You can never get enough intelligence when negotiating with an information service vendor (or any vendor).
One negotiating lever that may not be top of mind: your counterparty's fiscal year end.
Wait, what?
I wrote about the exploding offer bluff in which vendors will try to incentivize you to sign an allegedly discounted offer that expires at the end of the month (or quarter). In my experience, in most cases these tactics are bluffs you can call and not worry about the "discount" not being offered the next period. You can take your time and make sure the product or service meets your requirements and the vendor passes all due diligence flags.
But there is one instance when a time-based discount really is exploding and that's the fiscal year end. You can use this to your advantage, particularly if the deal is a renewal and your contract expires a few months after the vendor's fiscal YE.
How? Suppose you know the service is one you'd definitely like to renew. Let's say your contract expires 3/31 and the vendor's fiscal year end is 12/31 (as is common). Why not reach out in December and see what kind of incentives the vendor can offer for an early renewal, and one that they can book before their year end?
Here's what I like to do:
Under the pretense of budget forecasting, contact the vendor and say you'd like to lock in a renewal now while you have budget flexibility.
A vendor will always be willing to renew, but if they can actually modify the renewal such that the contract begins before their year end, they may well adopt a more flexible negotiating posture. In this case, if the contract were repapered to start in December they can book the revenue (or a portion thereof, depending on accounting treatment), before the new year.
So take them up on it! But ask for a 15-month contract with three free months. You'd be surprised how often a vendor would go for this - or at least a reduced rate that gets you a month free.
Our illustrative contract negotiation might look like this:
Current: 4/1/2012 - 3/31/2013. Cost: $60,000 or $5,000 per service month.
Expected Renewal: 4/1/2013 - 3/31/2014. Cost: $66,000 for 12 months or $5,500 per service month.
Alternate Renewal A: 12/31/2012 - 3/31/14. Cost: $66,000 for 15 months or $4,400 per service month.
Alternate Renewal B: 12/31/2012 - 12/30/2013. Cost: $60,000 for 12 months or $5,000 per service month.
Alternate Renewal C: 12/31/2012 - 3/31/15. Cost: $132,000 for 27 months or $4,888 per service month
Now you may not believe you could get a 20% reduction in your monthly cost, but I have personally negotiated deals this favorable, and all because we were able take advantage of the fiscal year end lever.
Even if you can't get three free months, there are going to be other concessions you can extract, monetary or non-monetary. Maybe you could counter with a flat renewal if you agree to move the contract period forward (Alternate Renewal B). Or perhaps you can get a flat two year renewal - that would make certainly make the three free months more palatable to the vendor (Alternate Renewal C). The options are endless, but you'll never know what you could get if you don't ask! In this case, a vendor would be very tempted by Alternate Renewal C.
Always look for unorthodox levers when you're preparing to negotiate. At the very least, you'll have negotiating points that you can relent on and then characterize this as a concession to get other, more desirable levers. A fiscal year end sweetener is an unorthodox lever, and may just work if you play your cards right.
- Kevan Huston
Tuesday, September 25, 2018
Monday, September 24, 2018
The Top Line is All Important to Vendors - and You Can Use This to Your Advantage.
If there's one thing a sales professional wants to avoid at all costs is a decline in the revenue they're getting from a client. In fact, no one in any company wants to see revenue decline. I mean, obviously.
So how can you use this fact to your benefit in your vendor negotiations?
Start with the assumption that a revenue decline is a non-starter with your counterparty - he can't go back to management with a 10% reduction in spend.
What's more acceptable (but still unpalatable) is a decline in margin. A company, in my experience, is willing to take a margin hit before a revenue decline. Why? Because upon subsequent renewal the revenue number is the starting point for any renewal proposal. It acts as a presumptive statement of the value of the service. Vendors would all things being equal prefer to negotiate non-monetary concessions than hard dollar ones. And who can blame them?
What that leaves you with is ... lots of non-monetary concessions to work with. Some common ones:
So how can you use this fact to your benefit in your vendor negotiations?
Start with the assumption that a revenue decline is a non-starter with your counterparty - he can't go back to management with a 10% reduction in spend.
What's more acceptable (but still unpalatable) is a decline in margin. A company, in my experience, is willing to take a margin hit before a revenue decline. Why? Because upon subsequent renewal the revenue number is the starting point for any renewal proposal. It acts as a presumptive statement of the value of the service. Vendors would all things being equal prefer to negotiate non-monetary concessions than hard dollar ones. And who can blame them?
What that leaves you with is ... lots of non-monetary concessions to work with. Some common ones:
- Additional seats or users
- Additional service modules
- Analyst conference calls
- Passes to vendor conferences
Vendors may be particularly willing to make concessions on services with low variable costs like additional seats (conferences and analyst calls don't scale the way syndicated content does), so you may be surprised by how much negotiating leverage you have to increase your license size.
A word of caution: be careful with concessions that expand the user footprint within your org. The more seats or licenses a vendor has within your company, the stickier the service becomes - which the vendor may in turn use against you when the next renewal negotiation comes up. You can always try to guard against this by having an internal usage monitoring program, but be prepared to counter the vendor on this point.
