Welcome back, dear listeners, to yet another episode of Smart Consulting Sourcing, your one-stop podcast for everything consulting procurement. Your host, Helene, guides you on “How to buy consulting services like a pro”. Our journey today takes us into an area where many feel the pressure but also where victories are won – negotiation. We’ll be focusing on the prerequisites before you sit at that negotiation table for a consulting agreement. This includes understanding what aspects you want to negotiate, pinpointing the key individuals who will take part in the negotiation process, and identifying the wiggle room you have at your disposal.
But before we dive headlong into these intricate nuances of negotiation, let’s take a step back and cast a glance at our journey so far. Remember our last episode? We honed in on the pivotal part of the consulting procurement process – selecting your consultants. In case you missed it, or you just need a quick refresher, here are the critical points we dissected:
Remember to assess proposals thoroughly. Don’t just skim the surface; delve deep into evaluating the approach, team expertise, deliverables, compatibility with your team, and price.
Don’t hesitate to challenge the core proposal. Clarify uncertainties and ensure the suggested approach matches your project’s requirements and promises tangible, positive impacts.
Prioritize evaluating the expertise and fit of the consultants. Gauge their understanding of your business, their ability to mesh with your team, and their credibility with stakeholders.
Don’t overlook the fee structure and additional expenses. Understand the pricing breakdown, envisage potential scenarios, and work out the total cost implications of each proposal.
Use a weighted scorecard system for an objective comparison of proposals. This ensures that all proposals are judged based on predetermined, relevant criteria.
Finally, always involve your stakeholders in the decision-making process. Their input can provide valuable insights and promote a broader acceptance of the chosen consultant.
Keeping these points in mind will empower you to select the right consultants, setting the stage for a successful project. Now, armed with these insights, let’s gear up to unravel the complexities of negotiation in consulting agreements…
Before we dive into today’s content, I would like to remind you that Smart Consulting Sourcing is available across many major podcast platforms, including Apple Podcasts, Spotify, Google Podcasts, and Samsung Podcasts. We’ve also made our episodes available on YouTube, where you can find video versions of our episodes.
And if you’re someone who prefers reading or wishes to revisit our discussions at your own leisure, the full transcript of each episode is readily accessible in the Thought Leadership section of our website, consultingquest.com. This is an excellent resource for delving deeper into our topics, and for sharing these valuable insights with your team.
We strive to make your journey toward becoming a consulting procurement pro as convenient and enriching as possible. Now, without further ado, let’s unravel the complexities of negotiation in consulting agreements…
Nail the Negotiation: Warm Up with These Prep Tips
Now that you’ve shortlisted your potential suppliers to a couple of strong contenders, it’s time to negotiate an agreement for the project. But before you head into the negotiation room, it’s essential to be clear on a few things:
- What is your goal for this negotiation?
- What elements hold significant value to you?
- In which areas can you afford to be more flexible?
Remember, you’re aiming for the best deal, and so is the consulting firm while negotiating for the consulting agreement. It’s all about finding that sweet spot where both parties feel satisfied. Let’s explore how we can make this a win-win situation for everyone involved.
Start Negotiating Your Consulting Agreement by Prioritizing Your Points
So, where to start? First things first, decide what elements of the proposal you want to negotiate. In consulting, much like many other intangible services, almost everything can be open to negotiation. That being said, you don’t necessarily need or want to negotiate every single element. You’ve already identified parts of the proposal that resonate well with your needs. You’ll likely want to keep those as they are. Focus on those areas where the proposal scored average or less. There are roughly three main dimensions up for negotiation: what the consultants will deliver, how they will deliver it, and how much it will cost.
Let’s start with what the consultants will deliver. Defining the project scope and deliverables in the RFP is a balancing act, as is building a proposal to respond to an RFP. It’s not uncommon for consultants to veer slightly off-track. The scope could also evolve during the sourcing process. For instance, you might realize that your project description was either too narrow or too broad.
These parameters can be fine-tuned during negotiations, for example, narrowing down the focus to Gas Distribution in Western Europe instead of Energy in Europe, insisting on detailed deliverables instead of a high-level SWOT analysis, or ensuring the final deliverable includes a knowledge transfer and a plan for the future.
Next, consider how the consultants will deliver. The delivery model plays a pivotal role in the success of a consulting project. It encompasses the approach, the timeline, the governance, the team staffing, the phasing, and the balance between on-site and off-site work.
Maybe you have a small team in North America and decide that it doesn’t need as many workshops. Or you find the proposed governance doesn’t sync with your organization’s pace.
And just like how timing is everything on stage, it is the same with your project’s timeline. If it doesn’t match your internal deadlines, adjustments are needed.
