When Oracle released version 6 of its database, Jay Hemmady, then CIO of an information services provider in the trucking sector, decided it was time to take a calculated risk. Knowing Oracle was in a tough financial position, "we took the opportunity to negotiate incredible pricing," Hemmady says. But Hemmady and his team didn't stop there. They locked in provisions for future licensing as well. "Even five years after signing up with them, our licensing and support costs were unbelievably low," he adds.
Hemmady's triumph provides a fourfold lesson for IT buyers in search of a great deal: Arm yourself with the right information; know when you have leverage and use it; negotiate for the future as well as the present; and take a calculated risk once in a while -- as long as you know that's what you're doing.
If you don't, you may not sense when a deal is too good to be true, such as one cut by the CTO of a well-known nonprofit organization. "We got a great deal on some vertical, not-for-profit software from a second-tier vendor, only to realize later that we were their largest customer," says the CTO, who prefers to remain anonymous. "It soon became apparent that they couldn't really support us adequately and didn't really understand what we were looking for."
As this CTO experienced firsthand, enterprises don't merely shop for products; they form relationships with vendors, healthy or dysfunctional. Understanding how to build good relationships and how to leverage them -- and knowing when to step outside them -- is key to cost-effective IT purchasing. Learn the ropes, and you can maximize whatever resources are at your disposal.
1. Consider Your Needs
The first rule is to understand your own requirements -- not just current ones but your best guess at what you'll need down the line. "Know going in, 'Here's what we need today; here's what we'll need six months from now, a year from now,' " says Randy Kerns, senior partner at Evaluator Group, an analyst company that specializes in storage.
Michele Pavlyak -- author of Systems Survival Guide and founder of Linchpin Manufacturing Specialists, a consultancy that specializes in manufacturing performance and development -- believes that poor preparation for the purchasing cycle is rampant. "Many companies start the purchasing decision process in the middle," Pavlyak says. "They have a vendor come and knock on the door; or a system is outdated, and they just jump into a new one without really understanding what they need."
Not only does developing a deep view of current and future requirements help you find solutions for real rather than imaginary needs, but it also exudes a sense that you're in it for the long haul when it comes time to negotiate pricing. "You will be able to tell your vendor in very specific terms, 'Here's where I'm going, and you can be a part of it,' " Evaluator's Kerns says.
2. Know Your Vendor
After you've gone to school on your own organization's needs, find out all you can about your vendors and resellers. Good vendor relationships are valuable, but during negotiations your vendor is an adversary. "Vendors may describe your relationship as a partnership, but they're still in the business to make money," says Mike Chuba, research director at Gartner.