Author: grantlange

Approaching the Negotiation Process

I am always asked if there is a “silver bullet” to being a successful negotiator. Unfortunately, there is no answer to this question. At a basic level, negotiation is a task of influence—trying to get someone to do or to stop doing something. Whether or not you realize it, you are in active negotiations with people around you throughout the day. Ultimately, your ability to be an effective negotiator in both your personal and professional lives depends on a number of variables, including your social style and how you deal with conflict.

I will leave it to you to determine your social style, your personality type, and your style of approaching conflict. What I will say is that while your social style may be so heavily ingrained in who you are as a person that it cannot change, how you approach conflict can be successfully tempered at the negotiation table. I speak from experience as an extremely competitive individual who has learned to temper his approach to conflict by keeping his competitive arousal in check and focusing on collaboration to be more effective at the negotiation table. Regardless of your social style and conflict mode, to be a successful negotiator, you need three things:

1. A strong mental and situational awareness that yields the ability to spot the “game” that unfolds during the negotiation process;

2. A process utilized in each negotiation that you are engaged in and the skill to use that process in a disciplined manner;

3. The ability and willingness to have difficult conversations.

Your situational awareness (No. 1) and your affinity for difficult conversations (No. 3) must be perfected over time. As I will discuss shortly, preparation for any negotiation is absolutely critical. Failure to do so is likely to yield failure. As it relates to preparation, I strictly adhere to the approach which New York Giants head coach Tom Coughlin shared during a press conference before Super Bowl XLVI—humble enough to prepare, confident enough to perform. As you prepare, be mindful of the fact that the actual negotiation may not flow as smoothly as it did when you role-played with your colleagues at the office. As long as you can spot the game and utilize the process suggested in No. 2, then you will be properly prepared for success. As it relates to utilizing a disciplined process, prepare for the negotiation as you might for a boxing match. In the words of the great philosopher and pugilist Mike Tyson, remember: “Everyone has a plan till they get punched in the mouth.”

Keeping Your Competitive Arousal in Check

The other key component you need to be a successful negotiator is the ability to keep your competitive arousal in check. As an attorney, I have no problem saying that most attorneys are extremely competitive and are trained to see conflicts in terms of right and wrong. So you can only imagine the level of intensity and competitiveness that results when two attorneys from opposing sides negotiate delivery terms and conditions for an outsourcing agreement. Generally, if you let the attorneys run the show, it will be chaos. Even more so than their procurement colleagues, they are laser-focused on the allocation of blame and the consequences of any failure during service delivery. In their perceived role as the defenders of their respective clients, the attorneys very quickly take a position that they are unwilling to yield.

In almost every outsourcing negotiation in which I have been engaged, the client and the client’s counsel provide their standard terms and conditions for review and comment by the service provider. Given the likely unbalanced allocation of risk and reward in the standard terms, the service provider’s counsel reviews the terms and conditions, redlines them extensively, and sends them back to the client. Upon receipt, the client reviews the changes and deletes most of them using another color in the “Track Changes” function in Microsoft Word. The process usually continues for multiple iterations until a call or meeting is scheduled to formally negotiate any outstanding issues. If you have ever been a party to one of these calls or meetings, battle lines are drawn quickly. It is not too long before an impasse is reached, as neither party is willing to retrench from the party position. I do not want to indict all attorneys as members of the deal-prevention force. Some of them can find a reasonable middle ground that yields an acceptable level of risk and reward, given the nature of services being provided. But those attorneys are clearly the exception to the rule.

Attorneys who can see the vast gulf between right and wrong, and understand the commercial aspects of the pending transaction should be sought out for outsourcing negotiations. The Advanced Commercial Mediation Institute conducted a survey in which commercial mediators were asked if the disputing parties were more focused on winning or on obtaining a good deal. The responses revealed that the disputing parties were much more likely to focus on winning when their attorneys were heavily involved and influential at the beginning of the dispute. In a Harvard Business Review article from May 2008, Deepak Malhotra, Gillian Ku, and J. Keith Murnighan suggested that this win at all costs type of decision-making was driven by an “adrenaline fueled emotional state,” called competitive arousal.

We can probably all think of a time when we were victims of our competitive arousal and made a decision in the heat of battle that, in retrospect, looked foolish. Sometimes, we want to win at all costs, even if the decision-making process lacks any sound judgment and is solely based on competitive arousal. To mitigate this win at all cost dynamic, it is critical that the business leadership understand the legal issues, so they can stay in control of the negotiation and bring the attorneys to the table only when absolutely necessary. Similarly, once they have been invited to the party, the attorneys need to understand the nature of the services being contemplated in the transaction and the amount of risk inherent in delivery. By taking this approach, the level of competitive arousal can be kept in check, and reaching agreement on key terms and conditions can be achieved.

Let us assume that we have reined in our competitive arousal, our attorneys are in the bullpen, and we are now about to begin the negotiation process. The key question is: How do we reach an agreement that yields an acceptable level of risk and reward for both parties to the transaction? My answer has been the same for many years and has served me well in the marketplace. Frankly, it is not overly complex and has four key principles and seven elements. If you can master the “4×7,” then you are well on your path to becoming a very successful negotiator. The four principles are as follows:

1. Temper your approach based upon the amount of risk inherent in delivery.

2. Temper your approach based upon the geographic region in which you are engaged.

3. Temper your approach based upon the person sitting across from you at the negotiation table.

4. Conflicts are created, conducted, and sustained by human beings and can be resolved by human beings.

Principle 4 is a recent addition to the list (a list that I had not changed in 15 years, so this was a big deal). The addition came from a 2010 speech by former Senate Majority Leader George Mitchell, who was named as a special envoy to the Middle East. After being introduced into this most critical and challenging role, Mitchell stated that “conflicts are created, conducted, and sustained by human beings and can be resolved by human beings.” This statement, while obvious, made me pause and think about some of the most challenging negotiations I have ever experienced in my professional career and how I could have resolved them much more effectively by knowing this simple rule. I have, therefore, adopted this exact quote as my fourth key negotiation principle. I am in no way comparing negotiating outsourcing terms and conditions to negotiating peace in the Middle East, but keeping the scope of the negotiation in which you are engaged in perspective is something you should think about when drawing the battle lines around potential “deal-breaker” provisions.

In addition to these four core principles, it is important to remember that every negotiation has seven elements. The seven element approach to a principled negotiation stems from the book “Getting to Yes” written by Roger Fisher and William Ury of the Harvard Negotiation Project. The seven elements are interests, options, legitimacy, alternatives, commitment, communication, and relationship. The key to success is your ability to identify these elements and their connectivity, and, most important, to understand how they evolve during a negotiation. In addition, as we discussed above, it is absolutely critical that you take the requisite time to prepare for any negotiation and carefully consider how the seven elements can impact the negotiation. If you have not prepared properly, you might as well cancel the meeting because the result will not be optimal. On this issue, I will restate New York Giants coach Tom Coughlin’s approach: humble enough to prepare, confident enough to perform. With respect to this approach, I simply say: Learn it, know it, and live it.

