Tuesday’s Tip: How To Properly Align Team Incentives In Software Contract Negotiations

Published on August 4, 2009 by R "Ray" Wang

In the first step of the original seven simple steps to successfully negotiate software contracts, the key is to have the right team in place.  To refresh everyone’s memory from the March 8th, 2004 post the details for Step 1 are:

Step 1: Ensure that the right team is in place

  • Inputs:  Organizational chart and agreement on key roles.
  • Action items: Determine the key roles needed to conduct the negotiation. Business teams include the COO, Division VP’s .  Technology leaders include the CIO, enterprise architecture . Vendor management teams include the procurement experts, legal team, etc.
  • Deliverables: Responsibilities list for each role.

Having the right team in place is important.  However, dozens of readers point out the dire need to not only align incentives but improve transparency.   Some examples include views such as:

  • CIO’s. “While the CIO needs to set the technology direction, we often find two types of CIO’s – the buyer and the implementer.  Buyer CIO’s get wined and dined during the process, hob nob at events, get all the attention and perks, then leave for another company to do the same thing.  Implementer CIO’s get stuck with making the stuff all work, cost overruns, and 100’s of tradeoffs in promised capabilities and all the blame for failure.” – VP of Business Applications, Fortune 100 Company.
  • Procurement/vendor management teams. “The only thing that our Procurement VP and her staff seem to care about is the discount % and total savings.  Despite our need for a product that costs the same, we see her team favor the products that show her the most savings.  Its no wonder why vendors keep jacking up prices to create win-wins for companies like ours where procurement teams have considerable influence.” – CIO, EMEA based Financial Services Firm
  • Line of business execs. “Often the business side of the house fails to consider the indirect and hidden costs of ownership.  Some solutions are sexier but cost 3 to 5 times more to integrate, maintain, and staff up for.  These guys forget that we pick up the tab when it fails to work well with other systems” – Enterprise Architect,  North American Transportation Company

The bottom line – all incentives in the contract negotiations strategy must align with product adoption strategy

Prior to any contract negotiations, the right team should also take the time to align incentives to the overall business drivers.  Form must follow function and how the solution will be used should be paramount.  Four key criteria:

  1. Define success criteria. Start by determining what success criteria will be utilized.  Some metrics include implementation times, return on investment, savings in total account value (TAV), etc.
  2. Create transparency in objectives. Team members should lay out their incentives and how performance in their management by objectives (MBO’s) will be impacted by different scenarios.
  3. Realign incentives for maximum alignment.  Once the objectives have been determined, the team should come back with incentives that reflect performance in short, medium, and long term goals .
  4. Codify and communicate metrics.  Final metrics and incentives should be made public to all team members and performance objectively tracked by an independent committee.

Your POV.

Got additional suggestions and best practices?  Ready for the big maintenance renewal seasons in Q4? If you need assistance with your SAP, Oracle, Infor, Lawson, Microsoft Dynamics, or other enterprise software contract, send me a private mail.  We can assist with a contract negotiations strategy that aligns with your apps adoption strategy.   Please post your comments here or send me a private email to rwang0 at gmail dot com or r at softwareinsider dot org.

Copyright © 2009 R Wang. All rights reserved.

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