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9/7/2004
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Here's The Deal

You and your BI vendor are embarking on what should be a beautiful relationship -- as long as it's in writing. Here's how to make the most of the partnership.

You thought getting users to agree on one BI tool was difficult? It's nothing compared to negotiating a BI software contract: and unfortunately, many companies read the fine print too late in the process. Fail to negotiate your license agreement well, and you'll end up with overpriced shelfware. Understand the finer points of your BI contract before signing, and you'll have an opportunity to negotiate better terms.

In this article, I'll discuss some of the critical points to remember as your organization looks ahead to 2005 and plans strategically important BI software selections. In short, my advice for arriving at a contract that suits both parties — the vendor and you, the customer — boils down to the following steps:

  • Know your budget before beginning a BI selection.
  • Involve key stakeholders throughout the selection and buying process.
  • Understand the vendor's product packaging and pricing policies.
  • Have an alternate choice — a Plan B.

Show Me the Money!

Often, the BI software selection team is concerned with features and capabilities and has no budget responsibility. Budget constraints concern the CIO, project sponsor, or program manager who may not be as deeply involved in BI software selection. If BI software purchasing is like buying a car, I'd liken this disconnect to my shopping for a car with a blank check in hand. Well, of course, I'd go for the Mercedes sports coupe, but that hardly fits my budget!

So too with BI: The better the selection team understands its budget constraints, the better its members can assess the capabilities for which they are willing to pay a premium price. Communicating budget issues with the vendor can also pave the way to easier negotiations. The vendor better understands your constraints and can propose the products that will provide the most value.

Involve People Early

BI software license negotiations involve a variety of stakeholders. Table 1 lists common stakeholders; the composition will vary depending on the size and scope of the BI software purchase. For example, when you're negotiating a global, million-dollar BI license, the CIO is involved; however, when an individual business unit has its own BI budget and is buying a point solution, the stakeholders may include only the project sponsor and IT project manager.

In Table 1, note that stakeholders have drastically different objectives when it comes to BI purchases. In theory, everyone is united in selecting a BI tool that will help achieve the business goals; in reality, not all stakeholders are so magnanimous. If the purchasing department is measured on how big a discount it can negotiate with a vendor, it will want to buy from the more flexible vendor, especially if that vendor is already a supplier. If program managers are on tight budgets and don't understand the fundamental differences between different BI tools, they'll want the cheapest solution. Users, meanwhile, want the tool that will give them every feature they ever dreamed of; they rarely understand the full cost and support implications.

With all these different objectives, it's no wonder that sales cycles for larger purchases can take up to a year. To negotiate the best BI software purchase, involve key stakeholders early on in the selection process and ensure they're kept informed of major decisions. Note that the purchasing stakeholders aren't synonymous with the BI selection team. The purchasing stakeholders need to understand which criteria are important to the selection team and which products they're hoping to purchase — but only at a high level. It's unrealistic to think that all the stakeholders described in Table 1 can be deeply involved in the selection process. So it's up to the individual charged with moving the purchasing process forward to summarize key points and communicate with stakeholders effectively. If the project sponsor asks for the first time what an OLAP module is and why you need it on signing day — well, it's a bit late in the process.

Stakeholder/role

Primary purchasing objective

Project sponsor

Business goals fulfilled within budget

Program manager

Business goals fulfilled within budget and no technical difficulties

CIO

BI product adheres to corporate standards and long-term IT vision

BI application owner

BI product can be implemented with appropriate support, delivering the most user functionality

Users:

BI product meets their needs

Purchasing

Company receives a good discount (motivated to purchase from existing preferred providers)

Vendor sales representative:

The most product is sold with minimal discounting.

Understand Product Pricing

When selecting a BI tool, companies tend to spend significant time trying to understand the features and functions but merely skim over pricing and packaging, which are equally complex. Often, the approach is to wait for a quote and negotiate from there. I recommend understanding pricing and packaging much earlier in the process, starting with the request for information (RFI). When submitting an RFI to vendors, be sure to ask them to indicate which product delivers a particular functionality and when additional costs kick in. Too often, vendors respond, "yes, yes, yes" to RFIs: and little did you know, the functionality you sought comes in a myriad of sometimes additional products.

No two vendors price their products the same way: nor do products generally provide like-for-like functionality, making cost comparisons a Sisyphean challenge. Customers, feeling nickel-and-dimed, balk when they find out too late in a negotiation that certain functionality costs extra.

In the past, Cognos has been criticized for this sort of posture. In response, the company has recently adopted role-based pricing. With this approach, business managers, for example, receive certain products such as ReportNet (for reporting) and Metrics Manager (for scorecards) that address their roles. The Business Objects product line had also become complex, offering an overwhelming number of choices. The company recently adopted the pricing policy used by the company it acquired in 2003, Crystal Decisions; Business Objects now bundles products that were previously licensed separately into professional or premium editions. Both vendor's approaches help ensure a customer gets an appropriate set of functionality with minimal surprises.

Just as vendors may price products on an individual versus package basis, so too will they differ in server- and user-based licensing.

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