Stakeholder Initiated Negotiations Can be a Disaster - Here's How to Avoid Them

As your firm grows, you're going to find it increasingly challenging to coordinate and manage who communicates what with your suppliers. Vendors have highly sophisticated CRM systems and aggressive outbound marketing processes: it's very easy for a vendor to find leads within your org. Those leads - stakeholders to you - may very well have legitimate content needs. But they can make your life more difficult depending upon how and when they liaise with vendors.

One of the more troubling scenarios occurs when a stakeholder interested in a product begins negotiating pricing and licensing with a vendor. This can be a disaster and completely undermine your negotiating position with the supplier:

• The vendor knows someone in the firm really, really wants their product. This gives them lots of leverage. It effectively eliminates your leverage on price. 
• The vendor will anchor the negotiations with a completely unreasonable first offer, as they know they're dealing with a stakeholder who doesn't negotiate professionally and understand how to handle a complicated multi-faceted negotiation with multiple stakeholders.
• The vendor will have potentially an inaccurate assessment of the breadth and depth of the use cases in your company. Stakeholder-led negotiations tend to result in incomplete business requirements as they are focused only their own silo or area of operation. 

Even in a firm with a robust and well-organized procurement and VMO function, from time to time a stakeholder will take the initiative and reach out to a vendor and begin negotiating terms. It's unavoidable. What should you do when a stakeholder-led negotiation eventually comes across your desk?

• Get the scoop from your stakeholder. Stay calm! Find out everything that's been discussed. Gather their business requirements. Find out if they have collected requirements from other stakeholders who might benefit from the service. Typically, a stakeholder will actually be more than happy to have you take the work of negotiating a deal off their hands. Most people hate negotiating and haggling over price. It's not a job everyone can do and maintain healthy blood pressure. 
• With the vendor, your number one goal is to try and re-establish some negotiating leverage. Immediately dial back expectations for a quick and easy win. Without embarrassing or calling out your stakeholder, explain that they aren't authorized to conduct negotiations, let alone commit dollars to a new service. I often will say to vendors: "at the CFO's behest we have recently initiated a number of new policies around procurement, so we will need to take a step back and assess this interest against our budget for this service". 
• Begin vetting the purchase as you would any other -- run it through your established procurement processes: gather user requirements, assess the value and ROI of the service, check your budget. It may very well be that the service isn't something your firm can subscribe to at all - despite the wishes of your eager stakeholder. 

Ideally, of course, this situation won't arise. It can't be prevented completely, but there's a number of steps you can take to minimize stakeholder-led negotiations:

• Have a formal VMO in place. Your firm needs to have a formal vendor management office in place that handles all third party negotiations. Not only will you realize hard-dollar savings, but you will increase the ROI of your purchases because you can coordinate interest and use-cases across multiple stakeholders. And you'll reduce legal and compliance risk as well. 
• Have a VMO with teeth. You need to have executive sponsorship for the VMO. Employees need to understand that senior leadership backs a centralized purchasing process for your firm. Ideally a C-level executive will write a memo outlining the VMO and its responsibilities, at least once a year. Adding sourcing and procurement policy language to your employee Handbook doesn't hurt either.
• Market your VMO to end users. What good does it do your firm if people don't know you exist? It's not enough to rely on an annual communique from management and a page on the corporate Intranet. Make sure you're communicating regularly with stakeholders about what the VMO offers and what, if any, freedom end-users have to negotiate with vendors.

Scaling your firm's growth can be a challenge when it comes to third-party purchasing and indirect spend. A well-organized and well-marketed VMO can help reduce stakeholder-led negotiations. When these occur, assert your authority over the dealmaking process, and slow down the negotiation to re-establish the leverage you need to get a good deal. 

- Kevan Huston