When you plan a negotiation (You DO plan them, don't you?), you should always firmly establish a solid enterprise value to the goods or services you are about to acquire. Too many technology consumers become trapped by their own personalities (or by their corporate cultural persona) when building or conducting a negotiation. This knowledge briefing covers one of the most cost effective methods of immediately cashing in on better technology investments.
Here’s How it Usually Works…
When we finally decide to make a given purchase or acquisition, we tend to forget the business and fixate on the toy. When this happens, negotiations become a "gotta have it" process instead of a "mutually beneficial exchange". Do you often find yourself haggling over the cost of a product or service? This is a primary signal of gottahaveitism. It means that your professional software asset management or technology asset management knowledge has taken the back seat to knee-jerk acquisitions. Pushing the price button indicates that the consumer has placed a monetary value on the acquisition, rather than an enterprise or strategic busines value on the entire life cycle of the prospective asset. Is there a difference? You bet.
The concept of enterprise value carries your acquisition far beyond mere price. True value is, indeed, an extension of price, but only as it relates to quality, functionality, and service delivered over time. Essentially, it isn’t always about what you pay, it’s what you really wind up getting in return for your money. Companies constantly refer to an acquisition in blatant monetary terms: “We negotiated the deal down to 20% of the original quoted price.” Here’s a thought: If the vendor so willingly drops the price that far, they must be making their profits somewhere else. Gotcha!
Cost Isn’t Even Close…
Acquiring that new operating system for only 20% of the quoted price may look like a deal—until the implementation extends beyond the expected time and you find yourself investing eight to ten times the purchase price to make the product genuinely operational; or until you discover that the product is not compatible with your existing systems (“That’s okay. We’ll write an interface—for a price.”); or until you discover that you are paying nearly three times the value of the product for the yearly support… Need I continue?
Define & Acquire Value—Not "Stuff"!
Start, today, establishing an enterprise business value to every acquisition. Link this value directly to your criteria. Consider: Who within the enterprise will be using this product or service? Could any other group in the enterprise make use of this product or service? How will it be used? Are there existing products in the enterprise that are already supplying the same deliverables? What other products or services will it impact? What other products or services will coexist with the new one? What are the required compatibilities – operating systems, software, hardware, knowledge of personnel, etc? What is the projected life cycle of this product or service? What levels of internal support will be required? External support? Cost and time for implementation? Skills necessary to implement? Skills necessary to manage?
Real World – Consider this: When you purchased that brand new cutting-edge operating system, did you closely define all the costs & benefits? Did you realize that a majority of your computers quite probably were not compatible with it? That your printers or other output devices would need to be replaced? That some of your legacy business applications would not work with that sweet new interface? If that new operating system, network infrastructure, or techno-what-have-you contributes more disruption than value to your company, is it a good buy? Yet, companies continue to purchase disruptive technologies at an alarming rate.
Here's News - Just because that product is new, doesn't mean it is remotely worth acquiring. Progress is more frequently wrapped in profits for the supplier than in productivity for the business technology consumer.
Get the Idea?
Consider the over-all impact of this new software asset, hardware asset, or service prior to negotiating the agreement. Work outside the egos & I gotta have its and focus on what is actually going to be a strategic business value. You will find that price is nearly always near the bottom of the respective priorities—important, but not even close to a major factor in an honest life cycle cost analysis. Want to cut costs? Doing all of this prior to and during negotiations -- before you buy -- can represent a huge change in the enterprise technology asset management process.
Does this help? Let us know if you have feedback & we'll follow up with more information & articles on this subject.