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How to negotiate a collaborative outsourcing deal

Stephanie Overby | April 28, 2014
You say you want more from your IT outsourcing service provider, yet you fall back on the same old negotiating tactics. To find out how to develop a more collaborative relationship with service providers, CIO.com talked Kate Vitasek, who wrote the book on the subject.

One of the things the Vested team at UT has done to help companies address trust issues is to create a compatibility and trust assessment. It's an anonymous survey taken by the buyer and supplier and the results are shared in facilitated workshop. It helps pinpoint the magnitude of the trust issues companies have and what types of behavior are driving the mistrust.

Companies that have addressed their trust issues straight-on have had a great deal of success is working through them. It's often an issue of perception versus reality.

CIO.com: Your latest book, Getting to We, is about negotiating collaborative outsourcing agreements. How important is it to be collaborative with service providers from the very start?

Vitasek: One of the biggest roadblocks we see companies encounter when trying to create a vested agreement is understanding that they need to use a different mindset for negotiating. When you stop and think about it, it makes sense that highly collaborative relationships need different negotiation rules.

The whole concept of the book was born when I was sitting in a conference listening to a Fortune company share their "negotiations" best practices, which involved strategic gamesmanship to basically screw over their suppliers at the 11th hour. How can you have a trusting relationship when you are using negotiations tactics such as 'good cap, bad cap' and 'bluffing'?

CIO.com: What's the typical or traditional IT outsourcing deal negotiation like and what's wrong with it?

Vitasek: I'm not sure there is a typical or traditional outsourcing IT deal negotiation. Each deal is different based on the parties' prior experience, current market conditions, corporate cultures and what they want to accomplish.

Having said that, I have found three major problems with most outsourcing deals.

First, they remain stuck on old-school, highly legalistic, I-win-you-lose contract terms that seek the lowest price while shifting risk and avoiding liability.

Second, companies rely on a conventional transaction-based business model rather than using more collaborative and flexible outcome or investment-based sourcing business models that will best meet their business needs.

I call this the 'activity trap:' we get caught up in negotiating over the cost of activities and forget that real business value comes from solving true business problems like reducing transactions altogether through automation, reducing the overall total cost of ownership, or improving market share. We miss the big picture when we are focused on buying activities instead of business outcomes.

Third, they fail to lay the foundation for the relationship before they begin negotiating the deal points. It is imperative that you negotiate the essence of the relationship before you begin to negotiate the specific deal points.

CIO.com: Why should customers and suppliers approach the negotiating phase differently?

 

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