Empower Your Business with Open Source Contact Management Software in Vendor Negotiations

How to create outlook signature

good afternoon everybody um we are here to present to you negotiating the best software deal a software a webinar sponsored and presented by ultra consultants my name is michael chesson i'm the alliances director at ultra i'll be hosting this webinar all right attendee phones are muted if there are questions through the q a feature please ask through the chat i use the chat for any other communications and to access zoom features hover your cursor over the bottom of the screen today's session will run for 45 minutes and end at 1 45 pm central our agenda is simple we'll begin the webinar by introducing ourselves and the presenter and ultra services and then we'll move on to the presentation on smart software purchase negotiation strategies and tactics how to prepare and effectively negotiate and intelligently how to get the best lowest and total cost of ownership and how much you can potentially save now and in the long term following discussion will preview the additional resources that you'll receive in a follow-up email including a link to the webinar recording then we'll move to the q a for the remaining time ultraconsultants is an independent enterprise software consulting firm serving the manufacturing and distribution industries in north america and around the world we help organizations realize the bottom line benefits of modern enterprise technologies by leveraging our erp and business process improvement expertise industry experience rigorous methodology and today's best practices being independent means we use a neutral fact-based structure to support the technology selection process and our customers find the right solution for their industry organization and processes and because we focus exclusively on manufacturing and distribution we offer exceptional industry knowledge nuance insight and an experience based understanding of what's important and what isn't what works and what doesn't to learn more about our business process improvement technology and solution and implementation management services go to ultraconsultants.com today's presenter ernie eichenbaum is an expert in selling and buying expertise applications ernie brings more than 20 years of software selling and implementation expertise with infor microsoft ibm and other companies as well as a decade of software purchasing expertise as a manager for and a consultant to a number of well-known manufacturers at ultra he's a senior consultant with exceptional project management enterprise software application and business soft business operations expertise to give you a little more insight into ernie and his approach here's what one of our clients recently said about earning ernie led the software negotiation for us while we didn't love him every day he's a task master we did love him for how he helped us reduce our software implementation costs and we have no doubt that our project would not have been as successful without his leadership ernie that's high praise for any project manager and thank you for being with us today let's get to the presentation purchasing complicated erp software solutions is complicated and negotiating the best possible deal is difficult most companies frankly end up paying more than they should for years but it doesn't have to be that way ernie how can manufacturers and distributors maximize the value of their erp software dollar and how do they go about getting the best software deal well michael i'm glad that you asked and thanks thanks for having me here and thanks for asking that question um when we think about how to do how to answer the question that you asked we really have to focus our attention on the issue of the negotiation the negotiation activity is one of the most crucial elements of the selection process over the years we've seen many companies fail to effectively negotiate and they end up paying for years under scoping underscoping the project leading them to change orders or insufficient results or conversely forcing the use of junior level or offshore resources from the implementation partner so that they can maintain margins and they can stay in the game whether or not the software implementation achieves a go live some of these projects are often considered failures because they don't meet the customer business expectation or the potential aspirations that they set up at the beginning of the project and they do not reach the roi that they expected typically the negotiation happens after you have scripted your scenarios have done your vendor evaluations your software functionality demonstrations reference checks due diligence and some other things typically at this point of the negotiation you find yourself with the short list of vendor solutions let's call them for the sake of this discussion today vendor a and vendor b the total cost of ownership dimension of the selection process is critical to ensure that the negotiation process is professionally conducted with skill expertise persistence and due diligence not something to be taken lightly today the overall discussion that will have could serve you as a series of vendor negotiation strategy guidelines for your selection let's move to the next topic the approach okay so uh the approach of the work is really to um look at the negotiation in three steps okay step number one as i mentioned is to create the short list step number two is to create a competitive negotiating pressure uh via vehicles that i'll describe later and really focus the negotiation both from a staffing standpoint from a philosophy standpoint and from a stage standpoint on two things what are the technologies in other words the software the integrations uh the other components of the solution that comprise the solution stack and what are the services that are needed to fully maximize and leverage that solution if you look at the two components we're looking at long term for example and most importantly these days when we look at the software and the other components most of them are sold under a sas agreement meaning that their recurring spend and the