use a strategic negotiation & acquisition process (snap...

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Jo Ann Rosenberger, Research Vice President

"Analyst Day: Taming the Digital Dragon" Local Briefing Tuesday, March 18, 2014

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Use a Strategic Negotiation & Acquisition Process (SNAP) to Optimize Your Deals

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Do You …

Perform TCO analyses as part of

the vendor selection process?

Develop and

maintain price

and Ts & Cs

checklists?

Ensure IT

acquisition experts

negotiate

your deal?

If "No," You Aren't

Optimizing Your Deals

Use an acquisition team

to identify IT, business,

stakeholder needs?

Strategize the timing

to align with vendor

qtr./fiscal year ends?


Follow a Strategic Negotiation & Acquisition Process (SNAP) To Optimize IT Deals

Leadership and Timing Are Keys to a Successful SNAP

Research

Vendors and

Solutions

Maintain Terms and

Conditions

Checklist

Final Selection/

Final Negotiations/

Contract Execution

Determine and

Rank Requirements

Maintain

Acquisition

Checklist

IT Asset

Management

Form

Acquisition Team

Create

TCA/TCO Models

Strategize

Negotiation Plan


Let's See SNAP in Action …

Scenario:

A Software Need Has Been Identified by Your Organization for a New Business Process Management Solution


Form Acquisition Team to Capture IT, Business and Financial Requirements

Action Item: Once Software Need Is Identified, Form Team and Select Team Lead. Ensure Lead Is an Experienced Software Negotiator.

IT Procurement RFP, price checklist, negotiation strategy, lead effort

Legal Contract development/reviews, identify legal risks

Contract Management Ts & Cs checklist, contract reviews, contract database

Business Owner/Process Owner/CoE Communicate business needs, process performance

Technical Services Hardware/software requirements, technology standards

Application Development Project management, build vs. buy, customization efforts

IT Finance and Corporate F&A Budget, TCA/TCO analyses, finance/accounting impact

Enterprise Architect Technology requirements and standards, compatibility

Vendor Management Relationship, performance measurement

ITAM/SAM (Asset Management) Compliance, life cycle management

Form

Acquisition Team


Research and Identify Vendors and Solutions That Can Meet Your Need

Action Item: Narrow Candidate List From Above Research and RFI Reponses to Identify Vendors for Competitive Bid Process.

Research References

External Sources/Consultants

RFI (Request for Information)

Team Member Assignments/Roles

Financial Stability

(D&B Reports)

Magic Quadrant Position

Vendor Demos

Reference Client Site

Visits

In-House 30- to 60-Day

Trial/Evaluation

Research Features,

Functionality, Pricing, Services

Research

Vendors and

Solutions


Determine and Rank Software Requirements Criteria to Include in RFP

SOFTWARE VENDOR/SOLUTION SCORING MATRIX Weight is based on 1-5 scale. Score is based on 1-10 scale (higher = better/favorable).

Weight and scoring metric determined and agreed upon by acquisition team before RFP/bid process.

Score is average of acquisition team responses.

