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|In: Career Management|Last Updated:

Several years ago I found myself in a dispute with my local telephone company. Without mentioning names, it was one of the long-distance carriers that had acquired some local telcos to mismanage, mine being one of them.

The dispute arose because the telco had cancelled my service after waiting a week to post my on-time payment, and planned to charge me a reconnection fee. The call center agent couldn’t help me — no surprise there, so I asked to speak to her supervisor, who also couldn’t help me, or chose not to. “I’m stuck with your local service,” I informed the guy on the other end of the line. “But somewhere in your company is someone who cares whether I continue to use your long distance and cellular service. I’d appreciate your connecting me with that person.”

He did, she did, and the telco waived my reconnection fee.

In IT, we deal with monopolies and monopoly-like vendors (MLVs?) a lot. Any time a vendor can reasonably deduce that you’re locked into what it’s sold you, you’re dealing with an MLV, whether the product in question is SAP’s ERP suite, Oracle’s DBMS, or IBM’s Websphere. You’ve made the choice, investing lots of money integrating whatever-it-is into your technical architecture and training your staff in its use.

Many CIOs figure that unless you’re at least the size of Bank of America, you have no leverage and have to take whatever the MLV dishes out.

But, in fact, you do, and therefore you don’t.

Like my local telco, only some of the products and services most MLVs sell are exclusive. Microsoft is a great example: It certainly qualifies as an MLV with respect to desktop operating systems and office suites. So do you have to accept whatever price and contract terms it deigns to offer you?

Before you do, consider everything else Microsoft wants to sell you and has sold you. It wants to sell you the operating software for your servers, instead of Sun, HP, IBM or one of the many Linux-based alternatives. It wants to sell you your relational database management system, MS Exchange, Visual Studio, and a whole bunch of other stuff. You can take as much of your business elsewhere as you’d like.

That ought to give you some leverage. It wouldn’t, though, if you were dealing with the MLV, for which the incremental value of your non-MLV business (or decremental value of the non-MLV business you’re threatening to take elsewhere) is chump change — a rounding error. If you were dealing with the MLV you’d be dealing with a bureaucrat who cares more about applying all rules consistently than about the company’s profit-and-loss statement.

But you aren’t dealing with a bureaucrat, or the MLV itself. You’re dealing with a sales representative hired by the MLV, and sales representatives care about commissions, not rules. That gives you another button to push.

Even if you can’t take your business elsewhere due to vendor lock-in you still have some control over sales volume. “I’m under a lot of budget pressure,” you might say. “I’m going to have to hold off the OS upgrade for a year.” Or, if that doesn’t fit the situation, you’re thinking about server or processor consolidation to reduce software maintenance costs. Or …

I don’t know exactly what the specific bit of leverage you have is. I’m pretty sure of two aspects of your negotiating situation, though. The first is that there’s some carrot or stick you can plausibly brandish at your MLV’s sales representative. The second is that your MLV’s sales representative cares about how much you buy from him or her.

It’s a shame, really. IT executives and managers spend quite a bit of time negotiating with vendors. Even if they’ve gone to business school, though, they’re unlikely to have learned how to negotiate. Heck, many business schools don’t even include coursework in negotiation, even though it’s one of the most important skills a manager can acquire.

So here’s the starting point: You have something the other party wants, just as the other party has something you want. How well you recognize what you have, how much they want it, and how plausibly you can threaten to withhold it compared to how well the other side does the same thing pretty much determines who wins the negotiation.

What’s that? You’ve read that the best negotiations end in win-win situations?

Maybe they do. But that doesn’t mean one side doesn’t win better than the other.

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|In: Industry Commentary|Last Updated:

Once upon a time I helped review a vendor’s Master Services Agreement (MSA). (if you’re unfamiliar with the concept, an MSA defines the relationship between a service provider and a client. Specific pieces of work are spelled out in what are alternately called Task Orders or Statements of Work.) Among the provisions in this gem: Should the relationship go awry, the vendor had the right to terminate with 60 days notice. The client received no right to terminate.

  • A prospective client once asked me to use its standard MSA to govern some consulting work. Had I signed it, any intellectual capital my company used in the engagement would have become their property. Not satisfied with asking for the unrestricted right to use it themselves, they figured I shouldn’t get to use it anymore myself. After roughly seven hours of my life I’ll never get back, we came to the same agreement we should have started with.
  • More recently we were asked to sign an MSA with a provision requiring us to continue our work in the event of a dispute over terms, schedule, effort, definition of deliverables, or what have you. It had another provision, on a different page, asserting the client’s right to withhold payment in the event of the same kind of dispute. Either of these terms is reasonable. Together, they gave our client the right to compel us to continue working without ever getting paid. I don’t think so.
  • Getting back to vendor-driven unilaterality, I once saw a contract that gave an outsourcer the right to increase its hourly rates more than three times the rate of inflation each year. I saw another that included a non-solicitation clause preventing the client from recruiting vendor staff while leaving the vendor free to solicit as it liked.

I’ve been on both sides of this issue enough times to recognize a time-wasting trend: These documents increasingly are written to be one-sided. Really, what’s the point? Does anyone want to do business with a company careless enough to fall for this kind of thing?

I blame the dot-com era. No, really … the dot-com era, and especially the so-called experts who promoted “digital marketplaces” and focused the business world on obtaining the lowest-cost goods in every purchase. Prior to that, the business world had, for the most part, figured out that strong supplier/customer relationships provide more value at lower total cost than when each party views every interaction as a negotiation in which it tries to gain maximum advantage.

Awhile back, KJR introduced the idea of ROT — Relationships Outlive Transactions. You should remember ROT when dealing with suppliers and clients just as much as when dealing with managers and peers within your organization. This isn’t about being a mensch (although aspiring to mensch-hood isn’t a bad personal goal). It’s about personal and organizational effectiveness.

Compare the reputation of two vendors. Of the first, clients say, admiringly, “What a sharp company. It doesn’t miss an opportunity — its people always try to find an angle. They’re shrewd — if our attorneys hadn’t been on the ball they’d have taken us to the cleaners.” Of the second, clients say, “What a great company. You can always trust its employees to be fair. We just do business, and haven’t once had to pull out the contract — we’re always able to work things out.”

You have to choose one. If you choose the first, you know before you start that you’ll have to invest quite a bit of extra time looking for loopholes. You’d have to have a very good reason to go through the trouble.

It works the other way as well: When service providers look at you, are they more likely to say they have to negotiate hard for every point, or that you do your best to establish a working relationship that’s reasonable? And before you say you don’t care, consider that the best service providers can afford to turn down bad business, and are generally smart enough to do so.

Writing fair contracts isn’t all that difficult. The social philosopher John Rawls provided the key concept in his definition of a fair society — it’s one you’d design without knowing in advance where you’d be born in it. To apply his approach to the world of business relationships, when you ask your attorney to draft a contract, don’t reveal whether you’re planning to be the buyer or seller.

The only possible outcome is a contract both can accept.

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