Think about your project manager as the leading actor. You might want someone more seasoned, a professional who’s performed in many successful shows before.
And, of course, you wouldn’t forget the ensemble cast. There might be a need to balance your team better, reducing the number of extras (aka part-time experts) and ensuring you have enough lead performers.
These are not hypothetical situations; they’re real-world examples, illustrating the fine-tuning that often takes place during consulting agreement negotiations. After all, every detail counts in making your performance a standing ovation when negotiating your consulting agreement with your shortlisted consultants.
As the old adage goes: “We can deliver on time, on cost, on quality. You can pick any two.”
How to Negotiate the Cost – The Pivotal Part of Your Consulting Agreement
Finally, let’s talk about the cost of the project. There are various ways to scrutinize the price. You could look at the overall cost and see how it aligns with your budget. You could break down the cost structure into daily rates or types of fees. The cost allocation across the different project phases could also be informative.
Navigating negotiations can often feel like choreographing a complex dance. Just last month, we had an enlightening negotiation experience with a client who was quite the choreographer:
They opened the dance boldly, asking for a 15% reduction in the overall project cost. Quite the grand jeté to kick things off!
Next, they introduced a creative twist in the routine, suggesting that part of the fees should be linked to the consultant’s performance, making the project a true pas de deux.
They were concerned about the rate for junior consultants too, feeling that it should be more in line with their status as corps de ballet rather than prima ballerina.
Further, they opted for a simplified rhythm, preferring an all-inclusive flat fee, or at least a cap on the out-of-pocket expenses. No unexpected solos popping up there!
Finally, they had a unique vision for how the costs should be staged across the different acts, seeking a different allocation to various deliverables and phases.
This negotiation dance taught us an important lesson: every step affects the whole performance. Adjusting the scope will inevitably echo through to the delivery model and cost, and changes to the timeline or staffing will likewise reframe the overall choreography. It’s the art and elegance of negotiation.
And just in case you were wondering, no, I’m not an experienced dancer. In fact, my dance career was rather short-lived. I was kindly asked to leave dance class at the tender age of 7, after which I swapped my ballet shoes for a judo belt. But rest assured, there won’t be any judo throws in our negotiations! However, it’s worth noting that the principles of judo can come in handy during negotiations. For instance, judo teaches us to use our opponent’s force to our advantage – a useful tactic when maneuvering through the negotiation.
So, Let’s Dive Into the Heart of the Negotiation: Understanding Your Payoff Matrix
This concept might sound more complex than it really is. Simply put, the key is not to get too caught up in the negotiating terrain, but to focus on your interests and the potential rewards of the negotiation. What’s crucial is how the project’s value aligns with what you want to negotiate, and making sure this matches up with the overall strategic priorities of the project.
Imagine you’re about to embark on a thrilling new expedition, and the value of the project is your treasure map. The first step is to estimate the wealth you can potentially unearth – in other words, how much value the project can generate. Then, measure the gap between this anticipated treasure and the price of your chosen expedition partner, i.e., your consulting firm.
Here’s where you start charting your payoff matrix, which is essentially a strategic map of your journey of negotiating your consulting agreement. It gives you two basic paths: to negotiate, or not to negotiate. Similarly, your consulting firm will also be deciding between these two routes.
Let’s apply this to a scenario where a project can potentially create a treasure trove of 100 in value. The consulting firm asks for a price of 50 for their expertise and resources. If neither party negotiates, both capture a share of 50 from the project’s value.
But remember, it’s always in your interest to negotiate, partly because the consulting firm will expect you to do so. Yet, the size of the discount you aim for should not be a set ‘X%’ rule, but should rather be calculated based on the specifics of your project.
Think about it. If each week spent haggling and going back and forth diminishes the total project value by 5, your payoff matrix after two weeks of negotiation can look rather different compared to the first week. Suddenly, you’re not sitting quite as comfortably as you were before.
Or consider a scenario where the expected value is ten times the price of the project. Is it worth spending your time haggling for an extra 5%? Wouldn’t it be wiser to secure the consulting resources and deliverables instead?
The purpose of negotiations isn’t just to swing the deal heavily in your favor or to limit your liabilities. Insisting on an unfair deal will only risk the success of your project and could damage your long-term relationship with the consulting firm. As long as the price fits within your budget, your focus should be on achieving the best possible outcome for the project, including a solid return on investment.
A key element here is fostering a win-win situation. Remember, “winning” in negotiation isn’t about crushing the other party or getting all the terms you wanted. It’s about finding a sweet spot that satisfies both sides. It’s about crafting a deal that feels like a victory dance for everyone involved.