No company wants to see their revenue decline. An information services vendor may well compromise on margin, particularly for goods with a low variable cost structure. Concede on revenue if the service is worth it, then use that concession to extract non-monetary add-ons that have the potential to increase your overall product ROI.
- Kevan Huston
Tuesday, September 18, 2018
What's the Hurry? Avoid Premature Scaling of Contracts
Often times you will be presented by a vendor with the opportunity to adopt a group or enterprise license. I wrote that you must be careful with these offers: you may end up overpaying and reducing your ROI. As I often say: not all users are equal.
At a broader level, whether looking at a per user or a group license, always keep in mind that you run the risk of premature scaling of your contracts.
What do I mean by this? I am borrowing this concept from the VC world. It means, essentially, that a business, usually a startup, prioritizes growth of a team, customer acquisition strategies or over building the product without getting to product/market fit first.
I repurpose this: don't grow a contract beyond what the business can support.
To guard against this, you need to maintain close relationships with the senior business planners in your company, usually the CFO and/or CEO. There may be corporate finance activity that you're not privy to, at least at a detailed level. It is helpful to know what kind of growth, either organic or via acquisition, the firm is anticipating.
Such insight can be critical to ensuring your contracts are adequate to your needs and not over-bought.
For example: you may have seen annual growth in headcount of 15% over the previous 4 years. This trend can only take you so far: as the saying goes, past performance is no guarantee of future success. The firm may be slowing down on hiring. It may plan on divesting a business.
Suppose you're preparing to renew a major contract - a 6 figure contract with strategic vendor. You may believe that you need to accommodate 15% headcount increase annually over the 3 year period of the contract.
As such, you elect to migrate to an enterprise agreement from a per-seat agreement. The ROI is certainly there -- provided growth is in line with your expectations.
Unbeknownst to you, the firm is planning on selling its Latin American business to a competitor and investing in a new business that doesn't use the service you're renewing. Net effect: your user footprint for the service is actually dropping 10% next year, and then growing organically 5% over the next two years - or the final two years of your three year agreement.
You proceed with a new contract, proudly sporting an enterprise agreement with improved unit economics and able to absorb all the new hires your firm won't be making.
You tried to do right for the firm and worked hard for the terms you negotiated - yet ended up reducing the ROI on the spend significantly.
One way avoid this: the firm has a robust procurement policy in place that escalates purchases above a certain dollar amount to senior management, who can veto the purchase. Of course, this is a fail safe mechanism to ensure you're resourcing in a way that aligns with the firm's overall priorities. You still ended up spending several weeks (and lots of goodwill) negotiating for a contract you can't close.
A better way: maintain open lines of communication with the C-Suite. Know what the lay of the land is for future growth - even if just in broad terms. You should be able to get a sense of this during your annual budgeting process, but it never hurts to be able to reach out to the CTO or CFO and run a couple scenarios by him and see what he thinks.
Communication before action will save you a lot of time and trouble in managing your contract portfolio, particularly when it comes to buying more product than you need. Avoid premature scaling of contracts by communicating early and often with senior management.
- Kevan Huston
At a broader level, whether looking at a per user or a group license, always keep in mind that you run the risk of premature scaling of your contracts.
What do I mean by this? I am borrowing this concept from the VC world. It means, essentially, that a business, usually a startup, prioritizes growth of a team, customer acquisition strategies or over building the product without getting to product/market fit first.
I repurpose this: don't grow a contract beyond what the business can support.
To guard against this, you need to maintain close relationships with the senior business planners in your company, usually the CFO and/or CEO. There may be corporate finance activity that you're not privy to, at least at a detailed level. It is helpful to know what kind of growth, either organic or via acquisition, the firm is anticipating.
Such insight can be critical to ensuring your contracts are adequate to your needs and not over-bought.
For example: you may have seen annual growth in headcount of 15% over the previous 4 years. This trend can only take you so far: as the saying goes, past performance is no guarantee of future success. The firm may be slowing down on hiring. It may plan on divesting a business.
Suppose you're preparing to renew a major contract - a 6 figure contract with strategic vendor. You may believe that you need to accommodate 15% headcount increase annually over the 3 year period of the contract.
As such, you elect to migrate to an enterprise agreement from a per-seat agreement. The ROI is certainly there -- provided growth is in line with your expectations.
Unbeknownst to you, the firm is planning on selling its Latin American business to a competitor and investing in a new business that doesn't use the service you're renewing. Net effect: your user footprint for the service is actually dropping 10% next year, and then growing organically 5% over the next two years - or the final two years of your three year agreement.
You proceed with a new contract, proudly sporting an enterprise agreement with improved unit economics and able to absorb all the new hires your firm won't be making.
You tried to do right for the firm and worked hard for the terms you negotiated - yet ended up reducing the ROI on the spend significantly.
One way avoid this: the firm has a robust procurement policy in place that escalates purchases above a certain dollar amount to senior management, who can veto the purchase. Of course, this is a fail safe mechanism to ensure you're resourcing in a way that aligns with the firm's overall priorities. You still ended up spending several weeks (and lots of goodwill) negotiating for a contract you can't close.
A better way: maintain open lines of communication with the C-Suite. Know what the lay of the land is for future growth - even if just in broad terms. You should be able to get a sense of this during your annual budgeting process, but it never hurts to be able to reach out to the CTO or CFO and run a couple scenarios by him and see what he thinks.
