Advanced Outcomes Based Negotiation MAKE YOUR PARTNERS WORK AS HARD AS YOU DO

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Imogen Preston
5 years ago
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1 Advanced Outcomes Based Negotiation MAKE YOUR PARTNERS WORK AS HARD AS YOU DO

2 MEET THE GURU DAN KELLY Founder & President Dan Kelly has over 10 years of advanced negotiation and strategic sourcing experience within both public and private sectors. He is recognized as a Senior Expert in IT Procurement by industry experts and leading management consulting firms. He started his career with the FBI, where he was in charge of Strategic Supplier Relationships on behalf of the FBI and its global investigations. After leaving the FBI, Dan has supported Cargill, Syngenta and MTS Systems in various capacities, ranging from Senior Project Specialist to the Global Head of Indirect Procurement all within the span of 5 years. Currently, Dan is the principal consultant at The Negotiator Guru where he enjoys working with his C-Suite clients to deliver immediate and long lasting financial impact to the company s stakeholders.

3 MEET THE GURU DAN S EXPERIENCE Founder & President Strategic Sourcing at Federal Bureau of Investigation (FBI) Strategic Sourcing - Cargill IT Category Manager - Syngenta Global Head of Indirect Procurement - MTS Systems Corporation Board Member - Metropolitan Airports Commission s Traveler Advisory Committee Founder and President - The Negotiator Guru

4 What do you want to learn? What I want Ex: Identify different contracting methods that holds suppliers/partners accountable to delivering What I don t want Ex: A boring lecture Let s Shape our Time Together

5 Common Challenges (from real clients) Our suppliers always seem to fail with regards to timeline and/or deliverables It always seems as if our IT projects are way over budget I can t get anyone to pay attention to our needs after we sign the Statement of Work what gives? There is a strong disconnect between what my supplier says and what they actually deliver. I don t have the time or resources to monitor every supplier relationship My strategic suppliers are very well integrated into my business. They often know more than I do, however, they get distracted easily based on varying internal demand. This leaves us trapped and with a loss in productivity.

6 What does outcomes based mean to you?

7 Basic Value Components Less More Revenue Contract Length Short Long Low High Profit Worse Better

8 Outcomes Based Value Components Press Release Joint Venture / Partnership Cost Savings Future Business Potential Executive Access Milestone Incentive

9 Press Release Joint Venture / Partnership Press Release Cost Savings Objective: Identify opportunities where the supplier is looking to leverage your company s brand equity to create external opportunities Executive Access Future Business Potential Incentive Milestone Approach: Most commonly used at the beginning of the negotiation (lowest effort and risk) Create a SMART Goal Identify key metrics that are being improved with realistic measurement Should be a $0 cost effort for both parties Expected Outcome: Quickly and easily align mutual interests of both parties Buyer: On time & Under budget Seller: External credibility to drive more business development Drives accountability at all levels Watch outs: The buyer should always maintain the right to opt-out if supplier underperforms and did not achieve the Goal

10 Cost Savings Joint Venture / Partnership Press Release Cost Savings Future Business Potential Objective: Executive Access Milestone Identify opportunities where the supplier is paid based on achieving actual cost savings for your firm Incentive Approach: Establish a baseline for your area of focus Identify a cost savings target Standard is 10 20% Create a defensible contract Expected Outcome: Extract additional value from a core services relationship by incentivizing additional effort from the supplier Watch outs: If not properly managed and monitored, your supplier could lose focus on the core services in the interest of identifying this additional revenue stream

$3.9M ROI for Under Armour & FedEx Deal through gain share The Situation: Over the past 16 years, Under Armour s growth has lead to their parcel spend growing from $10M to $50M per year.

Every 6 months, UA would run an RFP to keep the rates optimized, but after many failed proposals UPS decided to stop submitting for the RFP process.

11 $3.9M ROI for Under Armour & FedEx Deal through gain share The Situation: Over the past 16 years, Under Armour s growth has lead to their parcel spend growing from $10M to $50M per year. During this time, FedEx and Under Armour executives became close friends and often played golf together. Every 6 months, UA would run an RFP to keep the rates optimized, but after many failed proposals UPS decided to stop submitting for the RFP process. In addition, recent SAP integrations made it impossible to easily switch providers. As a result, FedEx proposed a $2M rate increase for 2016 and an increase in the annual adjustment factor. UA had very little leverage in this situation. The Solution: UA hired AFMS to work on a pay-for-performance basis. Instead of charging a large consulting fee, AFMS supported UA in renegotiating the deal and was compensated based on the total achieved savings. This meant no risk up front for UA and a large upside when savings were produced. The end result: Avoided $2M increase, Achieved $1.9M decrease