Ultimately, these seven elements dictate your likelihood of success in any competitive procurement for outsourcing services as well as the ultimate words within the four corners of the agreement. The interconnectivity between the elements is demonstrated in the basic negotiation equation, a desired output of which is to reach an agreement that satisfies the mutual interests of the parties. If an option is identified that fulfills those interests, then a clear path forward exists; if not, then the parties may have to pursue their alternatives, more commonly known as their best alternative to a negotiated agreement (BATNA). As I like to say, negotiation it is that simple and that complex. Those seven elements are as follows:

1. Interests: What are the needs, concerns, goals, hopes, and fears that are motivating the other party to negotiate?
2. Options: What approaches can be identified that meet the mutual interests of the parties?
3. Legitimacy: What criteria exist—industry practices, expert opinions, laws, rules or regulations, or precedent—to measure if the options being considered or agreement reached is fair and sensible?
4. Alternatives: What unilateral steps can either party take—how can their interests be satisfied elsewhere—if the parties are unable to reach an agreement?
5. Commitment: Is the other party prepared to reach an agreement and is the party empowered to do so?
6. Communication: Are the parties listening to each other, engaging in collaborative dialogue, and remaining unconditionally constructive?
7. Relationship: Do I care about maintaining an ongoing relationship with the party across the table?

Many legal professionals are unable to follow the four core principles and to spot the seven elements. These professionals are too focused on adhering to some predefined standard template and the template’s positions, or they are unable to consider other options that still meet their client’s underlying interests. The focus on and the benchmark for success should be an agreement that does the following:

• satisfies the interests of the parties
• minimizes waste and reflects the best of many options
• under which neither party feels taken advantage of
• is better than your best alternative, or BATNA
• embodies a commitment among the parties
• is grounded in open communication
• reinforces the underlying relationship between the parties

Ultimately, your ability to spot the seven elements will greatly assist in executing an agreement that meets these objectives.

Many large IT service providers also strive to achieve a corporate standard in the negotiation process and fail to temper their quality assurance, risk management, and approval thresholds based upon the amount of risk inherent in delivery. In essence, they treat all transactions the same, which results in a very inefficient risk management process. You can read lots of books and attend plenty of trainings on successful negotiation techniques and tactics. However, I assure you that if you accept the fact that no two outsourcing services transactions are the same and do everything you can to strictly adhere to the four core principles and maintain a laser-focus on the seven elements, you will make great strides in the art of negotiation.

Now let us review some of the core negotiation principles in practice. What exactly does it mean to temper your negotiation stance based upon the amount of risk inherent in delivery? As we previously discussed, a number of factors should be considered in determining the amount of such risk. A thorough understanding of these risk criteria helps clarify the risk profile associated with an opportunity, and that, in turn, drives the stance to be taken in the negotiation process. A sampling of the risk criteria are as follows:

CLIENT RELATIONSHIP AND BACKGROUND

• Strategic importance of the client within the service provider portfolio
• Historical relationship with the client and current delivery footprint
• Size of the client entity and industry
• Competitive landscape
• Strength of relationships
• Client buyer values and selection criteria

SOLUTION

• Experience delivering similarly situated solutions in a timely, quality, and cost-effective manner
• Geographic scope of the solution
• Complexity of the underlying solution
• Organizational readiness for the amount of change required for success
• Complexity of the IT architecture and the state of the service or process to be outsourced
• Client’s outsourcing experience and maturity
• Staffing capabilities required for delivery

CLIENT COMMITMENT TO PROGRAM

• Client commitment to the project and governance process
• Hierarchical level of the client executive sponsor
• Technical expertise of the client team and ability to meet delivery dependencies
• Client decision-making ability
• Depth of the client third party ecosystem

 CONTRACT/PRICE/TIMELINE

• Project timeline
• Contract type
• Terms and conditions
• Narrowly tailored statement of work with clear roles and responsibilities
• Price sensitivity
• Client financial strength

According to the second principle, it is important to temper your approach based upon the geographic region in which you are engaged. What works well in New York or San Francisco does not necessarily work well in the United Kingdom, Germany, Japan, or the Middle East. Before jumping into the negotiation process in a foreign country, it is important to understand not only the local laws but also the impact that culture may have on the negotiation process. Is the style quiet and less flamboyant, requiring some level of deference, as you might find in Japan, or louder and more aggressive, as you might find in France or the United Kingdom? I am not a cultural expert, but I have negotiated terms and conditions in a number of countries and can absolutely tell you to conduct adequate cultural due diligence and to seek the advice of local colleagues before jumping into the process. Once you are there in the country, remember to temper your approach accordingly, both in terms of style and prevailing law.

Finally, remember to temper your style and approach based upon the person sitting across from you at the negotiation table. While you can study countless books on negotiation tactics, I urge you to make every attempt to understand the style, personality, motivation, and interests of the person with whom you will be negotiating; ultimately, your success hinges upon your ability to work with him or her to reach an agreement with an acceptable level of risk and reward for both parties to the transaction. To that end, I would like to introduce you to the “Harley Principle.” I have been riding Harley-Davidson motorcycles for the past 15 years, and it is a great passion of mine. I have a VROD and a Screaming Eagle Springer, and love the feeling of rolling down the road with the wind in my face on a beautiful summer day. If I enter the office of a procurement executive or attorney with whom I will be negotiating and see anything Harley-Davidson or motorcycle related, I always ask about it, and the conversation quickly shifts to a passion we both share.

Finding this common interest lets us to identify with each other in a manner beyond the pricing, terms and conditions, and adversarial negotiation process that we are about to undertake. While I am not suggesting that a common passion for Harley-Davidson motorcycles results in an easy negotiation process, it allows me to identify with the person with whom I am engaged. Though I have no scientific evidence, I can absolutely tell you that my negotiations with motorcycle enthusiasts over the years have been very successful. So make an effort to identify with the party with whom you will be negotiating beyond the terms and conditions in the agreement; it definitely makes a difference.

Procurement continues to play a critical role in the evaluation and selection process for outsourcing services, particularly when selling to Fortune 500 companies. To that end, procurement representatives engaged in the negotiation process should be treated as a legitimate stakeholders and their level of influence should not be understated.

The Evolution of the Fortune 500 Procurement Organization

Over the past few years, there has been a fundamental change in the way Fortune 500 companies procure consulting services. The net effect of the change is that Fortune 500 clients, regardless of industry or geography, have become much more sophisticated buyers of management consulting, technology, and outsourcing services. This new level of sophistication has broad implications for the negotiation teams who are at the center of this transformation. In this chapter, we focus on the evolution of corporate procurement organizations and the resulting environment that a service provider is likely to encounter during the sales and negotiation process.

