Benchmarking. A concept we all do in our day to day lives and apply when making purchase decisions from buying a new car, choosing an energy supplier to broadband and telephone subscriptions, the list is endless. This is a process of comparing the results of our negotiation efforts to what others have received in order to assess whether we are getting a “good deal”.
Get it wrong and it has the potential to create a sense of injustice if we feel we are not getting a good deal comparative to others in the market. Good news, you are not alone!
A common question from businesses when in a negotiation process is;
“How does our deal compare relative to our peers /others in the industry?”
We all recognise that many large contract negotiations with the major software vendors are time consuming, complex and painful! This is why organisations invest significant resources and time, putting their most Senior Procurement resources in charge.
Organisations often have internal targets for purchase discounts and contract approval levels. Understanding if your commercial agreement compares well in the market is where a Benchmarking Service will perhaps provide some reassurance.
Benchmarking data shared in a scatter graph comparing various factors including size, percentage discount, revenue by industry segment, etc. could make clients feel encouraged or discouraged by a vendor Best And Final Offer (BAFO). Many sources exist in today’s readily available social mediums and through third parties and are often referenced to demonstrate a target point for where an organisation should aspire to reach.
Benchmarking is only Step 1. Intelligence Matters!
Naturally such graphs and data sources provide visibility of historical market rates contracted by (some) other organisations and is helpful. However, it remains an incomplete picture without the background information and intelligence behind the data. Organisations should be careful when using Benchmarking for their final decision of a “good enough” vs. “not good enough” deal.
- Should an organisation that is doubling investment get the same discount as another who has halved theirs?
- Should an organisation that is moving from legacy to the most strategic Product Segments for a vendor accept a discount lower than a client who has not committed to adopt newest releases? Furthermore, should such clients be penalised for having internal restrictions that prevent the step to the next generation of Technology?
- Should an organisation whose offer looks like best in class stop aiming for the “better than best-in-class” deal?
- Should an organisation have a similar or lower discount rate than another organisation half our size?
- What other factors are at play that sit behind the discount? For example, are there restrictive conditions that have been imposed as a trade-off for a high discount?
It is always important to consider that Benchmarking discount graphs only show one, albeit useful data point. However, these graphs don’t expose the broader deal principles and other concessions provided that may have a higher commercial value to the end client than a straight monetary discount percentage.
Organisations have unique requirements and a unique journey, and our advice is to never use Benchmarking data as a limiting or discouraging factor for aiming for better, or indeed as a benchmark for success. None of the “Big 4” software vendors have a one size fits all methodology when it comes to commercial offers, and in most cases, no “tiered” logical approach to how they structure commercial offers.
Benchmarking data points only tell part of a story. Hidden behind the discount graphs you may see, are many more inputs that have influenced and shaped the journey that resulted in the end outcome and all have a part in the final conclusion as to whether the deal was “best in class” for the end client.
At Cloud Optics our focus is on ensuring that our clients have a complete understanding of their current and future technology requirements, plus their relevance to the vendor. Thus defining and agreeing what success looks like . This allows for intelligent and smarter negotiations to achieve better than “best in class” commercial and contractual terms.
Our experienced team of consultants, most with many years working for the big-4 software vendors, and many experienced in negotiating with the same big 4, have first-hand know-how of these vendor run negotiation processes. As a result, we can construct commercial offers and can support our clients to identify and deliver the right outcome.