VENDOR A VENDOR B

Category Weight Score Weighted

Score Score Weighted

Score

License Fee 5

Maintenance Fee 5

Customization/Implementation Cost 5

Training Cost 4

Features 4

Functionality 4

Customization Capabilities 5

Business Process Requirements 5

Business Standards Alignment 4

Technology Standards Alignment 4

Gartner MQ Ranking 4

Financial Stability 4

Internal Development Requirement 5

In-House Evaluation/POC Success 4

Training Program/Courses 4

Terms and Conditions Risk 5

Negotiation Ease 4

Audit/Compliance Management Risk 4

TOTAL

Determine and

Rank Requirements






VENDOR A VENDOR B



Score

License Fee 5

Maintenance Fee 5

Customization/Implementation Cost 5

Training Cost 4

Features 4

Functionality 4

Customization Capabilities 5

Business Process Requirements 5

Business Standards Alignment 4

Technology Standards Alignment 4

Gartner MQ Ranking 4

Financial Stability 4

Internal Development Requirement 5

In-House Evaluation/POC Success 4

Training Program/Courses 4

Terms and Conditions Risk 5

Negotiation Ease 4

Audit/Compliance Management Risk 4

TOTAL

Populate Scores and Calculate Weighted Scores

Determine and

Rank Requirements






VENDOR A VENDOR B



Score

License Fee 5 9 45 8 40

Maintenance Fee 5 7 35 6 30

Customization/Implementation Cost 5 10 50 4 20

Training Cost 4 8 32 9 36

Features 4 8 32 4 16

Functionality 4 8 32 5 20

Customization Capabilities 5 7 35 5 25

Business Process Requirements 5 9 45 5 25

Business Standards Alignment 4 9 36 5 20

Technology Standards Alignment 4 7 28 7 28

Gartner MQ Ranking 4 8 32 4 16

Financial Stability 4 10 40 8 32

Internal Development Requirement 5 9 45 4 20

In-House Evaluation/POC Success 4 9 36 5 20

Training Program/Courses 4 8 32 7 28

Terms and Conditions Risk 5 4 20 7 35

Negotiation Ease 4 3 12 6 24

Audit/Compliance Management Risk 4 1 4 4 16

TOTAL 591 451

Total Scores

Dictate Who

to Select for

Competitive

Negotiations

Determine and

Rank Requirements


Maintain a Software Acquisition Checklist to Expose Hidden Costs and License Ambiguities

License Fees and Models/Metrics: - What is license type (perpetual/term/svc./other)?

- What is license model (server/virtual/app./instance)?

- What is initial license fee (List and Net Price)?

- Is there a fee for add-on capacity, users, LOBs?

- Provide itemization for any bundling to ensure all separate SKUs, part #s, PID pricing are identified.

- Is there a fee for hardware changes or virtualization (e.g., server upgrades, adding processors, cores)?

- What is delivery method (hosted/on-premises/SaaS)?

- Are there product dependencies? If so, provide list.

- Will you discount additional licenses at same %?

Maintenance, Subscription, Support: - What is warranty period/maintenance start date?

- Provide pricing for all available coverage levels (e.g., 8/5, 24/7 — 2-hr./4-hr./next-day response).

- Identify SKUs, part #s, PIDs for maintenance, subscription and support, if they exist.

- Send maintenance, subscription and support descriptions and pricing for all options.

- Can subscription be separated from technical support? Provide prices for each.

- Is your maintenance and support pricing based on a % of net license fees? What is the %?

- Are you willing to cap maintenance increases in perpetuity at CPI% or 3% (whichever is less)?

Professional Services (Customization, Development, Implementation):

- Provide fixed price and T&M options.

- For T&M, provide all role levels and hourly rate for each (PM, developer, engineer, etc.).

- Are you willing to propose a blended rate? What is it?

- Provide cost, not to exceed pricing for additional services, if necessary (hourly and daily rates).

- Is T&E included in price?

- Are you willing to tie payment to final acceptance testing based on mutually agreed upon criteria?

Training: - Provide all training options, descriptions, and pricing (vendor on-site,

remote classroom, online courses).

- Is T&E included in onsite training fees?

- Are there third-party vendors that provide training?

DR, HA Backup, Test, QA, Dev., Non-Prod. Use: - Confirm that your policies allow this usage at no additional charge

(whether hot, warm or cold backup).

- Provide all usage policies not included in standard contract terms.

Need Specific Requirements (Acquisition Team): - IT (hardware, architectural, compatibility, customization)

- Business (customization, process, future needs)

- Financial (Capex/Opex requirements)

Maintain

Acquisition

Checklist


License Fees and Models/Metrics: - What is license type (perpetual/term/svc./other)?









Maintenance, Subscription, Support: - What is warranty period/maintenance start date?














Training: - Provide all training options, descriptions, and pricing (vendor on-site,

remote classroom, online courses).



DR, HA Backup, Test, QA, Dev., Non-Prod. Use: - Confirm that your policies allow this usage at no additional charge

(whether hot, warm or cold backup).


Need Specific Requirements (Acquisition Team): - IT (hardware, architectural, compatibility, customization)




Ask the Necessary Questions to

Get It Right From the Start

Maintain

Acquisition

Checklist


License Fees and Models/Metrics:

- What is license type (perpetual/term/svc./other)?









