Software Negotiation: A simple introduction to professional services
Don’t leave professional service negotiations to the last minute, says software negotiator Phil Downe
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TORONTO, March 30, 2018 – Software negotiations are now the responsibility of so many Chartered Professional Accountants, from the SME practitioner negotiating CRM or ERP subscriptions to the CFO negotiating payroll or human capital solutions. The onus is typically on the CPA to save the most money while getting the best deal possible. My focus in this ongoing series is how you as a CPA can maintain leverage.
We will focus on cloud solutions rather than on-premise versions, as the latter is losing ground fast to its more nimble offspring.
When you rent Cloud-based software subscriptions you usually have to engage a professional services (PS) team. Presumably, these are experts who actually know the software well enough to configure and tailor your selected modules to meet your requirements. They may write Interfaces to your other internal systems and there are usually data migration and training tasks to be completed.
Software publishers, for the most part, leave the PS duties to the Big Four accounting firms and thousands of specialized boutique firms. Publishers make money — sometimes obscene amounts of it — selling subscriptions, premium support and add-on modules. The build-once, sell-many formula is far too profitable to waste time on trite hourly wages.
The PS negotiations, unfortunately, always get left for last and that can easily create a leverage problem.
Buyers have difficulty starting the conversation because they rarely begin with a good Statement of Work (SOW ). The PS firm doesn’t want to go much beyond rhetoric until the buyer is fully committed to the software solution in question. They know that pre-signature implementation planning details are non-billable whereas post-signature hours are on the clock.
Naturally, you need to know what you want to build, before you can get an estimate on the effort and negotiate the price. The SOW is always a bigger effort than anyone expects, so you must focus on it early. Avoid getting too far into your negotiation on the software licensing side of things before you get down to the PS part.
Ideally you prepare the SOW first using the business case as a blueprint, then negotiate the licence pricing and the system integration (SI) services in parallel. It all goes back to leverage. Once the PS provider knows you have reached agreement on the subscription’s pricing, you’re committed to the solution and have little leverage left.
The PS requirements always take longer than expected because you “don’t know what you don’t know.” There is so much selective, either/or functionality in modern cloud solutions; it’s difficult to state requirements when you are not familiar with all the possibilities.
After all, if you’ve been using an outdated ERP system for several years, then how can you be up to date on all the latest features? How can you be expected to clearly state your requirements?
The business case will usually identify the pain points that the new ERP solution is supposed to address. But, if you don’t know what else a modern solution might be able to do for you, I’d suggest you heed the advice of ERP selection expert Chris Doig at Wayferry and reverse-engineer the requirements from an RFI or the many ERP brochures out there.
Chris explains that a requirement stated in the request for proposal can be had at a cost of .5X. A requirement added during the SI phase costs 2X and a requirement added after go-live costs 3X.
In my next blog post, I will get into the nitty gritty of how the RFP process can help you maintain leverage. And, in the coming weeks, we will address issues such as fixed price or T&M, and how to avoid the latter turning into a Black Swan project.
I’m also working with Canadian Accountant on launching a free lunchtime webinar on software negotiation strategies for Canadian accountants. If you are interested in learning more, please contact firstname.lastname@example.org and we will add you to our notification list.
Phil Downe is an independent IT negotiations specialist and principle with Relations Management Group Inc. based in Toronto. He can be reached at 416-804-7445 or Phil.Downe@ITnegotiations.com.