12 Milestone Joint Venture / Partnership Press Release Cost Savings Future Business Potential Objective: Hold cash payments until specific deliverables are achieved on-time and within budget. Contract incentives and penalties based on deliverables before or after target date. Approach: Establish a target date for each deliverable Identify an incentive percentage Standard is 10% / Aggressive is 15% Identify a penalty percentage Standard is 15% / Aggressive is 25% Expected Outcome: Drives outcomes based behavior from the supplier to meet or beat project timelines which enables upstream efficiency and eliminates any downstream impact (from supplier delays). Watch outs: Suppliers that do not agree with this might know they will deliver late and don t want to be negatively impacted based on this reality. Executive Access Incentive Milestone

13 $52.3M in savings by renegotiating Oracle Reseller Agreement One of our recent clients was a biopharmaceutical company with $5B+ in annual revenue. The client was purchasing Oracle through a reseller. The original agreement was charged on a case volume basis which was leading to rapid growth in costs beyond our client's budget. We helped the client renegotiate the agreement with the Oracle reseller by: Changing the cost lever from which the client was billed from case volume to seat-based licenses Setting rates on a should cost basis due to The Negotiator Guru s extensive experience in the IT Sourcing industry We decided that 35% was an acceptable margin for a reseller to be charging the client for access to Oracle. Previously, the Oracle reseller had been charging a 200% margin. Handling the entire renegotiation process The end result: $52.3M+ in savings over 5 years

14 Interactive Exercise #1 Buying Team Objectives: Identify the outcomes you re trying to achieve Develop a game plan on mutual value extraction Selling Team Objectives: Use a standard value extraction approach and challenge the buying team to make commitments. Negotiate a deal that is in your best interest. Take 15 minutes on this exercise and then return to the home group

15 Incentive Joint Venture / Partnership Press Release Cost Savings Objective: Develop specific incentive plans that are unique to the expected outcomes of your deal. Executive Access Future Business Potential Incentive Milestone Approach: Incentive are commonly attached to the following 3 variables: Time (less time = more money) Money (under budget = more money) Outcomes (increased sales, retention rate, lower employee turnover, etc = more money) Expected Outcome: A self-guided supplier that makes a cost benefit decision on whether to achieve specific incentive targets (cost/benefit analysis) Watch outs: This outcomes based contracting method is not a guarantee for a specific supplier behavior It is important to make the incentives realistic with regards to incentive and deliverables. Be very careful making aspirational goals that are unachievable without the supplier taking shortcuts.

16 Executive Access Joint Venture / Partnership Press Release Cost Savings Future Business Potential Objective: Executive Access Milestone Identify where suppliers are interested in obtaining additional visibility within the company. The intent being to obtain additional business internally or externally. Incentive Approach: A stage gate approach that enables access to the c-suite only once deliverables and subjective expectations have been met. C-suite presentation and/or one-on-one meetings Establish referral agreement (assuming successful relationship) Expected Outcome: Incentivized supplier that focuses on achieving subjective expectations (vs. only contract deliverables). Watch outs: Ensure your c-suite understands the intent and reason for meeting with these suppliers. This will benefit all parties.

17 Reducing Salesforce.com contract from $25M to $13M One of our recent clients was a financial services company with $15B+ in annual revenue and 5,000+ employees. $25M We worked with the client to: Identify current state of contracts across the globe Coordinate global business units and stakeholder meetings to discuss opportunity, gather feedback and drive results Utilize proprietary tools, templates and techniques to assign global roles & responsibilities, action items and negotiation tactics in interest of speaking from one voice The end result: $13M+ in client savings Original Deal $13M Re-negotiated Deal

18 Joint Venture / Partnership Joint Venture / Partnership Press Release Cost Savings Objective: Identify opportunities where building together is attractive and efficient for both parties. Approach: Identify mutual interests early and check-in regularly Establish a guiding principles document that is signed off by both parties. Create a timeline, kickoff deck, resource tree (executive/core project/supporting), and roadmap with milestones Expected Outcome: Share risk and reward Drives commitment and accountability A lower total cost of ownership A supplier relationship that produces revenue not just cost. Watch outs: Ensure you conduct due diligence in the development. The supplier may become too comfortable knowing your cost of change is high. It s imperative that all stakeholders are identified and aligned early through a proper stakeholder mapping process. Executive Access Future Business Potential Incentive Milestone

19 Interactive Exercise #2 Buying Team Objectives: Identify the outcomes you re trying to achieve Develop a game plan on mutual value extraction Selling Team Objectives: Use a standard value extraction approach and challenge the buying team to make commitments. Negotiate a deal that is in your best interest. Take 15 minutes on this exercise and then return to the home group

20 Let s talk about cost-savings for your company Dan Kelly Dan@thenegotiator.guru (952) Main Office (952) Mobile

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