Historically, selling services to Fortune 500 entities was straightforward. A service provider would identify a potential consulting opportunity, propose its service offering to the prospective client, agree on the scope of work and corresponding price, execute a contract, and begin service delivery. Procurement organizations were extremely decentralized, functional and geographic leaders had complete autonomy over their external consulting budgets, and service providers were routinely engaged at different points in the corporate hierarchy and across multiple business units in the organization. Given this level of procurement decentralization, coordination of third-party consulting expenditures was nominal, at best. Multiple agreements, many with conflicting pricing structures and delivery terms and conditions, could prevail at any one time. Because of the significant size of the third-party consulting expenditures in many Fortune 500 companies, in some cases in excess of $100 million annually, this process was clearly inefficient and yielded an extremely suboptimized procurement and performance management process.

To combat this trend, Fortune 500 companies across all industries and geographies have undertaken efforts to centralize and streamline their procurement processes, particularly as it relates to the utilization of external consultants. To that end, they have instituted a much more sophisticated buying methodology and have migrated toward a very centralized procurement process under which global master services agreements are executed with a select group of preferred vendors. Through this process, the typical Fortune 500 company strives to optimize its global consulting spend and to share best practices among operating entities through:

• streamlining the vendor base
• comprehensive use of master services agreements and identification of “preferred” vendors
• institution of a more rigorous and disciplined buying process with aggressive negotiating tactics in pricing, and terms and conditions
• implementation of a vendor performance management system

Sitting squarely at the intersection of this new strategy is corporate procurement. The bottom line is that the relative influence and power of corporate procurement organizations have grown significantly in recent years, and these organizations have been empowered—through chief procurement officers reporting directly to the CFO or CEO—to aggressively pursue their agendas. Given this ever-present market dynamic, prudence requires that sales teams develop a strategy by which corporate procurement organizations are leveraged to help facilitate business development and footprint expansion. To this end, it is critical that procurement understands your value proposition, your global scale, your full consulting life-cycle delivery capabilities, and your ability to help clients achieve predictable results in a timely and quality manner under terms and conditions commensurate with the nature of the services provided and priced competitively with the client’s other preferred vendors.

Procurement’s Underlying Interests

If procurement fails to reach these conclusions and, in particular, if it believes that a particular service provider is not cost-competitive, then business development, footprint expansion, and the negotiation process will be a steep, ugly, uphill battle. I was recently engaged in a competitive applications outsourcing procurement. Procurement’s role was to continually provide red-laden heat maps that reflected the extreme variances between the rates my organization had proposed and procurement’s perspective on market-relevant rates for similarly situated services. Although the rates that we were benchmarked against were not legitimate, procurement’s continued reinforcement throughout the sales cycle that the rates were not competitive turned that perception into a reality that was too powerful to overcome. As a result, an award to a lower-cost, India-based outsourcing services provider came shortly thereafter. To avoid disqualification as a result of a flawed benchmarking exercise and to work effectively with Fortune 500 corporate procurement organizations, it is important to understand what they want, what motivates them, and what they are trying to achieve. The agenda of the typical Fortune 500 procurement organization are not that much of a mystery. Specifically, these organizations want:

• Optimization of global consulting spend and sharing of best practices across their organizations.
• Fewer and more strategic preferred vendors with broad delivery capabilities.
• Vendors with “skin in the game.”
• Aggressive pricing (OK, as cheap as they can get), with volume and other discounts in exchange for the “preferred” vendor label.
• Pricing structure commensurate with the nature of services provided and competitive with the other preferred vendors—separate rate schedules for management consulting, systems integration, and outsourcing engagements.
• Vendors that deliver best value—timely, high-quality, and cost-effective delivery.
• Competition among vendors for commodity-like services.
• Increase in compliance and reduction in “maverick spending.”
• Efficiency gains (reduced cycle time), cost savings, and control over the buying process through implementing e-procurement solutions.
• Performance management systems in which vendors are evaluated across quality, time, and cost parameters, and stripped of the “preferred” label if they fail to meet performance standards.
• Business and legal terms and conditions that yield an acceptable level of risk and reward.

While procurement wants to achieve each of the aforementioned agenda items, never underestimate the importance of aggressive pricing. All these agenda items are important, but procurement organizations are motivated by and recognized and rewarded for obtaining cost reductions from their vendor community—hard stop. Think about it: Who doesn’t want to go back to their boss, most likely the CFO, and wave a flag that says they were able to negotiate an additional 5 percent discount from one of their largest preferred vendors? Even though 5 percent may seem nominal, the savings can become significant, given the annual transaction volume being generated with large IT service providers.

Can I Just Ignore Them and Pursue My Alternative?

Most business development or delivery executives want to avoid procurement during the sales and delivery process. This might have been a viable approach ten years ago, but this is no longer true, given the overarching influence procurement has in the buying process. Until recently, many brand-name strategy providers chose to pursue their alternative, avoidance, when building relationships with and aligning their sales strategy with procurement. That is to say, they leveraged their relationships and sold directly to the C-suite. This alternative was viable when third-party consulting and technology spend were below the radar. However, the recent trend is to focus on centralization and to leverage global purchasing power, with a corresponding reduction in selling, general and administrative (SG&A) expense that is being sponsored by those same C-suite executives who embodied the alternative strategy. The new mantra has become: “the relationship matters, but it is the deal that counts.”

Given this dynamic, it is much more prudent for you to craft and pursue a sales and delivery strategy that aligns with procurement’s strategic agenda and focuses on attaining preferred vendor status, being accountable for delivering on your value proposition, and partnering with procurement for success. To that end, it is imperative to include procurement in your power map and manage those relationships in a manner consistent with other key stakeholders that may influence the buying decision.

The current trend is no passing fad, and the bottom line is that procurement, while considered by many to be the Evil Empire, can be a valuable ally when you are selling outsourcing services to Fortune 500 companies. Irrespective of your strong brand awareness, trusted advisor relationships, and successful delivery history, it is imperative to build upon existing relationships and establish new ones with client procurement organizations, because they can serve as your ally across their buying community. The current procurement landscape gives them significant influence in the buying process, and it is, therefore, critical that they understand the depth and breadth of the capabilities that the service provider brings to bear as well as its value proposition.

Just How Much Influence Are We Talking About?

The short answer is: a lot. When it comes to compliance and control, Fortune 500 procurement organizations have implemented stringent policies on engaging third-party service providers, and these policies are endorsed deep into the C-suite. These policies typically include provisions such as the following: approval thresholds that escalate, depending on the dollar materiality or complexity of the engagement; the number of bids that must be solicited before an award decision can be made; and limitations on change orders, and the penalty for noncompliance can be significant. These policies place procurement right in the middle of the contracting process for third-party providers and give them broad enforcement powers both during the selection process and the delivery term.

As for gauging delivery quality and instituting penalties for poor performance, the trend in Fortune 500 entities is to implement a structured process by which delivery success is evaluated across time, quality, and cost parameters, and is reviewed quarterly with the vendor. By using such an approach, procurement can measure the quality, timeliness, and cost-effectiveness of delivery, and gauge the effectiveness of its service providers based on a consistent set of objective, measurable, and verifiable criteria. Ultimately, such data can be used to remove a service provider from the preferred vendor program, to exclude it from a new opportunity, to terminate its agreement, or justify the basis for a new sole-source award.