Communication before action will save you a lot of time and trouble in managing your contract portfolio, particularly when it comes to buying more product than you need. Avoid premature scaling of contracts by communicating early and often with senior management.
- Kevan Huston
Friday, September 14, 2018
Feed - Desktop Cannibalization?
The biggest development in the last 10 years in information services management is the Rise of the Feeds.
People will argue it's AI or NLP, but I don't think so. Not yet.
Those technologies have the potential over the next 5-10 years to transform business information workflows. I don't discount that. I see numerous opportunities to improve business productivity with AI. Everyone does.
Feeds, on the other hand, and are here and now.
Almost any structured content can be delivered in a feed format. Market data, securities prices, entity identifiers, reference data, filings, news, ownership data, you name it. If it's structured it can be delivered via feed.
For decades, the prevailing delivery channel for the vast majority of third-party content was web-application or terminal. The market was pioneered by Quotron, Telerate and ILX, all now gone the way of the Ticker Tape, thanks to Bloomberg, which dominated the market through most of the 90s and 2000s. The iconic Bloomberg Terminal remains a powerhouse to this day. It's joined by Thomson Reuters Eikon, and to a lesser extent Moody's, FactSet, and S&P Global.
But the terminal, while still a mainstay in front office trading operations, has shown its age as a delivery channel. The financial crisis of 2008-09 gutted desktops: employee - and terminal - counts on the Street never fully recovered. Instead, vendors and buyers are investing heavily in structured data feeds. With feeds, structured data is delivered to the client via Web service API, or even an FTP. The data live in internal applications, designed to spec by the buyer.
Competing chat services like Symphony are also a major threat to Bloomberg terminals. Don't underestimate how much of the Bloomberg terminal value proposition lies in chat.
No terminal required? Perhaps.
Data providers such as Bloomberg have massive terminal installed bases. They fear cannibalization of their terminal business by the rise of feeds, more than they do upstart competitors like Money.net.
They price their feeds accordingly. Bloomberg in particular have built a billion dollar feeds business in just 15 years - while keeping terminals roughly flat over the last 5 years. I believe it's possible to extract greater ROI from your feeds than from terminals. But it takes careful planning. Vendors take a keen interest in the use-cases for your feeds. They want to know who is using the data, and how. These questions weren't as pressing with terminals. The use-case wasn't particularly important. You were sold a terminal and off you go.
Vendor's don't want to lose money if a customer switches from terminals to feeds. If a vendor is making X from terminals they will want to make X - and more - from feeds. They will fight tooth and nail to maintain topline numbers. I don't blame them.
But with feeds, you have more control over your ROI. You can do more with a robust, thoughtful and well-managed feeds program. You can, in theory, extract more value from your feeds than terminals. Terminals take a lot of work to get marginal value upside. You can only customize the experience to your use-case so much. Feed-driven applications you build internally offer almost infinite development flexibility and customization. At a price. Properly managed, the ROI potential is much higher than with a desktop.
I think there's always going to terminals in the front office. But feeds, and, increasingly, hosted cloud apps, are the present and the future, particularly for analytics.
But are feeds as much the future as they are the present? Will the cloud, combined with AI, actually reduce feed delivery, moving workflows onto a vendor-hosted stack? Will the cloud do to enterprise feeds what enterprise feeds are doing to terminals? That's a topic for another post.
- Kevan Huston
People will argue it's AI or NLP, but I don't think so. Not yet.
Those technologies have the potential over the next 5-10 years to transform business information workflows. I don't discount that. I see numerous opportunities to improve business productivity with AI. Everyone does.
Feeds, on the other hand, and are here and now.
Almost any structured content can be delivered in a feed format. Market data, securities prices, entity identifiers, reference data, filings, news, ownership data, you name it. If it's structured it can be delivered via feed.
For decades, the prevailing delivery channel for the vast majority of third-party content was web-application or terminal. The market was pioneered by Quotron, Telerate and ILX, all now gone the way of the Ticker Tape, thanks to Bloomberg, which dominated the market through most of the 90s and 2000s. The iconic Bloomberg Terminal remains a powerhouse to this day. It's joined by Thomson Reuters Eikon, and to a lesser extent Moody's, FactSet, and S&P Global.
But the terminal, while still a mainstay in front office trading operations, has shown its age as a delivery channel. The financial crisis of 2008-09 gutted desktops: employee - and terminal - counts on the Street never fully recovered. Instead, vendors and buyers are investing heavily in structured data feeds. With feeds, structured data is delivered to the client via Web service API, or even an FTP. The data live in internal applications, designed to spec by the buyer.
Competing chat services like Symphony are also a major threat to Bloomberg terminals. Don't underestimate how much of the Bloomberg terminal value proposition lies in chat.
No terminal required? Perhaps.
Data providers such as Bloomberg have massive terminal installed bases. They fear cannibalization of their terminal business by the rise of feeds, more than they do upstart competitors like Money.net.
They price their feeds accordingly. Bloomberg in particular have built a billion dollar feeds business in just 15 years - while keeping terminals roughly flat over the last 5 years. I believe it's possible to extract greater ROI from your feeds than from terminals. But it takes careful planning. Vendors take a keen interest in the use-cases for your feeds. They want to know who is using the data, and how. These questions weren't as pressing with terminals. The use-case wasn't particularly important. You were sold a terminal and off you go.