short term is the implementation that is services that are needed to get there so how do we do this next next step okay it is typical that as we work with uh with the negotiating team okay we create a negotiating document okay that has these components to it and this is an actual um table of contents from such a document the point that i'll raise here is that going into the negotiation is not something that you do every day okay and it's not something that needs to be taken like like any other campaign it needs to be thought out and and scoped properly which is create the negotiation scope what is it we want to talk about what is our strategy and so on and so forth we need to obtain initial proposal packages from the two contenders that contain these documents i'll elaborate on that in a little bit and then we have to challenge the assumptions of the parties that we're negotiating with and of our own company um in order to understand exactly where the elasticity is the third round of interaction um is there to create competitive pressure on the companies that we're negotiating with such as we understand them what are their strengths what are their weaknesses what are their time um time fences and create a pressure strategy part of which talks about uh working vendor one or a against vendor b and part of it talks about making that work in the timeline and then finalize the timeline and milestones and figure out additional considerations once we have this then we coach and brief all the members of the negotiating team and i will say something right now we don't forget to tell them one important thing whom we're negotiating with is not an enemy these are our partners okay and at the end of the negotiation we have to come out in a situation where everyone can live with the results uh i want to jump one step ahead michael if you would and show results of multiple rounds of negotiation that we took we led last year michael there you go okey dokey without going in into any details uh everyone on this call should you know have the background to understand what they're seeing here and what they're saying here is that it is not unusual in the work that is done to see a number of rounds of negotiation in this case i'm showing you actually a um sanitized negotiation uh result with seven rounds of negotiation and you can see how when assumptions are challenged and if you look at vendor b you can see that the first round of negotiation was challenging their assumptions and making sure that they are coming closer to what we as the negotiating team wanted both in services on the right and on the application stack on the left and you can see as we go that uh different aspects of the negotiation strategy came into play and created a strong uh competitive scenario where the negotiation ended successfully uh with and i won't you know elaborate on the number exactly but those that are quick doing the math can see that there's a two to three million dollar advantage or change from the initial uh offers through those that were eventually uh at the end line okay so what is it that happens and what do you need to look at how do you get there michael let's look at the next points okay the first thing is to be clear on the timetable or timeline uh if you look at this you understand that this is not some um i would say weekend warrior exercise to wake up this morning and at the end of the day i have negotiated a multi-million dollar deal not the case okay we would expect to have four uh three prep rounds as seen here and we expect to see based on our experience a four week cycle um or life cycle if you would in which we do these things that i talked about before that you saw in our strategy obtain the packages that's week zero understanding that working with the vendors to understand what is in the packages happens in weeks minus one and minus two and the other things you can see here so we show rigor and a process that is timetable driven uh to achieve the end game okay by doing so uh and by sharing what the timetable is we uh afford all parties in the negotiation a fair and flat or equal playing field everyone understands when the decisions will be taken and they understand that also in the future after the project is done we will also work to timetables and that reflects and projects very positively on you the company that is negotiating we do it in negotiation we'll expect timetables and we'll expect similar rigor during the implementation take away from this it's a multi-week process it has to have a strategy it has to be staffed and it has to be done correctly if we move forward uh michael to when i say correctly what are some pointers to that okay the recommended strategy for negotiation activity is to leverage competitive environment between all components licensing support maintenance and implementation services of two software vendors and the related service providers throughout the process and this is really an imperative uh behavioral imperative for the negotiators actually i would say on both sides and i recognize that we have some representation of vendors here not only potential customer negotiators it's imperative that the vendor proposals remain confidential such that only the named individuals and parties directly involved in the process are privy to them it is not unusual and we see this frequently that uh when a negotiation takes place there are attempts for end runs uh to talk with other people for example if the negotiator head of the negotiating team is a cfo it is not unusual to expect that the vendors participating will try to reach the ceo or the coo or the cio and try to have them indirectly influence the um negotiating process and uh and so it is okay the negotiating team needs to be clear who does what but so do all the other people that are part of the to be implementation process uh in order to maintain the integrity of the strategy that was done ahead of time this is an organizational imperative to be effective in getting the best total cost of ownership and i will in the next slide describe the seven points that make up the cost of ownership it is equally important to balance to not over negotiate to