Maintenance, Subscription, Support:

- What is warranty period/maintenance start date?














Training:

- Provide all training options, descriptions, and pricing (vendor on-site, remote classroom, online courses).



DR, HA Backup, Test, QA, Dev., Non-Prod. Use:

- Confirm that your policies allow this usage at no additional charge (whether hot, warm or cold backup).


Need Specific Requirements (Acquisition Team):

- IT (hardware, architectural, compatibility, customization)














Maintain

Acquisition

Checklist



























Training:




















Maintain

Acquisition

Checklist









Training:


































- Provide cost not-to-exceed pricing for additional services if necessary (hourly and daily rates).



Maintain

Acquisition

Checklist









Training:






























Training:




Maintain

Acquisition

Checklist









Training:

































Maintain

Acquisition

Checklist









Training:


































Action Item: Refer to "Collaborative Teams, Customized Checklists and Robust Models Can Expose Hidden Costs During Software

Negotiations" (G00253198) for This Checklist and Details on How to Effectively Use It as Part of Your Team Approach.

Maintain

Acquisition

Checklist


Don't Forget Your Terms and Conditions — Hidden/Missing/Ambiguous Terms Can Be Costly

Risky Terms/Clauses Recommendations to Avoid "Gotchas"

Ambiguous or Missing Model/Metric Definitions

Define license type, models, metric. Illustrate how to count or measure the defined metric using examples in exhibits/addendums to contract.

Unclear License Use and Processing Rights

State how and where software can be used, who can use it, how accessed, who can access and who you can process by, for, and behalf of.

Missing Functionality Protection Language

Include functionality description, and state that if renamed, repackaged, rebundled or relicensed, you get the new functionality at no charge.

Missing Maintenance Increase Cap Language

Include table with not-to-exceed itemized pricing stating increases will not exceed CPI% or 3% (whichever is less) over previous year's fee.

Weak Maintenance Coverage Descriptions

Ensure that new versions, releases, enhancements, updates, upgrades, patches and fixes are included as part of subscription and support fee.

Avoid Silent SaaS Contract "Gotchas"

Clarify storage fees, premium maintenance, data security and privacy, customization, volume changes, SLA/uptime guarantees, renewal caps.

Unclear Usage Allowances State that you can use software for DR, backup/HA, test/dev./QA, may be used by managed svcs. provider/outsourcer, in a hosted environment.

Vendor MAD (Merger, Acquisition, Divestiture) Protection Provisions

Include language that states unless acquiring vendor can provide documentation and mapping formulas to make/keep you "whole" then rights, models and metrics of original vendor agreement will control.

Action Item: Refer to "Negotiate Maintenance Increase Limits and 23 Other Software Ts & Cs to Reduce IT Spending" (G00254854) to Create a Standard Software Contract Ts & Cs Checklist.

Note: Gartner does not provide legal advice or services, and its research

should not be construed or used as such.

Maintain Terms and

Conditions

Checklist


Engage Finance to Create TCA/TCO Model — One Size Doesn't Fit All

Sample On-Premises BPMS Software Option Analysis

Option 1 Perpetual License

24/7 Support Site License

(20% Discount)

Option 2 Perpetual License

24/7 Support Processor Core Model

(70% Discount)

Year Budget/P&L Impact Budget/P&L Impact

1 $140,000 $208,000

2 245,000 208,000

3 245,000 282,667

4 245,000 282,667

5 245,000 282,667

5-Year Total Commitment $1,120,000 $1,264,001

5-Year NPV @ 3% $1,020,087 $1,151,659

Assumptions

Software License Fee (Net After Discount) $700,000 $520,000

Annual SW Subscription and Support $105,000 $104,000

Software Warranty Period 1 Year NA

HW Upgrades Yr. 3 — Processor Increase NA $140K License/20% ANMN

Uncovering all costs

using acquisition checklist allows IT finance to

analyze options for long-term

cost impact.

Note: Above Is Illustrative Data for Example Only.