Vendor's don't want to lose money if a customer switches from terminals to feeds. If a vendor is making X from terminals they will want to make X - and more - from feeds. They will fight tooth and nail to maintain topline numbers. I don't blame them.
But with feeds, you have more control over your ROI. You can do more with a robust, thoughtful and well-managed feeds program. You can, in theory, extract more value from your feeds than terminals. Terminals take a lot of work to get marginal value upside. You can only customize the experience to your use-case so much. Feed-driven applications you build internally offer almost infinite development flexibility and customization. At a price. Properly managed, the ROI potential is much higher than with a desktop.
I think there's always going to terminals in the front office. But feeds, and, increasingly, hosted cloud apps, are the present and the future, particularly for analytics.
But are feeds as much the future as they are the present? Will the cloud, combined with AI, actually reduce feed delivery, moving workflows onto a vendor-hosted stack? Will the cloud do to enterprise feeds what enterprise feeds are doing to terminals? That's a topic for another post.
- Kevan Huston
Wednesday, September 12, 2018
Help Your Vendors Help You with a Robust Access Control Program
It's the little things that matter in information services management.
One of the "little things" that matters most to vendors is sharing of passwords.
I get why. It's perfectly fair that vendors be compensated for the services they offer. And in all likelihood you've agreed to do so in your service agreement with them.
Nothing will drive a vendor crazier than repeated sharing of passwords.
As an information services manager, it should drive you crazy too.
I won't hesitate to "lower the hammer" on password abuse by my users. I won't tolerate it.
Every time a password is shared, every time an unauthorized user is caught using a service, you irritate your vendor, reduce your negotiating leverage, and expose your firm to reputation and legal risk.
You run the risk of being found in breach of contract and losing access to the service. You may face stiff penalties - termination, compensation or equitable relief. Not good.
You owe it to your vendor relationship, your company and your professional ethics to assiduously oversee the use of the products you subscribe to.
You can do this with a robust access control program that uses an identity and access management solution like Ping, Centrify or Okta.
Or look at an Electronic Resource Management (ERM) utility that also offers a basic password management and access control solution. Lucidea, OneLog, ResearchMonitor and H&H offer access control modules.
The way it works is this: you ensure that if you have one user for a product and the seat is not transferable, only that user can access the product.
You can block the product website from all users apart from the named user. This is a somewhat clumsy approach - there may be free content on the site that other users can take advantage of.
A better approach is to centrally administer the passwords used to access the pay-walled content. Again you can use a full-service company like Ping for this, an ERM solution, or a lighter weight access management solution like LastPass.
If access is based on IP Authentication or a Single-Sign-On (SSO) protocol like SAML, that's even better. Rather than worry about administering passwords, you can simply permission access to the site for those users or groups of users its licensed for.
There are many options for access control. You should look into it carefully. Your vendors will appreciate it. This will build goodwill and trust with your vendor, which should translate into better prices for the products you buy.
- Kevan Huston
One of the "little things" that matters most to vendors is sharing of passwords.
I get why. It's perfectly fair that vendors be compensated for the services they offer. And in all likelihood you've agreed to do so in your service agreement with them.
Nothing will drive a vendor crazier than repeated sharing of passwords.
As an information services manager, it should drive you crazy too.
I won't hesitate to "lower the hammer" on password abuse by my users. I won't tolerate it.
Every time a password is shared, every time an unauthorized user is caught using a service, you irritate your vendor, reduce your negotiating leverage, and expose your firm to reputation and legal risk.
You run the risk of being found in breach of contract and losing access to the service. You may face stiff penalties - termination, compensation or equitable relief. Not good.
You owe it to your vendor relationship, your company and your professional ethics to assiduously oversee the use of the products you subscribe to.
You can do this with a robust access control program that uses an identity and access management solution like Ping, Centrify or Okta.
Or look at an Electronic Resource Management (ERM) utility that also offers a basic password management and access control solution. Lucidea, OneLog, ResearchMonitor and H&H offer access control modules.
The way it works is this: you ensure that if you have one user for a product and the seat is not transferable, only that user can access the product.
You can block the product website from all users apart from the named user. This is a somewhat clumsy approach - there may be free content on the site that other users can take advantage of.
A better approach is to centrally administer the passwords used to access the pay-walled content. Again you can use a full-service company like Ping for this, an ERM solution, or a lighter weight access management solution like LastPass.
If access is based on IP Authentication or a Single-Sign-On (SSO) protocol like SAML, that's even better. Rather than worry about administering passwords, you can simply permission access to the site for those users or groups of users its licensed for.
There are many options for access control. You should look into it carefully. Your vendors will appreciate it. This will build goodwill and trust with your vendor, which should translate into better prices for the products you buy.
- Kevan Huston
Current Awareness in an Era of Information Abundance? 12 Questions Every Company Should Ask.
Should you adopt a current awareness program for your organization?
In an era of information abundance, in which end-users have greater access to both free and paywalled content than ever before, what is the utility of a current awareness or news program for your users?
First, let's define our terms.
