Negotiations, some say, happen when you least expect it. We say negotiation is not an event, but a process. The negotiations process start the moment you engage with the Service Provider candidates. Each step of the outsourcing process brings a subtle, yet important aspect of negotiation into play.
To understand this better, let's relate it to something we understand a bit better.
You walk into a dealership and say “I want to buy a car” [The Pre-Bid Announcement]. The salesman says “what kind of car are you looking for?” [The Pre-Bid Conference]. At this point, if you have done your homework, you are fully capable of describing your requirements precisely, “I need an all-terrain vehicle that gets 30 miles to the gallon, seats 6 adults comfortably and has room for a two dogs, and a ski rack”. [The RFP]. You may even be able to identify the make and model you are seeking – “I want a Jeep Grand Cherokee Overland, with GPS, Sun/Sound option and leather seats [The RFQ]. You will quickly be shown the most expensive Jeep Grand Cherokee on the lot, and you will start discussing price from there.
Some time ago, I listened to a client talk about a failed outsourcing project and describe the difficult situation they were in as a result. It seems that they had not defined their business needs and selection criteria carefully before determining which provider to negotiate with. Their selection was based upon personal relationships, past bad experiences, and marketing hype. They ended up trying to strike a deal with a provider that not only could not meet their needs, but who significantly raised the price during negotiations. They cancelled the transaction, which cost them hundreds of thousand of dollars in consulting and legal fees, and put themselves in a very precarious position operationally. I wish I could say that this situation is unusual, but unfortunately, I have seen it many times in my consulting career.
Building selection criteria before deciding who you want to invite to the outsourcing negotiations table is not rocket science. In fact, it is such a seemingly mundane task, that most people just skip it. The problem is that in a company where outsourcing is being considered, there are multiple forces at work -- people making decisions based on internal, unspoken criteria or old prejudices, or perhaps making recommendations that will scuttle the deal for personal reasons. So taking the time to identify your goals and business needs, and the objective criteria by which your team will make a decision, can help take the decision out of the realm of the emotional and into the realm of practical, business decisions.