Posts Tagged ‘contracts’

Regardless of the size of your organization, someone is responsible for identifying the need of a service or product being purchased. One could therefore surmise this individual would also assume the ongoing ownership and maintenance of the product, providing vendor management oversight, right? Well, you might be surprised by the number of occasions on which the linear progression of identifying a need and satisfying the need becomes disconnected in technology organizations.

This disconnect often occurs when a business unit obtains approval to bring a new product to the company which in turn places new or expanded requirements on its Information Technology (IT) organization.  With their backs often against the wall, the IT department will “buy” the technology in order to meet required deadlines. What happens in this case is that the IT department ends up relying on the vendor to manage the technology, and often times let the supplier act as the IT point of contact for the “customer” – the internal business unit.  Well, as we know problems often start out small and later mushroom out of control.  This situation is no exception:  If the new product the company has developed becomes successful, IT will continue to buy more of the necessary technology for the business unit.  The next thing you know, the original contract for, say, $100,000 morphs into an agreement covering perhaps $5M in purchases – and since the vendor manages the technology, no clear internal owner exists.  A sure-fire recipe for big problems.

The process starts with the negotiation of the contract which typically initiates a rather ‘interesting” time within the organization.  The discussions with the supplier often times become stressful with both sides treating the negotiations as a form of competition to obtain the best price and terms.  This is further complicated with the coordination of the different groups who provide input and are required to approve on both sides of the agreement. For example, the finance departments will be called upon to review the financial impact to budgets and Return on Investment (“ROI”), while the procurement and legal departments review terms and conditions.  With all these organizational units involved, the final agreement ends up segregated into sections which are relevant to disparate groups within the organization, and in many instances no single person understands the agreement as a whole.  This issue can be avoided by identifying the organizational unit that owns and drives the negotiation of the agreement, and ensuring this unit also has the authority to represent the company and manage the supplier.  By insisting on thorough preparation and coordination regarding input and approval processes in advance, the individual or group acting in the vendor management capacity will not only secure a contract which is beneficial to the company but will also foster a positive ongoing relationship with the supplier.

With the vendor management role clearly defined, you will avoid the most costly mistake of relying on the supplier to manage the agreement for your company.  The vendor manager will not only monitor the suppliers’ performance, but will also leverage the vendor on your company’s behalf to provide service level and performance metrics along with other valued services such as expert consulting support.  The individual acting in this role in your company can carry the title of Vendor Manager and coordinate with the technology owner(s), or this role can actually be incorporated into the technology owner’s job description.  In any event, the most important role of the vendor manager is to routinely meet with the supplier to review performance and to insure the negotiated service level agreements are applicable and are being met.  For those of you who practice ITIL, you may even want to invite your suppliers to attend your problem management reviews.  Problem Management aims to resolve the root causes of incidents and thus to minimize the adverse impact of incidents and problems on business that are caused by errors within the IT infrastructure and to prevent recurrence of incidents related to these errors.   Inviting suppliers to problem management reviews was always my favorite way to make sure the supplier understood my business and was focused on working for my company.

Identifying issues with your existing contract will insure that your company is prepared when it is time to negotiate a new agreement. This is especially critical in large organizations with dedicated procurement departments.  These procurement teams are responsible for negotiating agreements on behalf of the technology owner(s), often based upon templates and procurement methodologies meant to cover everything from bed pans to mainframes.  In these circumstances, the vendor manager must be prepared to identify and educate the procurement manager on any issues with the current supplier. This is especially true with products that the procurement department might consider as “commodities”.   (Products are referred to as commodities when the product is seen as fungible or the same no matter who produces it.)  The commodities tag can sometimes prove to be a BIG mistake, especially with technology as this term is often applied incorrectly.  I once had a junior level negotiator assigned to a request for purchase because the procurement department perceived desktop computers as fungible commodities.   That quickly changed once we were able to quickly show – from trends in our monthly product performance scorecards that we had experienced a 20% failure rate of over 75,000 desktops that had been in service less than a year.  These failures not only had a negative impact on customer service but also negatively impacted IT service level metrics with a dramatic increase in help desk calls and required additional contracted field support to fix the devices.  The vendor manager was subsequently able to successfully team with the procurement department and negotiate product quality guarantee’s which the suppliers indicated had never before been included in their contracts.

Once your suppliers are being actively managed, your organization can maintain a fully mature vendor management model by monitoring the lifecycle of your agreements.  The hallmark of a mature vendor management lifecycle model is tracking when agreements are scheduled to terminate.    Being prepared for expiring contracts is critical because your vendor manager will make sure all necessary parties are prepared to enter into a negotiation and avoid delays which result in the original agreement being extended because the organization was not ready to negotiate.  This is often times the point where organizations which are not prepared will bring in outside assistance to coordinate the competitive bid process and subsequent negotiations.  If you believe your organization needs external assistance, make sure that whomever you contract with is not only negotiating terms and conditions, but also provides an on-going vendor management model after the negotiation.

Lastly, I mentioned the importance of fostering a positive relationship with your supplier.  You want your account manager and his/her team to be the envy of the organization for account relationships.   Obviously the amount of revenue an account team brings to their organization is a major component in determining their performance within their company.  However, don’t underestimate the importance that suppliers place on their representatives to maintain healthy relationships.  Just as within your organization, you want your suppliers’ account team to be proud to be working for their company and proudly say they are servicing your company because, at the end of the day, your success is a result of performance – and support – of suppliers’ product and services.