By Current Awareness (CA) I am referring to a program that curates the latest relevant information and delivers it to your internal audiences in one or more formats via one or more channels on an ongoing basis.
This could be as simple as a weekly email-based newsletter that summarizes the latest developments for your industry. This could be as sophisticated as a multi-channel, customizable news and research platform through which users can tailor the topics, content and delivery formats they want, when they want it.
Your CA program could be a simple digest of pertinent articles from leading news sites, delivered with no editorial value-add. Or it could be a richly curated collection of market research, thought leadership, video, tables and charts, and long-form analysis mined from the long tail of hidden gems deposited in the furthest reaches of the Internet, complete with editorial commentary and analysis by your writers and editors.
Before undertaking such a program, think about what you want it to accomplish. The pitfalls are many. Before proceeding with business requirements gathering, wireframing, or a Proof of Concept, think carefully about the following:
In an era of information abundance, in which end-users have greater access to both free and paywalled content than ever before, what is the utility of a current awareness or news program for your users?
First, let's define our terms.
By Current Awareness (CA) I am referring to a program that curates the latest relevant information and delivers it to your internal audiences in one or more formats via one or more channels on an ongoing basis.
This could be as simple as a weekly email-based newsletter that summarizes the latest developments for your industry. This could be as sophisticated as a multi-channel, customizable news and research platform through which users can tailor the topics, content and delivery formats they want, when they want it.
Your CA program could be a simple digest of pertinent articles from leading news sites, delivered with no editorial value-add. Or it could be a richly curated collection of market research, thought leadership, video, tables and charts, and long-form analysis mined from the long tail of hidden gems deposited in the furthest reaches of the Internet, complete with editorial commentary and analysis by your writers and editors.
Before undertaking such a program, think about what you want it to accomplish. The pitfalls are many. Before proceeding with business requirements gathering, wireframing, or a Proof of Concept, think carefully about the following:
- What are the program objectives and what are your metrics for success?
- Do you have a senior sponsor who is will to back you and provide political and organizational capital to develop, execute and sustain the program? Or are you doing this all by your lonesome?
- Who will pay for it? Will it come out of your budget, or your audiences? If the latter, who approves that?
- What, if any, licensing costs are there for the content you'd distribute? What about copyright?
- How would you determine the ROI of such a program?
- What's the opportunity cost? In other words, what else could your staff be doing with their time? Would it be better spent doing other things?
- Should you build, buy or borrow (license)? What are the pros and cons to each approach?
- What internal dependencies would your program have, particularly with IT, both for development and maintenance of the program?
- How would such a program integrate with, or leverage off of, existing information-rich programs in your org, such as your CRM?
- How would a CA program align with the priorities of both senior management and your corporate communications department? What about your firm's Knowledge Management program - what would they think about this? How could they help you?
- How will you administer and manage the program? Will you archive your content and make it searchable? How will you add and remove users? Is it opt-in or will users simply be auto-assigned?
- How might a current awareness program also function as a marketing and communications channel for your business library or research service? Can you cross-sell other products or services you manage? Should you?
Believe it or not, there's still value in considering a current awareness program for most companies: there's a fine line between information abundance and overload - a good current awareness program can help your employees cut through the noise and make them better business decisions. But the pitfalls are many. Ask hard questions up front and save yourself a lot of trouble before embarking on such an endeavor.
- Kevan Huston
- Kevan Huston
Monday, September 10, 2018
Don't Concede Things You Don't Need to Give Up
Keep your powder dry.
Good preparedness advice for all kinds of scenarios. Certainly for vendor negotiations.
Suppose you're undertaking an acquisition negotiation with a vendor that has a reputation for toughness. You already have a sense that the price is going to be dear, but the business is pushing you to get it done. You don't have a ton of leverage viz. demand - people really want the service. All your competitors are using it. Your clients expect you to as well.
How do you approach this?
Before any negotiation I always do a quick inventory of the terms, both legal and commercial, I want and stack rank by priority. Figure out what you are willing to trade at little cost to you (the value of which is known only to you of course) with the plan that what you really want you'll get without it costing you dearly.
Scenario: Horizon Research sells North American and European shipping data. Because of their innovative IoT data collection agreement with every major port on both continents, they are the best data provider for this info. There's no one else even close.
You want both the North American and the European modules. You're based in Atlanta, your company is US-based. Horizon knows you really need the North American data. They don't really suspect you also want the European data - unbeknownst to Horizon, YourCo is actually going to open an office in Lisbon next month. You need the European Data as much as the North American!
Absolutely avoid the stream of consciousness open: "and of course we'd be willing to do a three year agreement and we're totally fine with limiting access to just one division and we'd be fine with a 5% annual price increase and we're happy to pay for print editions as well, and obviously we'd pay for republishing rights too ... just can we please get the European Data module included in our package?"
Congrats - you've just given up a bunch of stuff you may not have needed to give to get what you want - the European Data module. Now the vendor knows you want the European Data -- and how badly you want it - look at what you're willing to give up for it!
Instead, take a watch and listen approach. In all likelihood the vendor already has a strategy for cross-selling adjacent services - he's already got a plan for getting you to buy the European Data. Why sacrifice terms to get something he wants to sell you?