What About the Pricing Discussion?

Procurement organizations are measured by and want to be recognized for optimizing third-party consulting expenditures. They pursue these objectives by putting extreme downward pricing pressure on their vendors to attain favorable pricing, particularly in those areas where they believe that the services provided resemble commodities. As we all know, they can be relentless in seeking additional price concessions from their service providers. Their rationale may be motivated by their belief that they can obtain a similarly situated service at a more favorable price from an alternative service provider or that they have an internal mandate to achieve cost savings. And the current economic climate and continued focus on reducing IT spending has only made Fortune 500 procurement organizations even more aggressive in the negotiation process. They now look for significant across-the-board discounts, irrespective of the brand awareness, reference base, and reputation for timely, quality, and cost-effective delivery by their vendors. In many instances, these requests may come well after the initial agreement has been executed and service delivery has begun.

With respect to outsourcing services, the market has changed drastically in recent years. There used to be a significant gap in delivery acumen between the most highly regarded  Tier-1 service providers—Accenture, IBM, and Capgemini—and their India-based pure play competitors. However, that gap has narrowed to where most clients believe that they can obtain the same quality and predictable results from either source. In the past 10 years, the largest Indian pure play providers—TCS, Cognizant, Infosys, Wipro, and HCL—have increased their global market share and geographic delivery scope and enhanced their delivery acumen. The term “pure play” really no longer applies as they have expanded their service offerings across the consulting lifecycle. This commodity-based view of the outsourcing marketplace has resulted in price becoming one of, if not the most important, criteria in the evaluation and selection process.

While each request and solution is different, the following principles can reinforce the legitimacy of your initial pricing submission and can serve as the foundation for responding to any such request:

• Make sure that the client is paying premium prices for premium services and that the prices the client is paying for commodity services are competitive with other vendors in the marketplace.
• Don’t assume strong relationships will justify an award to a higher priced service provider.
• Be mindful of the client’s ability to make an award to other than the lowest priced service provider. Once a relatively small price premium threshold is crossed, the client’s ability to do so will be limited.
• Be smart: If you agree to a price concession, it questions the integrity of the initial price submission. Always be cognizant of the fact that if your client does not trust you, then you might as well pack up and call it a day.

• If you decide to give additional incentives, concessions, or discounts, make sure you are getting something in return—a volume commitment, preferred vendor status; access to the C-suite or to certain procurements historically reserved for other competitors; exclusive marketing rights to a particular entity or region; more favorable payment terms; changes in roles, responsibilities, or scope; or the elimination of high-risk terms and conditions. But make sure you get something in return, and consider all possible options if you pursue this course of action.

• When you have given all that you want to give and believe that your rates are competitive with those of other vendors in the market for similarly situated services and reflect the level of risk associated with delivery, then remain calm. Hold your ground, focus on your value proposition, make it clear that low price does not equal best value, consider your options and alternatives, and be prepared to say “no.”

The Master Services Agreement: Friend or Foe?

A key component of the more sophisticated buying methodology has been the migration to a model under which global master services agreements are executed with a select group of preferred vendors. The master agreement typically contains the terms and conditions as well as the rates that govern delivery for all services across the consulting life cycle. Through this master agreement process, Fortune 500 procurement organizations hope to make progress in achieving three items on their agenda:

• Identifying a preferred vendor community that delivers in a timely, quality, and cost-effective manner.
• Developing competition among vendors for similar services.
• Securing business terms and conditions that yield an acceptable and predictable level of risk and reward for their organization.

Many sales and delivery executives have expressed some concern about the migration to the master agreement process because they see it as inhibiting the sales process. A viable option is taking the opposite approach and strongly supporting the execution of a master services agreement with every client with whom you are currently engaged and for which you have growth aspirations. The biggest challenge that many services providers face in this area is negotiating a master agreement that contains terms and conditions that can be tempered or flexed so the terms are commensurate with the underlying nature of the services provided—consulting, systems integration, or outsourcing. Thinking about future opportunities can be challenging because the master agreement is the starting point in most relationships, and its focus is on the initial opportunity contemplated between the parties. This agreement also drives the process, substance, and options being developed from the perspective of both terms and conditions, and rates.

Given this dynamic, it is critical to focus not only on the initial underlying opportunity but also on the development of a sustainable agreement with a rate structure and governing terms that can span the full consulting life cycle. I cannot tell you how many times I have been engaged to take a master agreement that was executed for the delivery of management consulting or systems integration services, and amend it or create an addendum to include outsourcing services under its umbrella. What may sound like an easy exercise is challenging, because clients seek to maintain a firm grasp on the consulting-like terms in the master agreement, whereas the services provider seeks to introduce terms specific to outsourcing services. To avoid this dynamic, take the time to execute a robust master agreement that can span the full consulting life cycle.

Although the master agreement negotiation process may be cumbersome, the benefits received upon contract execution are significant. The master agreement is a free hunting license and communication mechanism, so use it accordingly—walk the halls, talk to procurement and potential buyers, conduct brown bag sessions, provide sales collateral, promote your capabilities on the procurement intranet website, and participate in other activities that educate the buying community and facilitate footprint expansion. In addition, a robust master agreement can accelerate the sales cycle, given that the delivery terms and conditions, and the rate structure, have been previously negotiated. Of primary importance is that the master agreement gives you a reason to meet with your clients and stay relevant, even if there are no immediate opportunities on the horizon. Finally, it can facilitate expansion into other service delivery areas over the consulting life cycle. Holding a master agreement comes with good visibility and can contribute to building brand awareness, an internal reference base, and a reputation for quality delivery across the organization.

What Does the Landscape Look Like Going Forward?

Gone forever are the days of decentralized procurement, multiple engagements with disparate terms and conditions and pricing structures, limited performance management, and purely relationship-based selling. Both procurement executives and clients are seeking innovative solutions and options from prospective service providers that embody a better, faster, and cheaper approach. In addition, both clients and procurement organizations are looking for alternatives to some of the entrenched providers and stagnant solutions that they have been subjected to for many years.

As we have discussed, the corporate procurement organization has changed drastically. It is now centralized, more sophisticated, and very influential in the buying process. It is focused on streamlining its vendor base, executing master services agreements that govern delivery globally, and anointing a limited number of preferred vendors across a set of discrete service lines. All of this has been done to optimize and leverage the global consulting spend, and to hold preferred vendors accountable for timely, quality, and cost-effective delivery.

Given the staying power and level of influence wielded by procurement, my recommendation is that you build on existing relationships and establish new ones with client procurement organizations in the same manner and with the same rigor as you would with your ultimate client. These organizations can be your allies across their buying community. Take the time to make sure that they understand your value proposition, your ability to deliver in a timely, quality, and cost-effective manner, and the depth and breadth of the capabilities that your organization brings to the marketplace. At minimum, such relationships give the service provider insight into the RFP process, enhance its competitive positioning with new buyers that seek counsel from procurement about vendor capabilities, and help enhance brand awareness.