a point that compromises the success of the implementation it is possible for a implementation a customer a client that wants to implement the software to bargain so hard that they will force the vendors into situations that are not optimal it is incumbent on the vendors to say when that happens it is incumbent on the advisor to negotiating team uh to also say when that when you're nearing that point what happens when you near that point is substantial compromises start being made for example the b team suddenly comes forward for example a large fraction of the work will be done offshore that that if you don't know to ask the question and we'll come soon to what questions to ask you don't know that that's happening unless you dig beneath under the covers and you may not be totally satisfied that that is an exceptional acceptable i'm sorry contractual agreement uh that satisfies what you need and not only what the provider or the publisher or the vendor needs okay the issue of a single point of contact is one that i mentioned before and you want to have a customer executive running that with with appropriate uh consultative services around them either from inside the company if they do have such experience or from advisors that will come from the outside to be clear we mentioned four weeks i also want to mention that the negotiating team and in particular the point of contact the representative from the client side into the negotiation should expect to spend 40 person hours during that negotiating month this is not as i say the flight by wire or a weekend warrior type of activity it is it is very heavy duty and regardless of how we stacked it it's important that all the people on the negotiating team are familiar with what's going on and every nuance every pact that happens needs to be debriefed if you recall the previous example that was on slide nine where we had seven rounds after every every round we briefed all the people that had any words to say uh in the negotiation and the key implementation team from the client and got advice and concurrence from everyone how to continue everyone that's listening understands that that drives a heavy duty involvement on the side of the customer and having been on the side of the vendor for about 20 years i assure you it is exactly the same on that side so this is a multi-stage call it dance if you would uh in interaction that both sides are negotiating and both sides are trying to get to the best answer and both sides are trying very hard to keep their nose above the water and not to trip the other side to a point where they're for example compromising on key components in the solution stack and suddenly won't be able to do something such as e-commerce that is very important has been an imperative of the project a very delicate balance a very delicate dance and um just need everyone to keep that in mind michael if we can move forward to the next slide it's important to understand what are all of the components i was thinking about how to explain this and speaking with my daughter she said why don't you talk about it like you're negotiating for new job and i said you know what in many ways this is like you're negotiating for a new job why do i say that if all you're going to look at in the new job in your new role is just the salary and you're not looking for example at all the variable pay or the conditions of the work or the retirement package or the culture of the of the company you're joining and the list goes on and on you're making a mistake that you will live to regret most times okay the parallel here is dollars or dollars they're very important okay but it's not only the dollars of the software okay and it's not only the dollars of the software in year one so what is it first thing is what we see in the middle where it says five years tco stands for total cost of ownership so the five-year total cost of ownership is what we typically look at for those that are a little bit more found in the details at the five-year point more specifically 4.5 years but at the 5-year point we typically see an equilibrium between an on-premises implementation and an off-premises implementation uh between if you pay ahead of time for the license and if you pay as you go like an assass environment they equal out at that point so um so that's an interesting point to begin with and we all as executives have a sense that five years is a good number to look at for the total cost of some investment that we're doing and and and so on and so forth so we advocate to do a five-year total cost of ownership we look at from the top and just go clockwise from the top the applications that are the erp or the back office applications how much did they cost over five years how much did the non-erps cost for example the advanced shipping advance planning the label printing the tax management uh the governance management the plm the cad interface and so on and so forth how much do all of those cost over five years what hardware do you need what hosting and infrastructure cost do you need let me pause here for a minute it's important to elaborate just for for a bit you may say to yourself oh i'm going to solution in the cloud and i use that loosely and i have no cost vis-a-vis hardware um and infrastructure and i will press not the easy button in this pl in this moment but i'll press press the be aware button you may need new handheld devices you may need new scanners you may need new label printers you may need new wireless repeaters in your factory and the list goes on and on and on of things you need it is it is quite easy and i have seen this over the years quite easy to overlook these things and i would say from a negotiating standpoint even though the company you're negotiating with the publisher of the software for example does not provide those things you still need to know what the cost is in order to do a proper roi going forward the issue of maintenance and support cost um when you're on a sas negotiation typically the maintenance is folded into the sas but the support isn't and you need to be careful to look at that and create that distinction understand across five years what to expect