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How to make the most of an IT buyer's market

Cindy Waxer | June 10, 2014
After years of fighting tooth and nail with vendors for meager price discounts or modest service-level agreements, IT has seen the tables start to turn: Sweeping changes are reshaping the vendor landscape, shifting negotiating power from stingy service providers to savvy CIOs.

IT Survival Guide

How to Negotiate With Vendors

Once you sort through the chaos, it's easier than you think to take advantage of the changing nature of the IT-vendor dynamics. Here's what you can do:

If a vendor won't budge on price, ask to have additional products or services thrown in for a more cost-effective package deal.

If you're working with a new vendor, test the waters by taking advantage of a monthly subscription service.

Always ask a vendor what migration path it has in place for your business in case it's involved in a merger or acquisition.

Create a five-year plan that limits a vendor's ability to raise its prices.

Request a single point of contact for all customer service.

Investigate any legal liabilities that might arise from using a certain product, such as questions regarding intellectual property rights.

Hire a third-party consultant to provide industry benchmarks on fair market prices for products and services.

When hammering out cloud deals, be sure the terms of service-level agreements cover specifics such as network uptime.

Cindy Waxer

But as CIOs and vendors increasingly become bedfellows, the IT world is drafting its own version of a prenup. For instance, when UHN began vetting vendors for a new managed service contract, Forbes insisted that each interested party develop a five-year plan illustrating how unit costs might change over time. Vendors that promised cost-per-unit decreases earned extra points.

Another way Forbes gained an upper hand in negotiations was paying research firms, including Gartner and PricewaterhouseCoopers, for market analysis on IT service prices such as help desk costs and server fees — industry benchmarks that provided "a viable opportunity to negotiate cost reductions right upfront before signing a contract," he says. "We're doing more strategic thinking as part of the RFP process as opposed to just writing an RFP and throwing it out onto the street."

Such an informed approach to negotiating pays dividends, according to Cole, who says he once talked an IT vendor into reducing the price of a system by $3 million. "We build performance milestones into all of our contracts," he says. "We also do a very good job of negotiating [financial] holdbacks so that we don't feel like we're paying for a service well before it's delivered."

Faced with dwindling bargaining power and better-educated customers, many vendors are sweetening the pot by offering cost-effective bundles of services. For example, a vendor specializing in email encryption technology might try to package its tool with an Exchange server and high-margin services such as consulting on compliance issues.

In fact, Lubner says peddling packages is "the only way for vendors to differentiate themselves and provide more value to the buyer" these days.

 

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