The current economic climate, extreme downward pricing pressure, and desire for consistency in operations will most likely enhance procurement’s power base and level of influence. Given this trend and for the aforementioned reasons, embracing the concept that procurement can be your friend and ally as you navigate through your respective client community is highly recommended. Ultimately, this approach can yield footprint expansion, insight into a previously noninclusive RFP process, enhanced marketing opportunities, new master services agreements with preferred vendor status, introductions to new buyers, and, most important, generation of net new sales. When you are developing account plans and strategy, remember that procurement can be your friend and engage them accordingly.

Before we can put our best foot forward with regard to governing terms and conditions, we need to be mindful of how outsourcing services are really sold and the importance of relationships in the sales process. This understanding is critical because overestimating the value of relationships can have a significant impact on the negotiation process and the likelihood of “getting ink”—achieving contract execution—when the dust settles.

Just How Important Are Relationships?

The impact of relationships on the award process should never be underestimated. Whether pursuit teams craft a capture strategy or evaluate the likelihood of success in a competitive procurement for outsourcing services, relationships do play a critical role in the selection process. Given that dynamic, pursuit teams spend countless hours enhancing existing relationships and cultivating new ones with any client representative they believe can influence the final award decision. The strength and substance of those relationships are likely to be clearly documented in a relationship map that is scrutinized throughout the sales process.

Ultimately, the level of reliability of that relationship map can be the difference between success and failure. Strongly perceived relationships may yield overconfidence, which can be very dangerous in a competitive environment with similarly qualified vendors. Weakly perceived or limited relationships may yield a decision to abandon the opportunity completely and focus business development resources elsewhere, to offer an overly aggressive price, or to accept unfavorable delivery terms and conditions to compensate for any such weakness and to avoid disqualification.

Relationships and the Evaluation Process

The evaluation criteria used by existing and prospective clients vary according to the size and complexity of the opportunity, but may include the following:

• functional and industry expertise of the vendor
• proposed technical approach that is the foundation for the delivery of services
• quality and experience of the team to be deployed for delivery
• vendor’s expertise in delivering similarly situated solutions in the client’s industry
• level of executive involvement in the proposed solution
• level of relationships and trust between the parties
• vendor’s acceptance of prescribed terms and conditions that govern delivery
• client’s perception about the delivery capabilities of the vendor
• vendor’s prior delivery history within the client’s IT landscape
• vendor’s financial viability and ability to scale on a global basis
• price

 Although the level of trust and the strength of relationships between the parties are typically not stand-alone criteria, they definitely factor into the award decision. Make no mistake about it: Clients who undertake large, complex, and mission-critical outsourcing engagements demand predictable results that manifest themselves through timely, quality, and cost-effective delivery. The stakes are too high and failure is not an option, given the potential impact on the viability of the underlying business and the customers, suppliers, and employees these systems support.

Do Strong Relationships Guarantee Success?

When developing the strategy for a new sales opportunity, you must carefully assess the strength of relationships across all hierarchical levels within the client’s organization—from the C-suite and likely decision-maker, to every member of the evaluation team, to all the way down to procurement. To help facilitate that process, a red-yellow-green encoded relationship map is likely to be used to highlight the strength and substance (saying “hello” in the hallway or at a social event versus being a trusted advisor) of those relationships and, most important, how those individuals may influence the decision-making process.

Most sales executives believe that their client relationships are ironclad and will be the driving force when decision-making time rolls around. Whereas relationships are extremely important, they must be augmented with a strong track record of delivering sustainable results. A trusted advisor relationship with a client gives you some credit in the bank, a seat at the table, the luxury of being considered for opportunities that may not exactly fit in your sweet spot, a first look at new opportunities, and insight into the client’s agenda and priorities. This relationship, however, is by no means a guarantee of success. This position was confirmed recently at a sales conference when a senior executive at one of the world’s largest suppliers of building materials was asked what factors most influenced his leadership team when evaluating consulting, technology, and outsourcing providers for mission-critical programs in his organization. His answer was: “Trust matters, but it’s the deal that counts.”

Relationships Versus Best Value

Assume a vendor has well-established brand awareness in the market, a strong reference base, and a history of quality and timely delivery in the marketplace, but lacks any substantive relationships in the account it wishes to penetrate. Given those parameters, is it possible to capture a competitive opportunity? The answer depends on the nature of the services — management consulting/strategy,  systems integration, and outsourcing — provided, and where those services reside in what I refer to as the relationship/best-value continuum. The bottom line is that the value of relationships decreases significantly as you progress farther downstream in the consulting life-cycle. When it comes to outsourcing services, the value of relationships is minimal and should not be relied upon too heavily when a service provider is engaged in a competitive outsourcing procurement. I have served as the lead negotiator on competitive outsourcing engagements where the sales leadership team was absolutely convinced that the strength of the team’s relationships and prior delivery history would somehow materialize in the form of a white knight who would sweep in, exempt the team from the wrath of the external counsel and the third-party advisor, and direct the award to us. Unfortunately, that help never arrived. My best advice: Keep your overconfidence in check, especially when you are engaged in a highly competitive procurement for outsourcing services.

Corporate Strategy Versus Outsourcing Services

For management consulting and corporate strategy services delivered directly to the C-suite, relationships still rule the day and trump best value time after time. For these types of services, it is common for a partner or director in one of the top strategy firms to build a relationship with and become a trusted advisor to the board of directors, CEO, or executive management team, and provide all strategy services until there is a change in leadership.

These services are typically contracted directly with the CEO or board on a noncompetitive basis, can be sizable in amount, are typically outside the purview of anyone in the procurement organization, have extensive senior executive involvement and a corresponding lower-leverage model throughout delivery, are not subject to extensive price negotiation, are, in some cases, a line item in the annual budget, and are generally exclusively provided by one party.

The bottom line is that the strategy provider’s relationships render it sacrosanct in the procurement process and price reasonableness. A former colleague once boasted that as a director for one of the major strategy firms, he had developed a long-standing trusted advisor relationship with the CEO of a financial services company, where he and his team were the exclusive providers of strategy services. For a specific engagement that he was positioning with the CEO, my colleague looked the CEO directly in the eye and said: “The cost for the engagement will be $1 million. And that is my cost; my team is free.” This is an extreme example, but it epitomizes the delivery of high-end strategy services that are still sold primarily on a relationship basis and are exempt from the much more rigid procurement process associated with more competitive opportunities across the consulting life cycle.

