What CIOs Must Know to Negotiate Better Deals

By Brian P. Watson  |  Posted 11-09-2007

What CIOs Must Know to Negotiate Better Deals

Danny Ertel knows a bad negotiation when he sees one. And often, when dealing with CIOs, he sees a number of telltale signs of deals going bad.

That doesn't bode well for many IT executives, especially in a time where their job description is undergoing dramatic change. Today, IT organizations are becoming leaner, focusing increasingly on core competencies and farming out projects seen as non-essential.

Ertel, a co-founder of Vantage Partners, a consultancy that helps companies negotiate and manage business relationships, deals with providers and customers, sometimes together. And he's documented the lessons from various negotiations in a new book, The Point of the Deal: How to Negotiate When Yes is Not Enough (read excerpt), which he wrote with colleague Mark Gordon.

What does Ertel see as the biggest problems CIOs run in the process--before getting to the negotiating table and after?

For starters, some CIOs never make it to the table. Instead, they work on the planning but leave the deal-making to legal, procurement or outside consultants. "We're seeing that the CIO and senior people in the IT organization are very much a part of figuring out what to outsource, who to outsource to, negotiating parts of the deal," Ertel says. "The CIO needs to drive the kind of deal they want to have, and the kind of relationship they want to have, at the table."

With CIOs excluded--or excluding themselves--from nailing down the fine points of an alliance or outsourcing deal, chaos can ensue. Ertel offers three tips to avoid problems before and after executing the deal:

Next Page: 3 Ways to Avoid a Bad Deal

3 Ways to Avoid

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3 Ways to Avoid a Bad Deal

1. Determine What the Vendor Needs From You

Outsourcing vendors and alliance partners typically have models for achieving their client's objectives. But there's always a tradeoff. For example, if the company wants labor arbitrage, the CIO needs to ensure that offshoring is on the table, and that knowledge transfer will take place effectively. But above all, the CIO needs to know how he/she will be involved in it.

"The CIO really needs to understand how the vendor will accomplish value, and what it requires of the customer," Ertel says.

2. Make Governance a Top Priority

CIOs and their deputies shouldn't look to micromanage their service providers, but they do need to ensure that the vendor is held accountable for its responsibilities. Too often, though, governance and responsibilities are left out of the up-front negotiations. Establishing those details take minimal time, but vendors tend to push the same policies they've used in previous deals.

"You need to bring the governance discussion earlier into the process, and not just cut and paste from the last deal," Ertel says.

3. Establish Stakeholder Expectations Early

In these deals, bringing in internal constituents is just as important as dealing with external partners. In turn, the CIO needs to open the discussion to include employees--especially those who will be involved--to get their input before the deal is done. That brings more ideas to the fray, and usually leads to better buy-in for the project.

"The CIO needs to sharpen his or her consultation skills, and involve people in a way that they get heard, without giving them a veto," Ertel says. "A lot of these deals leave stakeholders out of the equation for the expediency of getting the deal done."