example of that if it is typical that um in particular if you're on an on-premises solution that after two years you'll need to do a recast and a a total upgrade you want to know about that looking at the professional services cost that's very straightforward how much does it cost we'll talk about what the variables are but in the in the total cost of ownership it is important to know what they are it is not likely and i'll give you a hint right now that you would find over five years that the cost of services is less than the cost of the software you will not typically find that you will typically find there's a ratio that services costs more than software times something and many times that something is 1.5 to 2.5 x depending on what the scope of the work is and how big the company is and how complex uh in the cost of ownership you want to look at your own personnel cost and upgrade cost if they appear those are on the cost side i'll say one thing before we move along to the next points there are offsetting costs that you also need to take into account and they have to do for example with some applications and the support of that you're not going to use anymore after six months after 12 months after 18 months and that's those are kinds of money that come back into your pocket and thirdly you may want to think as you do the evaluation is there a benefit other benefit personnel wise and so on from moving people from road work into analytical and advanced work and does that in the long run save you hiring of additional people other questions like that must be thought out as offsetting cost to the cost of ownership let's move forward one notch if we could okay so we talked about things now i want to talk about very tangible things which are contracts and pieces of paper okay the scope um follows the negotiation strategy the scope of the negotiation strategy follows a number of areas uh and as i said we need vendor quotations for few things the contracts turn focusing on terms and conditions including assumptions in the contract the licensing naturally it's a cost by module or bundles of such for subscription and it's not always that you get all in one have to be very careful what is needed and what goes in stage one and two and three of the project uh are there portals involved are they kiosks or terminals for your mes a manufacturing execution system sorry uh other mobility devices that need to be licensed or not that license and so on and so forth the statement of work and the services is one of the more complex elements of it more than the licenses and and here a lot of caution is needed for project timelines a scope of services roles and responsibilities i'll pause here for a minute with the simplest example just to give you a heads up if you need to develop 30 or 40 reports in the project okay the question is do you need the vendor to develop them or do you develop them or do you split the work that makes a huge difference how much your team can pick up versus how much they need to pick up phasing makes a difference milestones make a difference everything makes a difference you must also include a discussion there and learn about the application managed services how patches come in how releases go and so on and so forth ongoing support for hosting system administration database administration and so on and so forth and the maintenance thereof so these are things that we need to look at and we and we do and you do uh just forgetting any of them and not working through the checklist that i just mentioned sometimes creates a little bit of heartburn and oopsie moments deeper into negotiation where those things suddenly come back and need to be addressed when the documents are ready to be signed so if we look next i want to talk for a moment about the documents okay there's six categories of documents each of which gets negotiated they're here they're here okay um this this is what they're typically called msa stands for master service agreement slsa has a good number of different translations to the acronym and it's not even three-letter acronym but basically what it is is sales uh licenses okay and every one of those has in it prices okay either by module or by user type of group or universal uh it has discounts or refunds sometimes that you need to look at and as i said before a host of of details for each one of them we typically work the documents the six types of documents and at least two rounds to be prepared so you'll prepare round number one we look at generic documents from the vendors or suppliers or publishers and say okay let me look first at the terms and conditions let me look at the construct of the document and let me see if it's something that i can live with or let in other words let's negotiate the operating envelope that this document talks about for example let's negotiate where and how we're going to do arbitration okay the next round is we see these doc and the next rounds are that we see these documents with appropriate customer specific data in them and start redlining around those data so i was talking about a lot of details and i wanted to kind of summarize them michael if if we could move to the next slide please summarize them in what points to address okay not everything and i'll start by saying in order for everyone to be able to work properly it's important to understand that almost everything is negotiable but not everything is negotiable for example from the site of the publisher they will not give you the i intellectual property rights to their code okay what you're buying from them and most people don't quite realize this is the right to use the software but the ownership over the lines of code does not transfer there's no there's no circumstance that i'm aware of in the last 10 years at least that there was a deviation from that what am i saying i'm saying there are a few things that are not worth spending cycles on now i will say this though it is clear on the that on the contractual side most of the customers most of the buyers of these software and services have a lot of experience as it relates to the business terms and conditions i would say this for example on