One of my favorite roles in my career was heading up a sales team. I know it seems an odd thing for someone with a technical background to be doing, but it makes perfect sense, I really enjoyed it and I know I left it in a better place by focusing on the people ensured they delivered great profit.
During that role I was once told “anyone can sell something below cost”. This is so true, you don’t need to be skilled sales person, you just need to be an idiot as you’re going to make a loss and the people buying will “bite your hand off”. It is a sometimes a very thin line between bringing in revenue and making profit – but a line you don’t cross.
Equally when you buy something you need to strike the balance between ensuring your supplier is making enough money to fulfill their part of the transactions, but also ensure your not paying over the odds. It is the latter I want to talk about here (especially when it’s not your money being spent which is how it can feel in large organisations).
When negotiating it is essential to aim for a win:win on business terms – not personal ones. Far to often the “negations fatigue” can turn a win:win to a win:lose, often with the customer tying themselves up in red-tape, and just glad they got to contract approval.
Sometimes the supplier to too deeply invested in the sales cycle they simply want to win the business – the consequence is either a service that can not be delivered financially to the standard and quality required – all this leads to increased cost to resolve the situation (the customer always pays one way or another), delays due to renegotiation, and a failed relationship. This is all to common in the public sector and large corporations – it can get to a point where any “deal” is a good.
It amazes me when I get to see contract negotiations end where the customer’s negotiation and commercial teams are congratulating themselves that they have finalised a contract. The highlight being the ‘deal was signed’ rather than a deal was good and fair for all parties and will deliver something positive to the organisation. The supplier in these situations celebrating too on the fact their margin and terms secured, and knowing at some point during the contract they will be recovering any losses on the back of customers desperation to get things done, rather done well.
Organisation, especially large ones, must get better and understand the true cost of negotiating and planning contracts. All to often with multi-year contracts the people involved with the negotiations are gone before the contract expires, and sometimes before they even start. Leaving a trail of poor negotiation and challenging relationships with suppliers.
We can’t forget the suppliers, although happy with good margins, they would rather a better deal was created for everyone more quickly. A poor contract always needs to be revisited and will be challenged constantly during it’s life-cycle which just leads to broken customer/supplier relationships.
So how do we get away from this cycle? It will not be any surprise that much of this is preventable with just a little thought.
1) Understand the buying process – who needs to approve what and what commercial due diligence is required. Many times I have seen people negotiate contracts without involving other areas of the business – this just creates internal friction and slows down the process as people re-check and challenge work already done.
2) Plan when contracts expire – give plenty of time, and then contingency on top. It sounds obvious – but if a contract expires in a year, and you don’t start talking to the supplier until the expiry date the only winner is the supplier. This forms the basis of any ITSM (if you work in digital and technology) but is relevant to all areas of the business. If you miss the expiry, don’t rush negotiations – extend on similar terms and then renegotiate.
3) Communicate constantly – agree when you are going share updates on the negotiations. If you have gone to the trouble of finding out everyone who should know about the contract, then follow through and keep them informed. No surprises, or expect to the challenged and also not trusted going forward.
4) Don’t under estimate egos – people like power, so make sure you know who has influence even if the are not doing the negations or directly involved. Ignoring senior people because they ask too many questions doesn’t mean they won’t ask those questions – they will just ask before things are signed when the pressure is on. Give them a forum and the time to express concerns (sometimes they have very valid points).