Here's an alternative approach. See if the vendor offers a NA + EU bundle right off the bat. That's great. Work the price down on the EU data - that's the product you'll have the most flexibility on. Perhaps you can even get it comped for 6 months if you're willing to agree to a 2-year. What else is a nice to have? Group license versus per seat? Trade that, give your opponent a small win, and keep working the price down.
What if they don't offer a bundle? How do you express interest without, you know, expressing interest? It's challenging. A turning point like this doesn't advantage you in the negotiation. The vendor will start high with his offer. To counterbalance this, try negotiating for other concessions before you express interest in the additional module. Or agree to a limitation on something you don't even need, like limiting access to just one business line, or forgoing research analyst access.
How ever you play it, keep your powder dry, don't offer concessions unnecessarily and never negotiate against yourself -- make your counterparty respond to your offer before modifying it.
- Kevan Huston
Good preparedness advice for all kinds of scenarios. Certainly for vendor negotiations.
Suppose you're undertaking an acquisition negotiation with a vendor that has a reputation for toughness. You already have a sense that the price is going to be dear, but the business is pushing you to get it done. You don't have a ton of leverage viz. demand - people really want the service. All your competitors are using it. Your clients expect you to as well.
How do you approach this?
Before any negotiation I always do a quick inventory of the terms, both legal and commercial, I want and stack rank by priority. Figure out what you are willing to trade at little cost to you (the value of which is known only to you of course) with the plan that what you really want you'll get without it costing you dearly.
Scenario: Horizon Research sells North American and European shipping data. Because of their innovative IoT data collection agreement with every major port on both continents, they are the best data provider for this info. There's no one else even close.
You want both the North American and the European modules. You're based in Atlanta, your company is US-based. Horizon knows you really need the North American data. They don't really suspect you also want the European data - unbeknownst to Horizon, YourCo is actually going to open an office in Lisbon next month. You need the European Data as much as the North American!
Absolutely avoid the stream of consciousness open: "and of course we'd be willing to do a three year agreement and we're totally fine with limiting access to just one division and we'd be fine with a 5% annual price increase and we're happy to pay for print editions as well, and obviously we'd pay for republishing rights too ... just can we please get the European Data module included in our package?"
Congrats - you've just given up a bunch of stuff you may not have needed to give to get what you want - the European Data module. Now the vendor knows you want the European Data -- and how badly you want it - look at what you're willing to give up for it!
Instead, take a watch and listen approach. In all likelihood the vendor already has a strategy for cross-selling adjacent services - he's already got a plan for getting you to buy the European Data. Why sacrifice terms to get something he wants to sell you?
Here's an alternative approach. See if the vendor offers a NA + EU bundle right off the bat. That's great. Work the price down on the EU data - that's the product you'll have the most flexibility on. Perhaps you can even get it comped for 6 months if you're willing to agree to a 2-year. What else is a nice to have? Group license versus per seat? Trade that, give your opponent a small win, and keep working the price down.
What if they don't offer a bundle? How do you express interest without, you know, expressing interest? It's challenging. A turning point like this doesn't advantage you in the negotiation. The vendor will start high with his offer. To counterbalance this, try negotiating for other concessions before you express interest in the additional module. Or agree to a limitation on something you don't even need, like limiting access to just one business line, or forgoing research analyst access.
How ever you play it, keep your powder dry, don't offer concessions unnecessarily and never negotiate against yourself -- make your counterparty respond to your offer before modifying it.
- Kevan Huston
Friday, September 7, 2018
How to Allocate Costs? A Summary.
It's rare in an enterprise of significant size to have only one business line or "P&L" to which the company allocates indirect spend like market data or information services.
Equally rare is a contract footprint that doesn't have services that cross business lines and needs to be allocated accordingly. In fact, if you're doing your job correctly, you should have contracts that cover multiple business lines -- it means you're consolidating demand and leveraging purchasing power.
But that poses a challenge, partly mathematical and partly political. How do you allocate costs to the businesses using the service?
Let's take a hypothetical example.
YourCo has 3 business lines: Consulting, Tax and Managed Services.
You have a contract with Horizon Research for $100,000 with users in all three business units.
How do you allocate costs?
There are many ways to skin this cat, and what you ultimately decide will be political, but it should be defensible.
As you see from the above table, there are many dimensions by which you can allocate costs on some proportionate basis. Allocating our $100K contract by each dimension, our table now looks like this:
Equally rare is a contract footprint that doesn't have services that cross business lines and needs to be allocated accordingly. In fact, if you're doing your job correctly, you should have contracts that cover multiple business lines -- it means you're consolidating demand and leveraging purchasing power.
But that poses a challenge, partly mathematical and partly political. How do you allocate costs to the businesses using the service?
Let's take a hypothetical example.
YourCo has 3 business lines: Consulting, Tax and Managed Services.
You have a contract with Horizon Research for $100,000 with users in all three business units.
How do you allocate costs?
There are many ways to skin this cat, and what you ultimately decide will be political, but it should be defensible.