myself i mean i don't want to generalize but talking about myself i know to look for mutual non-solicitation clause and i know that that's most times not there but how to write such a clause that is satisfactory to the legal and governance of the customer is something that the customer legal team should be spot on know how to do the moment you say mutual non-solicitation change this paragraph they know how to work with the other lawyers so what am i saying that there's a lot of this that the legal team that the company the customer regularly works with knows how to deal with okay so where does it get sticky it gets stickly sticky where the applications offer specific topics that need deep consideration and leverage of industry benchmarks incredible experience comes to play so there is room for experts in this area from the company or from the third parties to look at for example hourly rates it is not typically my experience that the legal team that negotiate business agreements for the company to do different things would know in a different profession that the rates for example the hourly rates for plm consultants are typically marginally higher than those for erp consultants or that the project management time related to the overall time of the project needs to be one to x in this case it's typically not to exceed one to ten and so on and so forth so knowing these things what it what our best practices on the right are things that need a little bit of thought and a lot of experience in in looking at them and making sure that they are taken care of very carefully such that you won't come to a point for example like happened to me just like three months ago one company was proposing that the project management time would be 25 of the overall consulting time and i'm probably hearing i know you're muted but i'm hearing gasps in the crowd uh but they actually propose that and very quickly understood that you know they're talking with people that know what they're talking about and that they would have to cut down on that and bring a higher level pm person to do the work that they wanted three people to do before just for example now i will say this from a negotiating standpoint the software and services company companies i'm sorry negotiate these contracts all the time it is not unusual for me to meet a legal team from a client from a publisher that is at the same time working on five six different contracts this is what they do all day most of the customers in the world of manufacturing and distribution that we're in uh do not do this every day and sometimes they do this once a decade and therefore uh we from ultra thought it would be a good idea to create a permanent briefing this being recorded to help customers that are preparing to do that or starting to do that align themselves and see what points they need to think about and also be frank with themselves how far can they get um in the you know in in preparing themselves and and do they need uh maybe a different legal team or different advisory to help them through that um as as as one would imagine i will if we go forward to the very last of my talking points michael if you would i want to say something that's in the there are nine commandments of negotiation and this was only you know a session how to negotiate software and i didn't mind to bring up all the nine points but one of the points is crunch early crunch frequently and there's a final crunch now what a crunch means a negotiating language of course is counter so ask for something say you know what and and this happened in this negotiation that you're saying here yes but i want 30 more seats yes but i don't want my price to go up until two years after yes i want to be able to buy to deploy these seats to other countries and get the localization and so on and so forth the list is is almost infinite on these crunches okay so the point here of this slide though is i want to point your attention in particular on the far right and the far left to what happened in the final crunch okay and the final ask there was a top in in both cases and and with both of these contenders there was a top to top at the sea level and at the executive level from both sides of the negotiation without all the i would call the medium level negotiators to say this is it if you come in to this number we can have a deal that's a final crunch and everyone has to be aligned that there is such a final crunch knowing that the negotiation is time fenced helps everyone the salespeople from the vendor the negotiators from the customer other parties that sometimes third parties involved a line that this is it i mean the dance you know we're at the last drink last dance and this is where the rubber actually hits the road if you want to make any concession if you want to make any commitment now is the time preparing for the final crunch is a huge deal huge uh in this negotiation and all the three or four i've done since i'm sorry we actually did dry runs what if this one of the other what if this one of the other who's going to say what who's going to shut up who's going to speak at the last minute and say this is it let's cut the chase this is how business is conducted in this world and i want to share that with you so um summarizing on with this picture in the background and before handing it back to michael with my thanks a negotiation is not a simple thing it's not terribly difficult there are people that do this for a living almost anyone with a business background their sales background negotiates doing it right in the world of software is a complicated dance because of the seven moving parts of the seven pco components that i mentioned before and because one negotiator from the client side may be negotiated concur negotiating i'm sorry concurrently with two or three vendor suppliers just for one solution step and one or two software implementation partners at the same time and trying to come together for all of that into one fulcrum point at the end of four weeks so with that in mind you know there's there's a method to this there's a way to succeed and if this picture is any testimony the our success is to be had so with that thank