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Vendor Give-and-Take
CIOs at midsized companies are even more vulnerable to failure than their enterprise counterparts that have larger budgets and more projects under way. Raaen felt the pressure of working in a smaller midsized firm several years ago, while serving as a senior vice president for Intelisys, an electronic commerce vendor whose customers include Chase Manhattan Bank and Ford Motor Co.
In a small company, "if a project goes belly up, it has immediate focus," she notes. What's more, customers are more likely to take their travails straight to the top. For that reason, the need to have standards, tools and training aimed at closely monitoring vendors is "more important in the little companies. You have fewer moments where you can fail. You have tighter budget controls," she says.
Against the backdrop of these strategic issues, negotiating prices with vendors may seem unimportant. But for a smaller midsized organization, it can make a big difference, says Todd Nugent, CIO at Chapman and Cutler LLP, a Chicago-based law firm that specializes in corporate and public finance. Nugent has noticed that many IT executives are pretty good at negotiating SLAs, "but they're typically bad at price negotiation." In fact, they often don't do it at all. "Price? There it is. OK, check," Nugent says, echoing what he hears from some of his staff who hire vendors.
Sure, Chapman and Cutler isn't General Electric, but the midmarket firm still has enough sway to negotiate prices of its networking equipment, laptops and cell phones. When seeking bids, Nugent lets vendors know he is also talking to competitors known for the lowest price. And like anyone who has studied the art of buying a new car, when Nugent has the flexibility, he defers purchases to the end of a quarter or year, when the vendor's salespeople are willing to drop prices to meet their sales targets for the period.
When purchasing a few hundred thousand dollars' worth of Sun Microsystems gear, "we got the configuration worked out," waited until the end of the year, "and then suddenly, the price is very good -- we got 15% off," Nugent says.
Nugent honed his negotiation techniques while traveling in Asia, where the give-and-take over the equivalent of a few nickels is often staged as an hours-long verbal dance over tea. If he could, he'd send his lieutenants to Asia to get the same lesson. Instead, he coaches them and then lets them negotiate on their own. When they tell him they've reached what they think is the vendor's best price, "I take it over and knock it down a bunch more. I let them see how I do it. I show them that a little more can always be squeezed."
There are limits, though. Nugent realizes that if he squeezes too hard, the deal loses its profit for the vendor, and with that, any friendly attention the vendor might have conferred on it. "You can get somebody down too low where they're not making money on you. It can make them not want to hear from you," Nugent says.
Joan Indiana Rigdon was a contributing writer for CIO Decisions. To comment on this story, email editor@ciodecisions.com.
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