Create

TCA/TCO Models


Strategize the Negotiation Plan

Action Item: Once Scoring Matrix Is Populated and Totaled, Narrow Candidates for Final Negotiations — Always Keep Two in the Running

to Maintain a Competitive Environment for Bargaining Power.

• Establish Policies (No Social Events During Negotiations)

• You Schedule Meetings/Venue

• Timelines (Treat Like a Project: Team/Milestones/Goal)

• Communication (Everything in Writing)

Take/Maintain Control

• Who Are Competitors? (Use the Word Explicitly in RFPs)

• FY Ends Powerful (Strategic Timing Is Key - Refer to 25 FY ends hand-out)

• What Does Sales Want/Need?

• Previous Quarter Financial Results

Research and Build Leverage

• Strategize Timing Using Exec. Mgmt. Approval Levels

• Use Your Accounting Policy (Forces Itemization — Capex vs. Opex)

• RFPs Show You Are Serious (New and Renewals)

• Silence Is Golden

Strategize Your Plan

Strategize

Negotiation Plan


Final Selection — Final Negotiations — Award — Contract Execution

Final Selection • Team review of competitive negotiation results • Team vote on final selection/candidate • Final management approval (if required) • Create "final negotiations" checklist

Final Negotiations • Use competition and qtr./ye as final push levers • Ensure no award until FINAL — Consider BAFO • Get itemized pricing: Capex/Opex is driver • Strategize timing using mgmt. approval levels

Contract Execution • Award once final negotiation points are in writing • Fact sheet to document IT and business sign-off • Attach RFP, proposals, oral/written promises • No payment until contract is FULLY executed

Ensure Acquisition Team Lead Regularly

Communicates/Reports Progress to Team and

Management

Final Selection/

Final Negotiations/

Contract Execution


ITAM/SAM: Develop Robust Processes to Ensure You Know …

IT Finance

Technicians/ IT-Business

Contract Management

Procurement ITAM

Who are the users?

What are the entitlements?

When was it installed?

Where is it installed?

How is it used?

Action Item: ITAM/SAM Processes Should Enable Communication of the Right Information to the Right People at the Right Time.

IT Asset

Management


SNAP At-a-Glance

Form Acquisition Team

• Virtual Team

• IT/Bus./Fin. Requirements

• Select Team Leader

• Experienced Negotiator

Research Vendors and Solutions

• Research — Gartner MQs

• Site Visits

• Demos/POCs/Trials

• RFI

Determine and Rank Requirements

• Use Scoring Matrix Template

• Entire Team Participation

• Total Scores Dictate Final Candidates

Maintain Acquisition Checklist

• License Fees/Models/Metrics

• Maintenance/Subsc./Support

• Professional Services/Training

• Usage Allowances

• Acquisition-Specific Needs

Maintain Terms and Conditions Checklist

• Maintain Standard Checklist

• Acquisition-Specific Needs

Create TCA/TCO Models

• Capture All Hidden Costs Using Checklist

• Ensures Accurate Long-Term Cost Impact

Strategize Negotiation Plan

• Take and Maintain Control

• Research and Build Leverage

• Create Approval Levels and Tactics

Final Selection/Final Negotiations/Contract Execution

• Team Vote/Create Final Negotiations Checklist

• BAFO/Use Tactics For Final Negotiations (Qtr./FY Ends)

• No Award Until Final Negotiations

IT Asset Management

• Who, What, When, Where, How

• Robust Processes


Recommended Gartner Research

Five Best Practices to Cut Costs in Your Next Software Negotiation Jo Ann Rosenberger, Frank DeSalvo (G00234614)

Optimize Spending and Cut Your Software Costs Through Improved Negotiation Practices Jo Ann Rosenberger, Frank DeSalvo (G00230781)

Collaborative Teams, Customized Checklists and Robust Models Can Expose Hidden Costs During Software Negotiations Jo Ann Rosenberger (G00253198)

Negotiate Maintenance Increase Limits and 23 Other Software Terms & Conditions to Reduce IT Spending Jane B. Disbrow, Jo Ann Rosenberger (G00254854)

For more information, stop by Gartner Research Zone.


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use a strategic negotiation & acquisition process (snap...

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