At this point you’re ready to begin managing your vendors.  As we’ve seen, a successful relationship with your suppliers begins not with the contract itself but with the management of the agreement after it has been negotiated.  If you haven’t met with your suppliers recently give them a call and initiate your vendor management process by asking for an account review.  Before the review, draft a list of items you would expect them to cover when they walk into the room and then compare your list with their presentation.  You’ll quickly be able to identify gaps in your supplier relationship and use your list as a roadmap for obtaining better pricing and services from your vendor.  The results are guaranteed not only to surprise yourself but will result in new respect from your vendor.

Buyers for your company: How to build a great list?

by Steve Popell on June 14, 2010

In a previous post, we discussed the fact that becoming an attractive strategic acquisition candidate should begin with learning precisely what prospective buyers think that means, and how to elicit that information in a series of telephone interviews.  But, an equally important element is determining whom to interview.  This post will address that question.

The first, and most obvious, step in compiling a list of prospective buyers in your industry is simply to brainstorm with anyone who fits the following profile.

  1. Has a valid input on this topic
  2. Can be relied upon to keep totally confidential even the fact that there has been such a conversation.  The notion that your company is (or will soon be) for sale can be very destructive in the marketplace.

As long as you have complete confidence in the discretion of each individual, the more contributors the better.

The next step is to consult as many merger & acquisition databases as you can identify.  Database research can help in two distinct ways.  First, it can provide information on specific acquisitions.  Second, and as importantly, it can suggest matchups that might not have occurred to you and your colleagues.  Discussions that follow will often lead to whole new categories of prospective buyers.  The basis for this research is your company’s Standard Industrial Classification (SIC) code number, along with the parameters that are most relevant, such as:

  1. That the SIC code number relates to sellers;
  2. Period of investigation (e.g. last three years)
  3. Sellers’ annual revenue range
  4. Whether to include international buyers and/or sellers

When in doubt, do not leave out any parameter, or narrow it unduly.  It is far better to have too many data points than too few.  You can always drop any that prove to be irrelevant.

The rest of this part of the process is iterative; i.e. back and forth between brainstorming and database research, until you feel that you have reached the point of diminishing returns.   At that time, shift your attention to identifying a specific executive to interview in each company.  This information should be readily available on the prospective buyer’s website.

In a relatively small company, the CEO or CFO is the most likely choice.  In a larger company, there may be an individual specifically charged with acquisitions, such as the Director (or Manager) of Corporate Development.  Since the title will vary from company to company, it may be necessary to click on the name of someone you think may have this responsibility.  His or her write-up should be very helpful in this regard, and will probably provide contact information, as well.

Once you have developed the list of companies and individuals to contact, craft a questionnaire along the lines discussed in the previous post, conduct the interviews, collate the data and, finally, analyze the results.  The product of all this effort will be the profile of the attractive strategic acquisition candidate from the perspective of the marketplace.

Good luck.

PhotoPopell This article has been contributed by Steven D. Popell. Steve has been a general management consultant since 1970. Steve is a Certified Management Consultant, business valuation expert, and inventor of ExiTrak®– a process designed to assist the privately-held company owner/manager to build an attractive strategic acquisition candidate

Leadership Cancers #8: Anticipation

by Gary Monti on May 4, 2010

Anticipation, a song by Carly Simon, chronicles well the consequences of waiting for consequences, “Anticipation…is makin’ me late, keepin’ me waiting.” In this blog we will explore anticipation and look at a much healthier alternative.

The Desire for Control

Anticipation has its roots in the desire for control. Specifically, it results from building expectations. With expectations I choose to lock on to some possible future event causing thoughts and actions to become a servant of the desired consequences.  Not a smart way to operate.

This was reflected in a rather painful experience pursuing a contract early in my consultancy. A division of an aerospace firm was looking for someone to audit their current project management system and then provide guidance and support in making it more robust.

The fit felt perfect! After going through preliminary conversations it seemed like a slam-dunk. There was only one problem – other companies were bidding. Ignoring this, I kicked back and rewarded myself with some rest and relaxation prior to starting the engagement. Fantasies as to how the engagement would be successful and transformative for the client danced before my mind’s eye.

The Loss of Freedom

As you might have guessed, the day of reckoning came and much to my surprise someone else was awarded the contract. The first thought was, “How dare they!” To say my blood boiled would be an understatement.

Anxiety followed the anger. The future was surrendered to an expectation. The feeling of being trapped soon set in. It was quite genuine. Leads were dropped in anticipation of getting this contract.  It was a lesson well learned. Fortunately, there were sufficient reserves to make it through until the next contract.

The Solution

A better way to behave is stated in a term from complexity theory, anticipatory awareness. It sounds almost identical to the leadership cancer called anticipation. It is quite different.

Where anticipation is a locking on to an expectation and experiencing emotional ups and downs similar to a gambler at the racetrack, anticipatory awareness is a complete letting go of expectations.

Does this mean no planning is done, i.e., just sit around and wait? No. It is much more subtle and more challenging than that. In fact, anticipatory awareness can be restated as, “Plan without consequence.”

Practicing anticipatory awareness requires discipline. In the case of making proposals it means creating a document as if the prospective client’s survival depends upon it and then letting go as if the client does not care. While it sounds a bit crazy it promotes a very healthy behavior. It keeps me on the move. It also promotes a constant question central to any good consultancy, “Does what’s being offered really provide value?

Share you comments! I’d like to know what you think. In addition to commenting on this blog you can also send a response via e-mail to gwmonti@mac.com or visit www.ctrchg.com.