While that approach might be viable in the C-suite with a long-standing client who has a good sense of humor and with whom you have a trusted advisor relationship, its application is extremely limited. What if that former colleague attempted a similar approach with a client’s counsel, procurement leadership, and third-party advisor on a competitive applications outsourcing engagement where he was unable to differentiate his services and lacked any substantive relationships within the client’s buying community? Well, he probably would have a very short meeting and plenty of time to play golf in the afternoon. Clearly, as you progress farther across the consulting life cycle and leave the strategy realm, best value becomes much more important, vendors become more prevalent, competition is fierce, services are more commodity-like, and procurement and legal become much more engaged in the buying process.

Selling Outsourcing Services With Limited C-Suite Relationships

If you have or can develop a trusted advisor relationship with C-suite leadership, that relationship should be leveraged to the fullest when pursuing downstream outsourcing opportunities. If you lack such a relationship, target your business development efforts toward functional leadership that may be a few layers removed from the C-suite. Those leaders have both strategic and tactical agendas to pursue, have an ample budget, and are likely to engage third-party providers in an outsourcing capacity to help them achieve their objectives.

The bottom line is that despite the strength of any C-suite relationships, best value should be a key component of every outsourcing sales strategy. If you overlook best value based upon the perceived strength of some C-suite or other relationship, you likely have an acute case of overconfidence and a successful outcome will be tenuous at best. If you think about the relationship/best-value continuum, best value becomes much more important the farther you move away from corporate strategy in the consulting life cycle. Just to be clear, relationships in the client organization most certainly help in selling outsourcing services as well, but their relative weight diminishes as the services become more like commodities.

Relationships in Action

Let’s look at an example that highlights the impact relationships may have in a competitive procurement for IT services. Assume that a leading IT services provider maintains a great relationship with the IT leadership in a Fortune 500 financial services company, and the CIO is contemplating the award for outsourcing the maintenance and development for their full suite of financial and human resources applications. The services provider has a reputation for delivering similarly situated solutions in a timely, quality, and cost-effective manner, and its brand awareness and reference base is very strong. The provider is one of two competitors that have made it through the down-selection process for this large and strategic program. Both vendors have similarly situated technical solutions, delivery timelines, and equal capabilities in staff and industry expertise. However, one of the two vendors is 15 percent lower on price. After confirming that both vendors have submitted a proposal and corresponding price for the exact scope of services that are specified in the request for proposal (RFP), the client is now forced to address the value of the relationship and the level of price sensitivity it has for the services contemplated.

Relationships Versus Price Sensitivity—It’s Decision Time

Although a 15 percent premium may not be a big deal on a $100,000 management consulting engagement, this kind of global applications outsourcing engagement may span multiple years, is mission-critical to the organization, and requires a significant investment. When faced with this situation, most clients choose the vendor with whom they feel most comfortable, from whom they can receive predictable results manifested in timely, quality, and cost-effective delivery, and with whom they have a strong relationship. But at what point does the price variance become too high to justify an award that will cost 15 percent more during the delivery term?

If the lower-cost vendor has a less technically viable solution and there are questions about the vendor’s ability to deliver the services and meet the service levels, then, maybe, 15 percent is not a big deal and not worth the risk of failure in choosing the wrong vendor. But that is not the case here, as these vendors are similarly situated in capability and likelihood of success. So, it is decision time—what is the value of the relationship? How strong of a technical solution, reference base, reputation for quality delivery, and long-standing relationship does it take to justify an award to a higher-priced vendor? Is it 5 percent? Is it 10 percent?

What Does the Fed Say?

There is no firm answer, but there is a reference point in the public sector. The Federal Acquisition Regulations (FAR) govern the procurement of goods and services by the U.S. government and provide for a “best-value” approach in the selection process. “Best value” is defined in Section 2.101 of the FAR as “the expected outcome of an acquisition that, in the government’s estimation, provides the greatest overall benefit in response to the requirement.” While the FAR guidelines do not state a specific one that would allow for an award to other than the lowest-price offeror, a 2010 General Accounting Office (GAO) study of best-value contract awards by Defense Department agencies reflected a 5 percent price premium as the average variance that would justify making an award to a higher-price vendor based upon best value. Once the price premium increased above 5 percent, the probability of win decreased significantly. When making a contract award to other than the lowest priced offeror, the government is required to carefully document how the perceived benefits of the higher-price proposal merit the additional cost. Given the multiple service provider options available and a continued focus on reducing IT costs wherever possible, a 5 percent to 7 percent gap, at most, would be the benchmark in a typical commercial outsourcing opportunity. Even that variance can be difficult to justify, given the commodity-like nature of the underlying services delivered and the level of influence that procurement and third party advisors may play in the award process.

So What’s the Final Word on Relationships?

There will always be exceptions to this general rule, but the bottom line is that procurements for the delivery of services outside of the management consulting and corporate strategy realm are extremely competitive, and relationships do not guarantee success. Given this dynamic, it is critical to carefully pick delivery sweet spots and to deliver in a manner both commensurate with the nature of the services provided and competitive with the other vendors in the market. Strong relationships are always important and are a key foundational component for a successful services provider; however, the inherent value of those relationships is mitigated as commoditization and price sensitivity become more important in the decision-making process.

Preparing for the consequences of failure is not the best way for a strategic supplier and trusted advisor to kick off a multiyear outsourcing relationship with a client. And yet, it is a familiar storyline. When negotiating the terms and conditions for an outsourcing agreement, it is typical for days, weeks, and months to pass of deal shaping, downward pricing pressure, multiple down-selections, decision gates, and checkpoints, and contentious and parallel negotiations with multiple vendors. During this period, significant financial resources are wasted, and service commencement and business case benefit realization dates are deferred. The net effect is that the current sales cycle and procurement approach for large outsourcing engagements is inefficient across time, quality, and cost parameters, and an industry shift is inevitable.

Irrespective of the role you play and the party you represent at the negotiation table, I challenge you to think about your most recent outsourcing services negotiation. Was the focus on failure¬¬—hashing out the terms and conditions that define the rights and obligations of the respective parties upon termination of the agreement, establishing indemnity obligations and liability limits related to damages claims, negotiating the percentage of fees at risk and defining how many critical service level defaults yield a termination right, or establishing the procedures for and implications of an unfavorable benchmarking report? Or, was your negotiation geared toward success—focused on those terms and conditions and components of the agreement that facilitate timely, quality, and cost-effective delivery, collaboration, joint ownership, and partnership between the parties? Although the answer may be both failure and success, it is easy to conclude that too much time was devoted to focusing on the consequences of failure and the allocation of blame, and not nearly enough time was spent focusing on collaboration, partnership, and success.

The irony of this ongoing dynamic is that for each contentious and heavily negotiated term and condition, a market-relevant standard exists that could easily be the departure point for negotiation. If the parties could simply acknowledge that standard, the negotiation could focus on tempering and fine-tuning those terms and conditions, service level constructs, and fee structures in a way that would yield an acceptable level of risk and reward for the parties and that would be commensurate with the underlying buyer values. Have you ever been a party to a negotiation that starts with extreme positions, is followed by minor concessions occurring over weeks or months, and concludes with a compromise position? If you have been in this situation, it is obvious that the compromise position is, for the most part, the recognized industry standard for the issue under negotiation and, frankly, the likely landing point anticipated by the parties when they began the process. It certainly raises the question: Why waste time with a series of minor concessions when you could have put your best foot forward? Wouldn’t it be much more productive to immediately move to the compromise position, or at least within its relative range, and then identify a mutually agreeable option that is commensurate with the underlying nature of the solution and that meets the interests of the parties? For the golfers out there, compare this approach to surrounding the hole and then determining the line and pace necessary to sink the putt.