As you see from the above table, there are many dimensions by which you can allocate costs on some proportionate basis. Allocating our $100K contract by each dimension, our table now looks like this:
You can see there's a wide range of possibilities -- all of which are reasonably defensible. I have allocated resources using all of these dimensions, but the most common cross-department allocation bases I use are Users and Professionals. What you ultimately use depends on the specific use case of the resource in question, and whether a larger and more profitable business line is "willing" to subsidize a smaller business. That's a decision that's often made by senior management with cross-company P&L responsibility, not the business units in question - unless they are willing on their own to "horse-trade" allocations for resources. Unlikely!
What's missing from this table? Usage. It is a truism often argued on this blog that all users are not created equal. So should you allocate based on usage instead of user or organizational footprint?
Perhaps, but this is a much more political and potentially fraught exercise. You will have to argue that a user in Consulting is "worth more" than a user in Tax, for example. How do you defend this?
You can use qualitative or qualitative arguments, or some combination of the two.
Suppose Consulting users download 3 times as much content as users in Tax. Do you weight the user footprint allocation to reflect? What do you say to the business sponsor in Consulting when you tell him he's paying more for the same service? You can point to the higher usage in his group, but be prepared for protests that he's subsidizing Tax.
However, quantity doesn't tell the whole story: qualitative, business value varies by group as well. One piece of content in Tax may be "worth" more to its business that a piece of content in Consulting. In this case, you might argue that raw usage stats are not a reliable gauge of value, i.e. quality versus quantity. I see this often when dividing expenses between the sellside and buyside. The buyside may download less data but its business impact is often far higher than on the sellside - thus an allocation that deviates from a raw usage allocation basis may make sense.
Cost allocations are always political. You can get a lot of cover from senior management when divvying up the cost of doing business. But whatever method you choose, make sure you can defend your decision.
- Kevan Huston
Thursday, September 6, 2018
Supplier Consolidation - What are the Risks? Wait, there are risks?
It is widely understood to be accepted best practice to consolidate your supplier footprint whenever possible. I take no issue in general with this principle and recommend implementing a consolidation strategy for your purchasing program. Supplier consolidation results in clear and tangible economic and administrative benefits including:
But what are the risks to vendor consolidation in the market data and information services space?
As a rule, these risks are typically more than offset by pursuing a general policy of supplier consolidation. Yet it's worth keeping these risks in mind when you're consolidation your supplier footprint.
- Reduced hard-dollar purchase costs through increased purchasing power
- Lower administrative overhead
- Simplified and cheaper process automation
- Improved compliance and in-policy procurement activity
And more.
But what are the risks to vendor consolidation in the market data and information services space?
- Higher switching costs. This is a major issue with data feeds, indices, and banking platforms. In the event you have to switch, the extent to which you are consolidated with a single supplier for a given category will carry significant costs. You'll have to learn a whole knew system at the institutional level. You'll have to rejigger workflows, update marketing collateral, and modify your data governance setup.
- Decreased negotiating leverage. What you gain in purchasing power can be offset, albeit partially, by decreased negotiating leverage when you renew your contract. Your supplier knows that you face substantial switching costs should you want to move to a competitor, and that will be baked into your price. What to do? I recommend keeping direct competitors warm to the possibility of substitution opportunities. Get them to agree to discounting to account for your switching costs such IT costs, lower productivity and workflow impact. Communicate to your incumbent that their competitor is willing to discount to mitigate switching costs. Never let a vendor think they're not working for your business!
- Business continuity risk - The risks to your business increase as you consolidate with a vendor. Unlike other indirect spend categories, information services are not easily commoditized or their goods fungible, so there's substantial latency in moving to another supplier. Mitigate this risk by including aggressive service level terms and economic and equitable remedies to you in the event of breach or failure to perform.
- "Assignment" risk. While unlikely, on occasion you may find that when a supplier is purchased by another entity, the quality of the service materially decreases. As with business continuity risk, be sure to have strong terms in your contract governing assignment scenarios such as termination for convenience.
- Reputational risk - while rare, a supplier may suffer irreparable reputational harm that may affect your firm's reputation. While this is highly unlikely, it speaks to the general principle that you should do your due diligence with suppliers just as you would with customers.
As a rule, these risks are typically more than offset by pursuing a general policy of supplier consolidation. Yet it's worth keeping these risks in mind when you're consolidation your supplier footprint.
Wednesday, September 5, 2018
Get References!
References aren't just for employees. You can - and should - get references for potential vendors as well.
For many services such as exchange, indices, and news services, customer references aren't really necessary - you know what you're getting, and you can probably get a sense of the functionality just from a simple trial.
But what about more complicated products and services?
Things like:
In these instances, service level, client support and reliability are important variables you need to pin down. And you want to get real-world feedback from people who've been using them "in the wild".
So why not ask for a few references from other companies that are similar to yours?
Often times vendors will advertise on their website some of their clients - take a look at which companies are your closest competitors. They're likely to have use cases similar to yours.
You can't just take it on faith when the vendor says several of your competitors are "using" the service. A useful datum as far as it goes, but you want more qualitative feedback on what their experience has been like and how their use cases align with your expected use cases.
More likely than not, a good vendor will have a couple customers they can connect you with - with the understanding that confidential terms will not be disclosed. And you can tell the vendor you'd be happy to stand as a reference should you end up subscribing (if your Legal department agrees to it!)
What should you ask about?
To make an informed decision on whether to engage with a vendor that offers human capital-based services or complicated implementation scenarios you need as any qualitative inputs as possible. Customer references can be a great source of intelligence on whether the vendor is worth doing business with.
