November 3, 2020
In any year you want to be prepared when it comes time for negotiation with your enterprise software vendors. But as we come to the end of a year unlike any other in the history of enterprise IT organizations, the stakes seem higher and there may be more pressure on your IT organization's budget. After all, Gartner is forecasting a worldwide IT spending decline of 5.4% for 2020 and a rebound of 4% for 2021. Things may be tight for some IT organizations, particularly in industries that felt the full force of travel restrictions and government shutdowns due to the COVID-19 pandemic.
Gartner's spending forecast also predicts that enterprise software will experience the strongest rebound in 2021 at 7.2%, due to the acceleration of digitalization efforts by enterprises, particularly around trends such as remote workforce, virtual services such as distance learning and telehealth, and an effort to automate more work.
As you head into 2021, it's best to be prepared for your next negotiation with a big software provider.
Your first question may be whether these software providers are giving IT organizations any slack when it comes to a business's challenges during COVID-19. For instance, if your organization doesn't need as many licenses as your existing agreement calls for, is there any room for negotiating that agreement for some relief? According to presentations by many Gartner analysts during the recent Gartner IT Symposium, the answer is no. Sure, these vendors may let you switch the license numbers in one place, but only if you make up for it by spending on another product or service. In other cases, they may allow you to defer payment for some of those existing license agreements. But that's the extent of relief that is being offered at this point by big enterprise software providers.
At Gartner IT Symposium, a virtual event which is available on demand now, several Gartner analysts provided detailed overviews of tactics to use when negotiating with software providers such as Oracle, SAP, Salesforce, and others. There are a number of best practices that span these negotiation recommendations, regardless of vendor. Here are some of the tips analysts shared during these presentations.
Bill Ryan presented the SAP Contract Negotiation Clinic, and recommended enterprises looking to get consideration for COVID-19 relief should educate SAP on how the pandemic has impacted their businesses. Ryan said that organizations should use the vendor's public statements about helping its customers to hold the vendor accountable.
Melanie Alexander ran the Oracle Contract Negotiation Clinic and recommended enterprises take stock of what licensing they already have and how much they currently spend with that particular vendor. Then consider what is really needed based on the enterprise's own roadmap and business requirements.
Next, look at the vendor's policies, models, and terms. For instance, how does a vendor charge for virtual servers? What's the partitioning policy? What is considered an authorized cloud environment? Enterprise software vendors like Oracle can take a hard line with such policies and they do conduct audits, which can put you at risk for more expense than you expected. To avoid an unhappy surprise, make sure the terms are spelled out in the contract.
Unlimited licensing agreements (ULA) from Oracle, which let you pay a single upfront free for as many licenses as you want for a specific Oracle technology over a fixed time, can offer great discounts, but they also have plenty of risks including locking you into Oracle, limiting your options when it comes to mergers and acquisitions, and providing less flexibility on operating spending. With these licenses, you can increase your spending easily, but you can never decrease it.
Jo Liversidge presented the Contract Negotiation Clinic: Salesforce, and recommended that discount-minded enterprises leverage Salesforce products that have less penetration in the market to strike more favorable deals.
One of the most important parts of negotiation with software providers is creating some leverage. For instance, know and talk to the vendor's competition. There are lists of competitors, but for instance, Oracle and SAP compete with each other on many products, and they also compete with Salesforce.
Another key tactic is to make sure you time your deal negotiation to dates that are important to the vendor's sales team and revenue generation. Gartner recommends that enterprises maintain a database of fiscal year ends for all their major vendors. Some of the big ones to keep in mind are Cisco, July; Dell/EMC/VMware, January; Google, December; HPE, October; IBM, December; Microsoft, June; Oracle, May; Salesforce, January; SAP, January; ServiceNow, December. Gartner recommends that you identify and use both the prospective vendors' year-end dates and their competitor's fiscal year-end dates as negotiating levers for better terms and pricing.
By using these tips and tactics, organizations can be ready to do a better job in negotiating the most favorable terms with their software providers.
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