The importance (and challenge) of being vendor-agnostic in vendor negotiation
In today’s challenging business environment, many enterprises are scrutinizing their technology expenses, attempting to cut costs, boost operating capital, improve EBITDA and enterprise value, and fend off potential layoffs and budget cuts.
But it is impossible to maximize savings from your technology expenses without understanding where the IT market is in this critical and growing area. In my many years as a technology sales and operations executive (and as a former FP&A professional), I know removing bias from supply chain decisions is critical – but it is also easier said than done. Also, it is imperative to remain vendor-agnotic to choose the correct supplier for your business.
Bias is natural and understandable.
It requires a lot of courage for an in-house procurement professional to run an unbiased contract and vendor assessment. You are often asking someone to critique their own work, or the work of a colleague sitting in the next cubicle who negotiated and approved the contracts under review. Imagine the double-edged-sword nature of a procurement staff member revealing that a 40 percent reduction in cost could be realized. Why was the incumbent contract approved at such a dramatically inflated market value in the first place?
Likewise, asking the IT manager to revisit a technology decision they may have endorsed will no doubt be perceived as invasive or disrespectful, and if switching turns out to be the right move there may be reluctance to admit so because of the work and disruption switching often entails.
Another complicating factor is that your procurement or IT staff or LOB technology decision makers may have a friendly relationship with the incumbent vendor. Any good supplier tries to build a personal relationship with their client. That might take the form of simply delivering exceptional service. Or it might involve seemingly innocuous holiday gift baskets or hosting an outing to a nice restaurant or ballgame. Little things can contribute to bias, it is just human nature. But bias will almost certainly cause reluctance to negotiate hard or, if push comes to shove, recommend a switch.
Deep knowledge of technology vendors and market conditions is hard to come by. Technology expenses span over 100 different categories, and there may be dozens of vendors worth consideration in each of those categories if you decide to competitively bid the relationship. Does your in-house procurement staff have multiple years of experience and deep knowledge of all these categories and vendors?
Expertise in advanced contract negotiation tactics is uncommon in most procurement departments, and it is extremely valuable when trying to maximize the impact of supplier renegotiations. For example, our data shows that reverse-auctions drive 2.5X the savings of traditional direct negotiation, yet running reverse-auctions is a highly specialized skill and few procurement professionals have extensive experience.
Lean on a data-driven, vendor-agnostic, neutral 3rd party.
For all these reasons, it makes sense for finance and procurement leaders to consider using a third party to run vendor assessments and renegotiations – spoiler alert: this is why I believe in the tremendous value proposition of AIQ.
The patented AIQ process is vendor-neutral. We consult with the client to understand the specifications and then tap our proprietary database and research to source a group of qualifying vendors to consider along with incumbents. Based on our two decades of experience running assessments and renegotiations we can predict with 95 percent accuracy the most fruitful technology categories to be optimized, as well as the potential enterprise value a renegotiation or vendor switch will return. This proprietary knowledge of vendors and categories, supplier licensing models, market prices, and discounting tendencies is rarely found in a typical in-house procurement staff.
AIQ auctions create a competitive market environment among suppliers vying for an enterprise’s business. Suppliers receive real-time notification of competing bids, compelling them to enter lower bids in order to win or retain the business. It’s not about who negotiated the incumbent contract, or which supplier hosted the tastiest steak dinner, it is about which supplier delivers the best price and best fit for the enterprise’s needs. Our clients, on average, obtain a 44 percent savings per engagement and have created hundreds of millions in EBITDA.
AIQ services extend all the way through renegotiated and executed contracts. In addition to being insulated from any internal bias, AIQ’s end-to-end service is designed to minimize the burden on the enterprise’s finance, procurement, and tech staff.
Assessing and renegotiating your technology supplier contracts can be an effective way to harvest millions of dollars of operating capital to increase EBITDA and enterprise value, fund growth projects, and avoid layoffs and budget cuts. But if you don’t take measures to ensure an unbiased, vendor-neutral approach, you may leave a significant percentage of those dollars on the table.