and they can get away with what they want, nor do they respond to carrot if other customers seem more enticing. Plus, they will wonder what crawl-out shelter you just climbed out of because no one from a modern organization negotiates like that anymore.

Especially if they are a typical sales organization that is all about the relationship (and talking win-win even if their definition of win-win is win for the organization, win for them at bonus time) or a more modern, Gen-X led, millennial-influenced organization that’s all about the synergy.

In the first case there will be value pitches followed by claims no one can do what they do as well and lots of smooth talk to get you off guard for when they indicate that their price (even if it has a margin that is twice industry average) is really as good as it gets and the latter will try to entice a deal from the synergy.

But regardless of organization type, every organization will respond to fact-based negotiations. With fact-based negotiations, they can’t hide fat margin behind claims of high cost, high-value, or synergy as the only way they can dispute your models, metrics, and market insight is to provide their true costs (or own research from third parties if they expect their costs to rise over the expected contract term).

And the above isn’t that hard to gather. It might take some elbow grease and a category expert, but once you’ve built the proper model and identified the proper data sources, it’s quick to update.

All you need for a fairly accurate should cost model is:

  • the bill of material break down
  • the typical energy required to produce one unit (kWh)
  • the typical labour required (labourer hours by labourer type)
  • the average industry margin

If it’s a contract manufactured product, you have this, if not, you can get an industry expert to help you craft a typical bill of materials. Your current supplier, or an industry expert, should be able to roughly estimate the typical energy overhead (based on typical production process). Similarly, your current supplier (or industry expert) should know average labour requirements against the production line.

All that’s left is understanding the acquisition cost of the materials, energy, and labour. Most raw materials are traded on exchanges, so it’s easy to get an average market cost. Most countries either have electrical utilities as state owned organizations or as highly regulated private organizations with standard prices per kWh. And most countries or labour bureaus compile average labour rates. Industry insight gives you standard margins, and you can see it’s not hard to build a reasonably accurate should cost model with expertise and elbow grease. And since the only way for a supplier to challenge it is to provide their costs, you can get even the model more accurate if their costs are actually higher. (And if they don’t challenge your model, then its relatively accurate or their costs are actually lower. In the latter case, they might get a bit more margin than you want to give in negotiations, but chances are you’ve lowered your cost as well with the model.)

This just leaves an identification of what services they can likely offer more economically, which again comes down to good modelling, and performance metrics (along with cost / profit impacts), which you should be gathering across your supply base. Then you can negotiate for better performance metrics (with penalties if they are not met) with an incumbent that isn’t doing as well as they should and wants to keep the business, or baseline metrics with a new supplier that wants the business based on current average performance across the supply base for the metric in question.

So gather your facts, and give yourself a true edge in negotiations.

The More Things Change … Negotiations

Ten years ago we posted timeless principles to steer you through negotiations and, looking back, they truly were timeless. Each is as true today as it was then as they were a decade before we summarized them.

Negotiating is not about dividing up a limited pie in ways that are divisive. It is about making a bigger and better pie.

If each side sees the pie as small, then each side is going to want a bigger piece of that pie. But if the pie is large, both sides will be happy with a piece that is about half.

Conflict is at the heart of negotiation but only a positive view of conflict will result in a successful outcome.

Both sides must believe that a resolution will occur that both sides will be happy with.

There is a time to speak and a time to shut up in negotiations. When you do more listening than speaking, you actually increase your power.

If you don’t understand what the other side wants, really, really wants, then how do you know what you really need to give up and what you don’t? After all, you must

Recognize that you will only reach agreement by understanding the deeply-held needs of the other side.

Both sides make a lot of demands, but at the end of the day, only a few of the demands will generally be non-negotiable.

In power negotiations, when the stakes are high, let the other side believe what you or they want them to believe. But don’t lie or be dishonest.

If you can distract them away from what the biggest value is to you, it might help.

You can only succeed in negotiations with a win-win attitude.

As per our first point, you have to be focussed on enlarging the pie so you can divide it up in a way that both sides see a win.

Negotiating is an essentially human way of interacting.

That’s why you will get to keep your job when Procurement bot takes over inventory, re-ordering, spot-buying, and the vast majority of your job.