© 2010 Richard Pryor & Associates
Intended Audience – This tip sheet is for the assistance of people involved in the procurement or the supply of ICT products and services.
What are hot buttons?
Hot buttons are issues or aspects of a transaction that are considered particularly important by the supplier, the customer or both parties negotiating an agreement.
Individual representatives of the negotiation team of a supplier or customer may have their own specific hot buttons.
A customer’s team may include (i) a financial controller whose hot buttons are likely to include costs and compliance with budgetary constraints; (ii) a business representative whose hot buttons are likely to include the timeline for delivery, functionality and business continuity; (iii) a technical person whose hot buttons are likely to include the “sexiness” or technical elegance of the proposed solution; and (iv) a service delivery person whose hot buttons are likely to include levels of support and service levels after go-live.
A supplier’s team may include (i) a sales person whose hot buttons will include closing the deal as soon as possible in order to earn commission; (ii) a service delivery person whose hot buttons are likely to include time and functionality risks associated with delivery; and (iii) a contract/legal person whose hot buttons are likely to include risk allocation issues and topics where the supplier has relatively inflexible corporate policies.
Why are hot buttons significant?
Frequently a hot button is not a critical element of a transaction when considered objectively. However, the perception of the party or one of its representatives regarding that hot button means that it assumes greater importance than may be appropriate.
If the hot buttons of the other party or individual representatives of the other party’s negotiating team can be identified, this will then enable a negotiating strategy to be put in place which takes advantage of those hot buttons.
A party possessing knowledge of the other party’s hot buttons can potentially use this knowledge to extract greater benefits for itself with respect to other aspects of the transaction.
Example of hot button – Deadlines
One of the most common hot buttons is time.
A customer is often under time pressure to complete an acquisition. This pressure can arise for all sorts of reasons including (a) the limited time until a legacy system ceases to be supported by a third party supplier; (b) a requirements that expenditure be made in the current financial year; or (c) a requirement from the board of the customer that new business functionality be available by a stipulated date.
A supplier is often under time pressure to conclude an agreement in order to meet its sales budget targets. The time pressure applying in these circumstances increases significantly as the end of a budget reporting period approaches.
If a deadline hot button becomes known to the other party, this can be exploited in negotiations to maximise the concessions made by the other party on price and other elements of the transaction in exchange for a commitment to meet the deadline.
Example of hot button – Price structure
A major ICT procurement transaction is usually capable of being priced in a wide range of ways.
Pricing can be structured to minimise capital costs and can be structured to spread costs over a number of financial years or other reporting periods. The pricing structure is often a hot button for both parties.
The customer’s financial representative may be concerned to keep the acquisition off the balance sheet or to spread the expense across several financial years.
The CIO of the customer may be concerned to ensure that there is minimal front-ending of payments to the supplier and retention of a proportion of the contract price which is sufficient to ensure any system defects are dealt with promptly by the supplier during the warranty period.
The supplier may wish to ensure that pricing is structured in such a way that it is able to satisfy applicable laws and regulations relating to revenue recognition and recognise the full value of the contract at the time it is executed.
If a pricing structure hot button becomes known to the other party, this can be exploited in negotiations to maximise the concessions made by the other party on total price and other elements of the transaction in exchange for agreement on the pricing structure.
How do I limit my exposure to the impact of hot buttons?
A party should not disclose its hot buttons to the other party and should not place obvious emphasis on any particular requirement during negotiations (except as part of a structured negotiation plan).
If members of the negotiation team have hot buttons or strong views about any particular issue, they should be counseled to avoid exposing this to the other party.
If a hot button like time pressure exists, then consideration should be given to whether alternatives exist to remove that time pressure or other hot button (e.g. reporting to the board so that the board relaxes a firm time requirement to ensure that the transaction proceeds on the best possible terms).
The negotiating team should be comprised of a range of people who will bring different perspectives to the negotiations and these other members should provide checks and balances with respect to the “fairness” of proposed concessions to be made in exchange for the satisfaction of one team member’s hot button requirements.
The planning and implementation of a structured negotiation process by a party reduces the risk that hot buttons can be exploited by the other party.
© 2010 Richard Pryor & Associates – The content of this tip sheet is subject to copyright and may not be translated, adapted, reproduced, broadcast or transmitted in whole or part without the express written permission of the author.
Important disclaimer – This tip sheet provides general comment. It does not constitute advice on any matter. No reader should act on the basis of any content without obtaining and considering professional advice upon their own circumstances. Richard Pryor & Associates and its officers and agents hereby disclaim any liability to any person with respect to the consequences of anything done or omitted to be done in reliance upon any of the content.
For further advice on ICT procurement and supply negotiations, contact Richard Pryor – richard@pryor.com.au