If the market standard is so widely recognized by clients, their counsel, third-party advisors, and service providers, then why is this glaring inefficiency and corresponding waste allowed to continue in perpetuity? The answer may be that there is no incentive for a course correction. As I like to say, it is that simple and that complex. Clients may be immature or inexperienced in outsourcing or may have read countless stories about the importance of selecting the right outsourcing vendor. These clients blindly follow their legal counsel and third-party advisor out of fear that they would select a vendor and agree on non-market-relevant terms that would yield suboptimal delivery results. Counsel and third-party advisors are constantly seeking to move the market with more favorable terms and conditions for their clients and have more risk shifted squarely onto the shoulders of the clients’ service providers. As for the service providers, I am unclear about their motivation for perpetuating the status quo, because they feel most of the pain in the form of increased business development costs and detrimentally impacted relationships. Maybe they are unwilling to put their best foot forward or equate doing so with some competitive disadvantage they would encounter in the negotiation process. Thus, you see the challenge—how do you incentivize people to correct their course when they believe their pace and speed are optimal?

External counsel and third-party advisors are the catalysts for this cycle by introducing contract templates that are not balanced, that are heavily skewed in favor of the client, that are not commensurate with the market, and that do not yield an acceptable level of risk and reward for both parties to the transaction. And let’s not forget about the typically open-ended time and materials billing construct under which external counsel and third-party advisors may be engaged. Although it seems as if the service providers would be the primary proponents of accepting a course change, namely, focusing on delivery capabilities and price as their competitive differentiators, that is not the case. Rather, they embrace the madness out of fear of disqualification and perpetuate these inefficiencies by accepting more risk in an effort to unseat incumbent service providers, defeat their competition, and capture market share.

Unfortunately, this dynamic can put clients in a difficult position, because they are faced with a tightrope-like balancing act on multiple fronts—undermining their relationship with their counsel and third-party advisor, or detrimentally impacting the relationship with the service provider with whom they are about to embark on a multiple-year relationship. This dynamic can also manifest itself when a client’s counsel and third-party advisor are procuring an outsourcing solution that is not consistent with the client’s current delivery environment and user expectations. Assuming an agreement is ultimately executed between the parties, the result is suboptimal. Relationships have been damaged, the best- suited vendor has not necessarily been selected, collaboration and innovation have become an afterthought, and timely, quality, and cost-effective delivery has been compromised.

Given this detrimental and potentially destructive impact, a course change is necessary. It is time to ask difficult questions, to challenge the status quo, and to provide an alternative mechanism to achieve timely contract execution that can be adopted by clients, counsel, third-party advisors, and service providers. At the center of this alternative construct is acknowledgment by all parties that an accepted industry standard exists for each term in a typical outsourcing agreement. All parties to the transaction must focus on putting their best foot forward and agree that the industry standard is the starting point and departure point from a negotiation perspective. This acknowledgment drastically decreases the contract execution cycle time, because many of the multiple redline and iterative processes typically associated with an outsourcing negotiation are eliminated. This acknowledgment could take many forms, either as an industry-standard agreement or a template created by counsel, third-party advisors, and service providers that embodies the same terms. While I understand that this approach is difficult given the competing interests I previously mentioned, a change is inevitable. So, why not now?

To be clear, this acknowledgment does not mean that the negotiation is completed and we can move on to the signing ceremony. Every outsourcing transaction is different, and the underlying client buyer values, the scope of the solution procured, and the service provider delivery capabilities dictate the ultimate shape of the outsourcing agreement. Instead, attention shifts to tempering the terms and conditions according to the underlying solution and focusing on those components of the agreement that are most critical but typically turn into afterthoughts. These components include developing a narrowly tailored statement of work that clarifies the roles and responsibilities of the parties, defining objective, measurable, and verifiable acceptance criteria and service levels, establishing a robust governance process, and documenting all key assumptions and dependencies, especially in a multivendor delivery environment. The focus on buyer values is critical. It is not uncommon for the clients’ stated buyer values to be inconsistent with the negotiation approach and the terms and conditions promulgated by their counsel and third-party advisor. From my perspective, the most consistent buyer values include a vendor that can be trusted, that delivers a low-risk and quality solution, that has global delivery capability, that has a strong reference base, that can deliver on its value proposition, that focuses on innovation and continuous improvement during the delivery term, and that yields predictable results.

To reiterate, I am not suggesting that every outsourcing engagement is the same; that could not be further from the truth, given the broad scope of services outsourced in the marketplace. However, there is a core set of service-type-agnostic terms and conditions that are consistent and do not require extensive negotiation in each agreement. With this approach, the starting point focuses on tempering and fine-tuning the terms and conditions in the agreement to be commensurate with the underlying nature of the solution provided. With this shift in focus, the parties can focus on what really counts—those terms and conditions and key components of the agreement that yield timely, quality, and cost-effective delivery.

Building a Trusted Advisor Foundation

It would seem that negotiating terms and conditions governing delivery in a complex and strategic long-term outsourcing program would establish the foundation for a trusted advisor relationship between the two parties, thereby enhancing the probability of success and creating opportunities for collaboration and partnership. In practice, that is rarely the case. The most heavily negotiated terms and conditions typically set the stage for how the parties address and allocate the consequences of failure. Those items that support collaboration and partnership often seem to be afterthoughts. This failure-first sequence will have a detrimental impact upon timely, quality, and cost-effective delivery.

Ironically, during the sales cycle, discussions between the buyer and decision-maker about the solution and underlying contractual agreement often go smoothly. The focus of these conversations is typically on how the depth and breadth of the service provider’s delivery capabilities help the client achieve its mission and vision, advance the client’s strategic agenda, and realize a significant return on the client’s investment. In return, the service provider expects to build a robust pipeline of opportunities, enhance its reference base, expand its delivery footprint, deliver on its value proposition, and develop a long-term trusted advisor relationship.

When the service provider comes out of the initial sales meetings, the service provider’s confidence is usually high, which helps foster the belief that any ensuing price and terms and conditions negotiation will go smoothly. The focus of any dialogue up to that point centers on collaboration and value creation, and not on low price and risk deflection. Unfortunately, that optimism may fade quickly. The participants at the negotiation table are typically limited to procurement staff, legal counsel, and third-party advisors. It becomes clear that the courting process has ended, and it is time to hash out the terms and conditions of the prenuptial agreement. As many of you know, when this process begins, it may become very emotionally charged and—depending on the reasonableness of the parties and their desire to strictly adhere to their positions—continue this way for some time before reaching closure.

