Tuesday’s Tip: Software Licensing and Pricing – When Software Contract Negotiations Strategies Should Be Led By Domain Experts

Published on March 10, 2009 by R "Ray" Wang

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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Copyright © 2009 R Wang. All rights reserved.

  • We’ve had so much trouble getting good contract strategy around SAP. We need help with our maintenance agreement and issues we’ve had w/ BO and BW. How do I reach you? Barney

  • A cross-functional team is usually most effective but the real key is in developing a negotiation strategy before the negotiation begins. In our research we’ve found that as few as 25% of companies have a negotiation process. Given the low number of companies with a process we weren’t too surprised to hear that only 23% have a formalized negotiation strategy.

    Katherine Kawamoto
    VP Research & Advisory Services
    IACCM

  • Depends on the skill sets involved. In all events, I always complain that an attorney is brought in too late (too make any real difference).

    Timoth Nuckles
    reposted from Linked In Groups – IT Vendor Management

  • LinkedIn Groups
    Group: Software Procurement
    Subject: New comment (#2) on “Who do you think should be engaged in software contract negotiations?”
    “Who should be engaged? Everyone. Everyone from the CIO down should be engaged and understand what it is that the company is doing. Sure, not always the minituae of every deal, but at a level where the deal won’t get killed 6 months in because the CIO just NOW found out about it. This means getting proper approvals, writing a business case, discussing options, etc. This also means having proper software license templates to use (so contact legal if needed), what the procurement process is (thus procurement should at least be in the loop – sometimes they’re a separate group than the contracts people), etc. Oh, and don’t forget about finance, too. Who should be at the table? A select few. You need the Business Owner – the person who can really make the decisions for your side. You need the Subject Matter Expert – the person who knows how the software works and how it’s going to be installed. You need a Negotiator – someone who understands how contracts work and how to draft them (specifically software licenses), how to ferret out business and legal risk, and how to communicate with both sides and engage all necessary parties. Who should be speaking? Only one individual. Usually it’s the negotiator. Sometimes it’s the Business Owner. Rarely, it’s the SME.”

    Posted by Jeff Gordon

  • Igor,

    Thanks for your comment. Keep in mind you need a good balance of input as well as speed.

    Ray

  • This is very useful. We often fail to get business users to help with negotiations. This leads us to have short term contracts because we focus on wrong metrics and hardly look at policies. Keep up good work on bill of rights!

    -Igor
    Director of procurement

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