Spend Matters welcomes another guest post from Mark Bartrick, a senior analyst at Forrester.
Gathering market intelligence about your software suppliers is a sourcing best practice, as it empowers your negotiations and ensures that you know what to ask for and when.
Thorough knowledge of the supplier in areas such as its market position and product strategy will enable you to create a better negotiation plan, which in turn lets you identify what you want to get from the deal and how you intend to get it. Thankfully, the Internet has opened up a tremendous pool of data that can be quickly accessed so it's easier to do today than it's ever been.
At a minimum, your research needs to include:
- How well (or not) the company is doing. Successful companies are likely to take a more robust negotiation stance than those who are struggling and are desperate for any deal they can get. Successful companies are less desperate for your business and can afford to play a little more hardball in the negotiation — especially if they know they are your preferred supplier or they are the only game in town with a solution that fits your requirements.
- How important the product is to the vendor. You can often get better deals when vendors are prioritizing a specific product for their growth objectives.
- How the supplier licenses, prices, and discounts its software. Some vendors, such as Oracle, publish their price list and licensing policies on their websites. However, many software vendors aren't as transparent, which makes it more difficult to determine whether the vendor is really offering you its best deal and licensing its software in the most advantageous way.
- Who the supplier's customers and competitors are. Being the supplier's first customer or joining a long list of existing customers in your industry can make a huge difference to the deal you do.
- How the supplier's salespeople are compensated. If you can help suppliers get the deal they need in the time frame they need it, that'll often drive them to get you the deal you want at a price that is most attractive to you.
- Whether the supplier has had any good or bad press recently. We pointed out some bad press about a particular product to a client about to sign a significant deal with that vendor. While the client still went ahead and bought the product, it did mean that they could squeeze an even better deal out of the vendor and further de-risk the project.
A structured and conscientious approach to due diligence and gathering supplier intelligence will reap rewards when it comes to developing a successful negotiation strategy. In order to arm yourself with insider knowledge about a software supplier, Forrester has developed a checklist as part of its Strategic Sourcing Playbook to help. You can glean supplier intelligence from:
- Financial information websites. Websites like Dun & Bradstreet, Hoover's, and Yahoo Finance can be great sources of public domain data, such as financial performance. Use this data to generate a financial picture of revenues, profitability, recent acquisitions, and cash on hand. If possible, do this at a product level.
- Industry analysts who study and offer independent advice on the vendors. The value of an objective third party is particularly noteworthy in a negotiation. These analysts see best practices across a range of deals and clients, and most specialize in particular vendor negotiations.
- Industry news magazines, press, and other customers. Use these sources to compile lists of key executives and even to understand who is gaining power within the organization. Go to industry events or user groups to find out how your peers are feeling about these companies and what tips or pitfalls they can share.
- The vendor's salespeople. Some customers don't ask their vendor's salespeople about what matters to them, leaving an essential piece of negotiation leverage out of the equation. A little fishing in this area can sometimes turn up some surprising opportunities. We worked with one client who found out his sales rep was only one deal away from making his annual numbers. Guess who then got themselves a really deep discount to secure the deal?
Once you gather the information, create a supplier profile that should be regularly reviewed, updated, and maintained. The profile would provide information regarding the supplier's financial performance, products, clients, and competitors, as well as an audit trail of your current/historical sourcing activity with the supplier. This profile will then provide the basis of your negotiation playbook when it comes to buying again or renewing an existing contract.
You should implement the raw factual aspects of the profile into an online "supplier self-service portal" and hold your suppliers responsible for keeping factual information about themselves up-to-date. This will cut your workload and ensure that basic data such as financial performance and product data is regularly updated and available as required.