- Kevan Huston
For many services such as exchange, indices, and news services, customer references aren't really necessary - you know what you're getting, and you can probably get a sense of the functionality just from a simple trial.
But what about more complicated products and services?
Things like:
- Analytics platforms such as Eikon, FactSet and S&P Market Intelligence
- Products that integrate content with workflow applications like deal rooms and CRM portals;
- Outsourcing providers like SG Analytics for which human capital is critical part of the deliverable;
- Workflow automation applications for things like contract management, access control, usage monitoring and finance & accounting
- Big Data, AI, and NLP applications which will require ongoing iteration / feedback between you and the vendor (again, relying on human capital deliverables from the vendor)
In these instances, service level, client support and reliability are important variables you need to pin down. And you want to get real-world feedback from people who've been using them "in the wild".
So why not ask for a few references from other companies that are similar to yours?
Often times vendors will advertise on their website some of their clients - take a look at which companies are your closest competitors. They're likely to have use cases similar to yours.
You can't just take it on faith when the vendor says several of your competitors are "using" the service. A useful datum as far as it goes, but you want more qualitative feedback on what their experience has been like and how their use cases align with your expected use cases.
More likely than not, a good vendor will have a couple customers they can connect you with - with the understanding that confidential terms will not be disclosed. And you can tell the vendor you'd be happy to stand as a reference should you end up subscribing (if your Legal department agrees to it!)
What should you ask about?
- Customer support
- Reliability
- Responsiveness
- Troubleshooting
- Uptime
- Usability
- Etc.
To make an informed decision on whether to engage with a vendor that offers human capital-based services or complicated implementation scenarios you need as any qualitative inputs as possible. Customer references can be a great source of intelligence on whether the vendor is worth doing business with.
- Kevan Huston
Tuesday, September 4, 2018
This Thing is Going Down
U.S. stocks have been on a historic run over the past few years, that's for sure. I trust you have enjoyed the run.
It will end. That's an absolute certainty.
And the cassandras among us are already preparing for the inevitable downturn.
What do market data and information managers need to do to prepare?
It some sense it's a question of divided loyalties:
Ideally, as part of your budget process, you have already created some sort of cash flow table for your contracts that shows the dollar value of contracts as they expire: this way you and senior management know how much cash will be freed up, and when.
A simple illustration of the concept:
You've also tiered your contracts by importance - must have, nice to have, take it over leave it - so you can get a realistic picture of how much you can cut, when, and at what impact to the business.
My advice? Consider locking in longer term agreements for your strategic vendors with must-have services, without which the business would suffer materially. For less critical services, stick to single year agreements. In fact, this is probably a good idea at any point in the macroeconomic cycle: you want some flexibility in your contract book - a good rule of thumb is that you should be able to cull 10% of your spend within 6 months of being ordered to do so.
Do keep in mind, of course, that a lot of your strategic vendors with must-have services are expensive and you're going to have a lot more spend with these contracts than you will with less critical services. Depending upon the scenarios senior management is envisioning (a 20% reduction? 30%?), you may need to earmark some portion of your strategic, business critical for potential elimination as well. The last thing you want to do is go to your CFO and tell him you quite literally don't have any cash you can spare for another 18 months. Not a good look.
An economic downturn is never fun when you manage a big book of indirect spend like market data or information services. However, it's a lot easier to manage the fall out from a severe downturn in business when you've already got a plan for reducing your spend that aligns with what senior management are planning for.
It will end. That's an absolute certainty.
And the cassandras among us are already preparing for the inevitable downturn.
What do market data and information managers need to do to prepare?
It some sense it's a question of divided loyalties:
- you want to lock in multi-year agreements with vendors to ensure your users have access to the resources they need should budgets be cut, but,
- you know that senior management is eyeing a bull market that's long in the tooth and they're preparing for the inevitable recession or economic downturn.
Ideally, as part of your budget process, you have already created some sort of cash flow table for your contracts that shows the dollar value of contracts as they expire: this way you and senior management know how much cash will be freed up, and when.
A simple illustration of the concept:
You've also tiered your contracts by importance - must have, nice to have, take it over leave it - so you can get a realistic picture of how much you can cut, when, and at what impact to the business.
My advice? Consider locking in longer term agreements for your strategic vendors with must-have services, without which the business would suffer materially. For less critical services, stick to single year agreements. In fact, this is probably a good idea at any point in the macroeconomic cycle: you want some flexibility in your contract book - a good rule of thumb is that you should be able to cull 10% of your spend within 6 months of being ordered to do so.
Do keep in mind, of course, that a lot of your strategic vendors with must-have services are expensive and you're going to have a lot more spend with these contracts than you will with less critical services. Depending upon the scenarios senior management is envisioning (a 20% reduction? 30%?), you may need to earmark some portion of your strategic, business critical for potential elimination as well. The last thing you want to do is go to your CFO and tell him you quite literally don't have any cash you can spare for another 18 months. Not a good look.
An economic downturn is never fun when you manage a big book of indirect spend like market data or information services. However, it's a lot easier to manage the fall out from a severe downturn in business when you've already got a plan for reducing your spend that aligns with what senior management are planning for.
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