you for your time and i'm handing it back to michael thank you ernie and we will be moving to q a in just a moment there is still time to submit questions and you can access the q a feature of zoom by hovering your cursor over the bottom center of your webinar screen and clicking on the q a icon as promised we'll be sharing additional resources with you in a follow-up email specifically a link to the webinar recording as well as a link to download a great new ebook the comprehensive erp success guide which offers 35 pages of information insight and expert advice and virtually everything you need to know to select the right software for your organization and manage a successful erp project get to some questions ernie uh first question that came in what discount range can we expect with smart negotiation well uh thanks ma thanks uh to the person that submitted that appreciate even asking a question that's nice um we we see a variety of discount rates because it's not really one size fits all and we have to remember what we're talking about first things first i want to come back and remind it's not only the discount rate okay it's not only the rate we have to see everything just like in salary negotiation or hiring negotiation we have to see anything that said including for example i'd like to interview the project manager and the solution architect that will come to work with us to be sure that they're they're the class of people and the culture that we can work with okay but that said it is rare to find discounts less than 10 i would say that for sure and many times for example if we're talking about the consulting rates which is a big uh big deal we many times uh depending on the size of the deal can discuss 15 in software we have to remember what we're talking about there's so many variables for example the fact that i can get purchases of more software for the same price is worth a lot uh and but uh but we also we we've seen as deep discounts as 30 and 40 thank you ernie speaking of vendor pricing and we know that vendors price their products in different ways how do you get an apples to apples comparison well that that that is a little tricky michael it's a great question again thank you for the person that asked um i have mentioned briefly in the middle that some software is priced in bundles and some of them is priced by general and by user and so on and so forth it is important for the um negotiators to really uh break it apart and spend a lot of time understanding what it is and what's in the box that's the only way to do it asking the salespeople that you're working with from the publisher side is a very good way to do that to say look i don't quite understand i'd like this translated into this terminology you will find if nothing else you will find the sales people from the publishers to be extraordinarily accommodating with their time and their capability to explain what this is so if you say i really don't understand what this is can you explain this in these terms they will do it so that helps a lot to translate it but there's no escape from reading and reading the small print too michael what about in negotiation what are you really looking to accomplish what are the most important things that you're looking to accomplish when you negotiate i think this is a simple thing i mean if if we peel it all back we're trying to find an equilibrium where the publisher of the software the implementation partner and us the customer all can live with it all can feel that we came out okay we're not losing our pants on the deal and we are getting and let's remember where we started we started with an anticipation of roi and if we all get to the roi that we want in the time that we want that's a win um one of the things that i will mention is that with this concept of five-year tco i would say probably between 30 and 50 percent of the negotiations end up going with the more expensive tco but they believe that the chances of success in reaching the roi are higher so we're not talking about commodity selling or buying in this case we're talking about value buying and value buying is driven and informed by cost but that's not the only thing more times than not it is the cultural fit and the belief that these people and this code or software can lead us to the strategic goal that we set before the negotiation if you had to list two or three critical things to do before a negotiation to prepare what would those be that actually is not so hard to think about michael it's a great question though how to prepare well of course one one thing which is almost trivial is uh prepare prepare the negotiating team and prepare the strategy i mean that's that's really trivial so i won't come back to that elaborated enough in the material but what's really important is has the shared vision of a future meaning to have an understanding among all the departments of the company what we're trying to achieve what what the future state business flows are okay what the allocation of resources from our company the the client would be so that we will be on firm grounds and understanding when and how we need these solutions answered the worst thing you can do coming into negotiation is like my dad said if you don't well maybe it was somewhere else but if you don't know where you're going of course you're going to get there right but that that was really in behind the looking glass but it's the same thing here if we don't know what we want exactly and we don't know exactly who's going to play what role on our side in implementation and if we're trying to learn all those things in the middle of the negotiation we're doing the negotiation to be unsuccessful and we can almost promise the executives that there will be problems you heard it here folks if you don't know where you're going any road will get you there so thank you ernie yeah and we are uh we are a couple of minutes over time here so uh that include that concludes today's webinar for all of us at ultra and for ernie eichenbaum thank you so much for joining today have a great rest of your day we hope to see you again on another ultra webinar in the very near future thanks everybody