Everything I know about outsourcing negotiation, I learnt from Star Trek
by Greg Jones and Mark Turner are sourcing experts at PA Consulting Group.
Friday, June 01, 2012
The Kobayashi Maru scenario or “everything I know about outsourcing negotiation, I learnt from Star Trek…”
For those not several light years into the sad zone, the Kobayashi Maru was a no-win training exercise in Star Trek, famously beaten by one James T Kirk. Though it may not be immediately obvious, there are some lessons here for businesses negotiating outsourcing deals. How? Well, in Kobayashi Maru you are:
• outmatched by an opponent
• unable to withdraw
• given insufficient resources to complete the job
• faced with Klingons off the starboard bow
Sound familiar? Maybe not that last one, but the reality that bites many organisations trying to cut an outsourcing deal is that the suppliers often have far more experience, a bigger team and more information on which to draw.
What was Captain Kirk’s solution? He reprogrammed the simulator to change the rules of the game. So what’s the ‘game’ in our world of outsourcing negotiation and how do we reprogram it?
“Simplify, simplify, simplify”
In a complex game of trade and counter trade, suppliers have the advantage: simplify the questions and concentrate on the critical elements of the deal where there is genuine room for movement. These critical elements will vary from company to company depending on the nature of the business, so it’s worthwhile investing the time up front to get agreement on those that are most important. For example, for one recent client, protection of intellectual property was critical; for another the focus was around personal data import/export limitations. Each should be a standalone discussion – don’t allow your critical elements to be wrapped into a package of trades.
“I’ll buy that service for a penny”
Avoid ‘moroccan bazaar’ approaches. Don’t take extreme positions simply because you expect to negotiate down. That simply encourages the other side to adopt the same extreme positions, extends the negotiation timescales and, again, plays into the hands of the more experienced team. Too often, clients tie themselves in knots around things like limits of liability, service credits and total amount at risk, when in the vast majority of cases agreements end up in the ‘normal’ range. Bidders know this, so don’t play the game. We advise clients to start in the ‘normal’ range and focus the discussion on what is important.
“The engines cannae take it, Captain”
Stress and brinkmanship are common negotiation tools but rarely available for the purchaser. “Head office won’t accept that clause” is almost a catchphrase during some negotiations. Assuming you haven’t adopted the Moroccan bazaar approach, your position should be reasonable and not a total departure from what the supplier market can accept, so call their bluff. Make it clear what you are doing and, if push comes to shove, wave goodbye to that bidder. Once suppliers have got over the shock, they will start to trust you to set reasonable positions and respond in kind. We supported a client who rejected a potential supplier because there were far too many ”we’d like to discuss” responses to the contract clauses. In a subsequent competition, the same supplier provided full and detailed responses with no ”reserved positions” and, eventually, won the deal.
“The final frontier?”
And, of course, remember to do all this while there are still multiple suppliers in the competition. Don’t wait until you have selected your preferred supplier before starting the hard yards of agreeing the details, because these hard yards will turn into hard miles and the “one or two details left to resolve” will turn into complete renegotiation (with the bidder having the leverage, not you).