A common question asked by readers of this blog is when should vendor contract negotiations be led by a domain expert and when should this be led by a procurement professional?  As the complexity of the technology topology increases, expect a multitude of domain experts in roles such as application specialists, business process experts, enterprise architects, and information management professionals to take a greater lead in contract negotiation strategy and become more engaged in the vendor management process.  Let me share with you some best practices from the field.

Here are a few rules that work in favor of the domain experts who have contract strategy expertise:

  • Where product strategy drives contract negotiation strategy.
    Sample questions. How should I negotiate my SAP contract with the introduction of Business Suite 7? How should I consider Oracle Fusion Applications as I upgrade from PeopleSoft? How should I structure my contract with my Microsoft Dynamics partner as I move from GP to AX? How do I negotiate my SAP BW contract along with my BOBJ purchases?
  • Where vendor knowledge drives contract negotiations strategy.
    Sample questions. How should I deal with Oracle in overall pricing and licensing strategy? How do I avoid a software audit with SAP? Is it typical for SAS institute to price by subscription licensing? How do I avoid an increase in maintenance fees with SAP?
  • Where previous experiences in contract strategy becomes valuable for existing customer contract strategy.
    Sample questions. In your experience with Oracle contract negotiations, what’s a typical database discount? What companies have been successful in moving to third party maintenance with PeopleSoft? How many SAP customers have won concessions on maintenance with SAP? Is there a way around the Infor third party maintenance lock-in?

Here are a few rules that favor of the vendor management and procurement generalists:

  • Where the domain experts lack contract negotiations strategy.
    Sample questions. How do I set up flex up/ flex down provisions with my vendor? How can I reduce my overall maintenance fee structure?
  • Where vendor management and procurement strategy touches issues about managing multiple vendors.
    Sample questions. What are good approaches to manage multiple vendors? Does it make sense to consolidate vendors? When do I deem a vendor a strategic vendor? Should I apply tiering to vendors?
  • Where contract negotiations and procurement strategy touches about internal processes.
    Sample questions. Who should engage with vendors? What’s the contract negotiations strategy? How do you handle different procurement processes within the company?

The bottom line – good negotiations strategy requires domain expertise

Contract negotiations devoid of apps strategy or understanding of the vendor’s product strategy often lead to shortsighted negotiations that fail to meet the true requirements of the business.   Success requires strong alignment of product strategy adoption with business strategy and vendor management strategy.

Your POV

Does this resonate with you and your procurement process?  Do you have a best practice in delineating roles in contract negotiations?  Post your comments here or send me a private email to rwang0 at gmail dot com.

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