The unfortunate mindset that perpetuates this behavior is that many clients view their service provider’s role in an outsourcing engagement as all encompassing. If you compare this role to building a ship, clients take the approach: “You go and build it. You are the experts, and we will see you at sea trials.” What clients may not realize is that irrespective of the underlying service, you cannot outsource responsibility. Clients and their respective IT and other supporting organizations still own the delivery and the service, and they must work in partnership with their service provider to achieve success.

Let’s Look at the Statistics

If you question the contention that most negotiations and subsequent contracts focus on allocating failure rather than promoting collaboration, consider an annual study conducted by the International Association for Contract and Commercial Management in which feedback was solicited from more than 500 international companies about which terms and conditions they negotiate most frequently. Since 2002, when this study was launched, the results have remained unchanged for the top 10 most frequently negotiated terms. Although there has been slight movement over the years, the overwhelming majority of the most heavily negotiated terms and conditions are squarely centered on the allocation of blame and the consequences of failure. They are as follows:

Term

1. Limitation on liability
2. Indemnity
3. Intellectual property ownership
4. Price
5. Termination
6. Warranty
7. Confidential information/data protection
8. Delivery/acceptance
9. Payment
10. Liquidated damages

There may be differences, depending on the client and service provider, the nature of the underlying services provided, the geographic region, and the applicable law. It is abundantly clear, however, that most clients—or, at least their procurement, legal counsel, and third-party advisors—view the terms and conditions in the contract as the mechanism by which blame is allocated when a delivery failure arises. While this approach may seem like the most viable option, given the scope and complexity of the underlying engagement and the significant risk associated with failure, it certainly does not lay a strong foundation for success. Irrespective of that complexity and risk inherent in delivery, there is clearly a dichotomy. C-suite executives and true economic buyers communicate a message about collaboration, partnering for success, and the ease of doing business with their organization. At odds with this message are the methods and tactics promulgated by their procurement and legal organizations in the execution of the underlying contractual agreement.

Setting a course of collaboration and partnership starts with adhering to a disciplined approach by which the key terms and conditions that will govern delivery are established. Rather than focusing on the extreme positions that may be initially taken by the parties and the multiple redline iterations that inevitably ensue during the evaluation and negotiation process, the focus should be on putting that best foot forward. To that end, the starting point should be the market-relevant and industry standard approach on each term that can serve as the baseline for the agreement or that, where appropriate, can be tempered based on the nature of the underlying solution. A similar focus should be directed towards the key components of an outsourcing agreement that drive success, namely, the statement of work; any assumptions or dependencies upon which delivery is conditioned; clarity about the roles and responsibilities of the parties, especially in a multivendor environment; objective, measurable, and verifiable acceptance criteria for deliverables and milestone achievement; a well-documented governance process; and a change order process that is understood and strictly followed.

This approach is a radical departure from the current model of starting from a newly introduced template and negotiating a 500-plus page outsourcing agreement. Although this approach may represent a change from the status quo, it is built on a foundation of efficiency and legitimacy, and it is commensurate with the evolving market for outsourcing services that is screaming for speed to value. To that end, this approach is grounded in the following key tenets:

1. The current process by which outsourcing agreements are negotiated is not efficient from a time, quality, or cost perspective.
2. The overwhelming focus of the negotiation process is on the consequences of failure and the allocation of blame when there is a performance deficiency.
3. There is an established industry standard for each of the most contentious and heavily negotiated terms and conditions.
4. Both parties to the transaction must put their best foot forward and use this standard as the departure point for the negotiation process.
5. There will still be plenty of opportunity to fine-tune and temper each term and condition to be commensurate with the underlying nature of the solution provided.
6. The scale must be tipped such that there is a much greater focus on collaboration on those components of the agreement that drive timely, quality, and cost-effective delivery, including the following: a narrowly tailored statement of work that is free of ambiguity and that clearly sets the expectations of both parties; clear service levels that are objective, measurable, and verifiable; a strong governance process; absolute clarity about roles and responsibilities; and a robust set of assumptions and dependencies, especially in a multivendor delivery environment.
7. There is no value in having each party take an extreme position from which they each agree to minor concessions over an extended period of time and, ultimately, compromise when they both knew their likely landing spot from Day 1—the market-relevant standard on that particular issue.
8. Caving in to a position asserted by the other party after months of saying “no” is extremely frustrating, and erodes trust and credibility.
9. Constantly asserting what other vendors may agree or have agreed to lacks context and is irrelevant. Stop playing games and focus on market relevancy.
10. There is no purpose in unnecessarily extending the sales cycle and creating tension between the two parties. It will serve only to detrimentally impact a relationship that has yet to officially begin.
11. An outsourcing relationship requires collaboration and partnership between the parties to achieve success.

Finding the Right Balance

Let’s be clear: The scope of outsourcing services that the largest IT service providers deliver is large and complex. These services require diverse teams with deep functional and institutional expertise for delivery, may span multiple years, traverse multiple geographies, and are mission critical to the client organization. Given those parameters, it is prudent to develop terms and conditions that define the following: the rights and obligations of the parties in a situation of nonperformance or some other occurrence that dictate how a dispute is resolved; the allocation of any related liability; or the termination of the underlying agreement. However, although preparing for the consequences of failure is always a critical component of the negotiation process, it should be balanced with those terms and conditions that focus on collaboration and are a foundation for a strong partnership between the parties that is necessary to achieve timely, quality, and cost-effective delivery.

Clients select an outsourcing vendor based upon its service quality, its brand awareness, and its broad reference base for delivering similar solutions in a timely, quality, and cost-effective manner. Those solutions are competitively priced in relation to the prices of the other vendors in the marketplace and commensurate with the underlying nature of the service provided. Conversely, through successful service delivery, the most successful IT service providers continue to expand their delivery acumen and develop quality, predictable, and repeatable solutions, focus on continuous improvement, fine-tune staff capabilities and functional expertise, and, most importantly, strive to achieve a trusted advisor relationship with their clients. Given this dynamic, the largest IT service providers should put their best foot forward and take the initiative with their clients by promulgating an agenda that focuses on achieving a better balance during the negotiation process. Narrowly tailored statements of work, objective and measurable acceptance criteria, detailed governance models, clarity on roles and responsibilities, a comprehensive set of assumptions and dependencies, and a clear change order process should not be afterthoughts, given the size and complexity of the engagements being delivered. In my experience, afterthoughts are what they have become.

Prudence dictates that the parties prepare for the consequences of failure; failing to do so would be negligent, to say the least. But a focus on partnership and collaboration is much more commensurate with the mission, the vision, and the trusted advisor relationships that every IT service provider strives to achieve with its clients. Finding the right balance serves both parties well and facilitates the key underlying interest of both parties—successful delivery.

If you can embrace these key tenets and are ready to challenge the status quo, then I encourage you to do so without hesitation. Go ahead if you dare—take a chance and put your best foot forward. You might be surprised at the results.