When the Vendor Knows Too Much

By David Weidenfeld  |  Posted 12-28-2007

When the Vendor Knows Too Much

A number of years ago I gave a presentation to IT procurement pros that got some surprising reactions.

The session was intended to be humorous. It was designed to let the attendees laugh at the sometimes-difficult situations they found themselves in when a vendor possessed far too much information about some aspect of the business relationship.

Here's a sample:

You know the vendor knows too much when…

- The vendor participates in department planning sessions with your CIO and you don't.

- In conversations with you, your CIO tells you that he's already discussed your next project with the vendor.

- The vendor is part of the team put together to write the RFP for the project that they will be bidding on.

- The vendor account rep has more seniority being assigned to your company than anyone in your department does.

- You receive a copy of the vendor's response, with the correct project number on it, before the RFP is actually issued.

While some people laughed at some of the one-liners, there were a sizable number who did not find the session funny at all.

I assumed that it was lack of comic writing skill on my part but in talking to a number of them I found that the lack of perceived humor stemmed from something quite different: the jokes came far too close to painful and frustrating truths.

The dilemma that IT organizations face is how to maintain a balance between getting a good deal for their company while at the same time maintaining positive relationships with critical vendors.

If you take a look at how vendors operate, you'll notice they don't seem to have any problem with this. Any unpleasant demands—like miniscule warranty periods, no performance or generally meaningless warranties, refusal to allow acceptance testing—by the vendor's negotiating and legal staffs is simply presented as, "I'm really sorry, but the guys at headquarters insist upon this as it's how we do business."

This is delivered with a rueful smile that shows real sympathy to your situation.

The appropriate response is, "Gee, I'm sorry to hear that because we do business this way and I'd hate for you to lose out on this opportunity." That answer isn't given nearly as frequently as it should because the procurement staff often doesn't feel that it has the authority to deliver that message.

Why not? Because the staff tends to feel that IT executives have made it clear that the vendor relationship is of critical importance to management. They're a "strategic partners," management says—which translates into, "Don't do anything that might place the relationship at risk.

The employees guess (probably correctly) that the vendor knows this. Under those circumstances, most people don't want to place themselves in a position where the vendor can complain to management about the difficulty the procurement staff's demands are on the relationship. In that scenario, employees just don't know how management might react.

The concern that taking a tough negotiating position will hurt the relationship significantly limits the ability of procurement staff to accomplish the goal that management sets: an agreement that is beneficial to the company today and in the future.

Dealing effectively with this situation allows organizations to achieve significant improvements in the terms under which they conduct business and preserves long-term value in the transaction.

Next page: Solving the Problem

Solving the Problem

Solving the problem

If you, the CIO, are reluctant to allow your staff to have this authority, then you need to examine why.

A few pointers:

1. If the transaction is highly complex and goes into an area that your company has dealt with extremely infrequently or not at all, it's helpful to retain outside assistance from an outside organization specializing in the area. If you want to maximize the benefit that you receive from paying substantial fees for the IT product or service you're acquiring, you need to make sure that your procurement staff also works on the project to ensure there is a maximum amount of knowledge transfer.

2. Your relationship with the vendor isn't going to suffer because you support your own staff. Vendors will want your business even after a spirited negotiation. Each time you do this, you make it far easier for your staff to negotiate with the vendor in the future because you've established the position that the procurement folks have a job to do and you support them in it.

3. If training in the principles of negotiations is an issue, support your staff in getting it. The vendor's sales staff receives tons of training on how to maximize their profit and minimize their risk. Don't you have the same goals for you company?

4. As in any transaction, information is king. Make sure that your procurement staff knows more than the vendor does. It's a great way to build confidence and a willingness to go the extra mile to get you what you need to have. Additionally, it's probably a good way to avoid bad jokes.

Dave Weidenfeld recently retired as managing counsel for global and strategic IT matters for McDonald's, where he oversaw negotiations for all global technology contracts and consulted the company's international legal and IT procurement staffs.