Whether you're buying a hat, a new car, or millions of dollars of cloud services, IT leaders need to be competent negotiators.
To complete a successful negotiation, you need:
Are you working against a real or an artificial deadline? A real deadline could be a hard date on the calendar, like a government mandate, or it could be a business date, like the end of the quarter. The deadline could be artificially imposed by the salesperson, or it could be internally imposed based on hitting a project date. Don't box yourself into a corner with artificial deadlines. Time is a tremendous asset in a negotiation, and if you give up this advantage, there better be a worthwhile reason.
I was recently in a negotiation for a tool that was a low priority for my company. Since it wasn't a priority, we didn't pay much attention to the negotiation. When we didn't respond, the providers continued to lower the cost. Like the person who can't stand awkward silence, they kept responding to our inaction with lower and lower prices. Had we been in a hurry, we would have paid more. We weren't using advanced negotiation tactics; we were doing nothing—a successful and low-effort approach.
Don't fall for artificial deadlines imposed by salespeople. In 20-plus years of doing this, I've never seen a price go up after an arbitrary deadline had passed. Is it quarter end? There's a new quarter in 90 days. Is there special year-end pricing? It had better be ridiculously special, or I'll talk to you in January. When you have a legitimate deadline, start early. Time is an asset, and the clock is always ticking.
Information is king in any negotiation. If you know the seller's bottom number, then you're at an advantage. In negotiation theory, the overlap of the buyer's and seller's acceptable ranges is known as the zone of possible agreement (ZOPA). You're not a good negotiator if you stick to a position outside of the ZOPA and never get a deal done. A winning negotiator strikes a deal at the lowest end of the seller's range. To gather information, ask open-ended questions. Salespeople are extroverts—they love to talk. If you're stuck, scheduling an executive-level meeting with the seller is an excellent tactic. They have more information and more authority to lower the price.
If you're emotionally attached to the solution, the company, or the salesperson, you need to assign the negotiation to another person. Once your reptilian brain takes over, you're in a bad place to negotiate. When you “gotta have it,” you're going to overpay for it. There are independent, professional negotiators who work on commission. If you're too close to a deal, hire an outsider to negotiate on your behalf.
The most important asset in a negotiation is choice. Understand your options. If you're negotiating with an incumbent provider, options may be more limited, but work hard to give yourself leverage in every negotiation. Use non-financial incentives to gain an edge. A press release, speaking at a conference, and case studies are all valuable to technology sellers. Don't give away these things for free.
Once the deal is signed, you're going to have to cough up some money. Be sure you have the accounting skills to manage all of your expenses, big and small. In the next chapter, we’ll review the basic accounting knowledge every CIO should have.