Now let’s try to understand the balance of power, which is a pivotal part of any negotiation. Like a game of chess, you need to understand the strengths on both sides to make effective moves. It’s all about figuring out who’s holding the stronger cards – do you have the upper hand or does the consultant?
How much do you rely on the chosen provider? If you’ve organized a solid competition, you should have multiple robust proposals to choose from, even if the deep expertise needed narrows down the list of qualified consulting firms. Having alternative options gives you a backup plan if you can’t strike a satisfactory agreement with your top choice.
And what’s your intel on pricing? This is another benefit of having multiple competitors – it gives you price intelligence. If you see significant price differences between proposals from firms of similar size and reputation, it may hint that the consultant with the higher bid is either overestimating the workload, politely declining the project with a high price tag, or confident that they’ll land the project due to your company’s habit of sticking with incumbents.
And speaking of incumbents, are you willing to shake things up a bit? Your willingness to work with new consultants can be a game-changer. If your incumbent knows you’re seriously considering other candidates, they’ll likely be more open to compromises.
Are you racing against the clock? Time constraints can sometimes weaken your negotiating position. When possible, always try to prepare projects well in advance.
And have you considered industry seasonality? Consulting, like the theater, has its busy and slow seasons. There are times in the year when consultants have more capacity than others. For instance, the last quarter of the year can be an excellent time to negotiate extra effort on a project, whereas the first quarter is often busier with higher demand.
So, as you take your negotiation stage, understanding these dynamics can help you direct the performance towards a harmonious finale, where everyone takes their bow with a satisfied smile.
Now, onto the final key point before we dive into the actual negotiation process: deciding who will be on your negotiation team. There are a couple of approaches you could consider, be it a single negotiator or a team. If you choose the latter, remember to assign specific roles and ensure the appropriate expertise is present.
Here’s A Quick Takeaway:
Team Composition: This will naturally vary based on the project’s size and strategic significance. However, it’s a good rule of thumb to have the same individuals who prepared the RFP on board, particularly the procurement lead, project manager, and project sponsor. For larger, more critical projects, extend your team to include key stakeholders from finance and strategy.
Separate Personal from Professional: Keep personal feelings out of the negotiation process. Even if you share an excellent personal relationship with a consulting firm’s partner, conflicting objectives may arise during contract negotiation. In such cases, consider bringing an additional person to the table.
Do Your Homework: Research the consulting firm thoroughly. Refresh your memory with notes from any previous engagements or negotiations with them.
Define Your Strategy: Decide on your negotiation strategy and tactics, including who will initiate the discussions and who will be the escalation person. Consider the impact of potential concessions on price and quality, anticipate their likely reactions to your tactics, and think about possible tactics they might employ.
Understand Their Decision-making Authority: Make sure you’re clear on the decision-making power of the other party. It’s incredibly frustrating to strike a deal only to find out their boss has vetoed it. Sound familiar? Conversely, if the consultant is unyielding on a proposition you’re unhappy with, don’t hesitate to request a break to consult with your stakeholders.
This wraps up our prerequisites. Now we’re ready to dance…I mean, negotiate! Let’s summarize the takeaways for this week:
Define your negotiation parameters: Identify what elements you want to negotiate, focusing on areas where the initial proposal was less satisfactory. These may encompass project deliverables, the delivery model, and project costs.
Understand your payoff matrix: The value of the project should dictate your negotiation strategy. Be mindful of the cost of protracted negotiations and make sure any potential gains are worth the effort.
Assess the balance of power: Understand your own strengths, your level of dependence on the provider, and your negotiation leverage based on your willingness to work with new players, your timeline, and industry seasonality.
Choose your negotiation team: Decide if you will negotiate as an individual or a team, determine the roles of each team member, and decide your negotiation strategy and tactics.
So, remember, don’t just dive headfirst into negotiations. Get clear on what you want, understand the potential value at stake, assess your bargaining power, and choose your negotiation team wisely. Only then, with these pieces in place, are you ready for the negotiation dance. But the first step? Well, that’s a tale for next week.
Next week we will waltz into the world of BATNA (Best Alternative To a Negotiated Agreement), ZOPA (Zone of Possible Agreement), and trade-offs. We’ll be disco-dancing our way through the fascinating field of negotiation, exploring opportunities for substantial savings. Make sure you’ve got your dancing shoes on because it’s going to be a groovy ride!
Till then stay safe and happy sourcing. If today’s topic sparked any questions, or if there’s anything else you’re curious about in the realm of consulting procurement, remember, I’m just a LinkedIn message or an email away. And I’m always up for a good chat!
So, goodbye for now and see you next week. Au revoir, and keep the sourcing game strong!
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