Firms need to drive a hard bargain when buying software

8 Dec 2008

Very significant cost savings can be secured by public- and private-sector organisations procuring software and related services, if they negotiate effectively.

That’s according to a Dublin consultant who has provided negotiation consultancy and training to organisations including Barclays, Reuters, BT, Eircom, O2, NatWest, BAA and Hibernian.

Ray Murphy of Dún Laoghaire-based Strategic Computing said that the current global economic slowdown makes it more important than ever that those involved in large-scale procurement acquire and apply negotiating skills that can yield significant savings.

For large software licensing, development and integration projects, these savings can typically be in the order of 15 to 20pc of the overall cost.

The author of a number of articles on the subject, Murphy said that with enterprise software applications frequently costing millions of euro, and bespoke systems developments likely to cost anything from €100,000 to €2m-plus, there can be huge and sometimes competing pressures on those involved in purchasing decisions.

“The two main drivers for those involved in this type of negotiation are to deliver value for money to their employer or organisation and to reduce risk – implementation risk when the software is being delivered and down-the-line operational risk when the system is in place.

“While there is a reluctance to make major investment decisions in the current economic climate, the tighter circumstances in which all public- and private-sector bodies now operate mean the opportunity to make substantial savings without impacting on end results is becoming more attractive to those in procurement roles,” he continued.

“In addition to requiring a savvy approach to enterprise software purchase negotiations, many companies are seeing the outsourcing option as one that merits serious consideration. The negotiating context here is even more significant as outsourcing deals typically range from three to 10 years in duration, heightening the importance of getting the deal right.

“In advising companies involved in these negotiations covering sometimes complex and interlinked topics, we lay heavy emphasis on simplifying the outsourcing negotiation process as much as possible. Another important element is ensuring that the people involved in the negotiations work effectively as a team, providing consistent messages to the supplier and managing the interactions throughout negotiations that can last for several weeks or – in some cases – months.”

Murphy said that all negotiation requires assiduous preparation and clear definition beforehand of the desired end outcomes and walk-away positions that would lead to a deal not being reached.

“There can be a lot of different priorities of various levels of importance to those at either side of the negotiating table and, while every process has some unique features, the fundamentals remain the same. Project-based training and workshop-based scenario assessment allows teams to prepare thoroughly so that they stand the strongest prospect of achieving the best outcome from their perspective.

“There really is no substitute for preparation, especially in team negotiations where it is hugely important that each member of the team understands their specific role and knows where that begins and ends.

“A team also needs to have an understanding of the overarching goals that it is working towards collectively, and the elements it is individually responsible for achieving from the negotiations,” Murphy said.

By John Kennedy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years