Pragmatic Outsourcing

10 Offshore Deal Showstoppers

I love English and it is slowly becoming my true second language. While English is still very much a work in progress for me I think I am doing better every day. Nowadays I can even challenge some native speakers with language questions that would get them quite puzzled. For example, is a “showstopper” a good thing? Almost anyone working in IT industry will tell you – No, that’s a very bad thing. Well, it is not exactly correct – take a look in a dictionary… Anyway, I am planning on covering a few showstoppers (in IT sense of the word) that I consider a deal breakers when it comes to hiring an offshore outsourcing vendor.

1. Acting like an idiot –fighting with me, bragging, being condescending, doubting my intelligence, etc. I have seen all too often vendors torpedo themselves by acting rather shallow. Here are just a couple of real life examples:

• “Nick, we hear it all the time… What a dumb question!”
• “Why use Skype? We’ll set you up with the software we developed in house – it is 100 times better.”
• “Nick, you just don’t understand…”
• “We have the best people in the entire city of Moscow and as a matter of fact in Russia altogether.”
• “Nick, this is so simple, anyone would understand it. Let me take you through it step by step…”

2. Lying, in particular when the lies are obvious. I typically tell to my prospect offshore vendors upfront that’s I am not a neophyte in outsourcing, yet some of them almost immediately after introduction launch into telling me how their clients saved over 300% in IT costs, about virtually zero turnover ratio, building 100+ member teams in 2 weeks, etc. These claims go beyond lying and fall in category “treating me like an idiot”. There are many areas where I see offshoring vendors commonly bend the truth a bit too far, and that why I always interview prospect employees – all kind of things came to the surface.

3. Playing games. I am not a strong negotiator and do not sell or buy for living. That doesn’t mean that I fall for every trick in the book. More so, if I recognize that a vendor is playing games with me chances are I won’t continue the discussion even without asking them to play a flute first. That is particular common and less offensive when it comes to negotiations, yet still annoying and the chances are will throw a bucket of cold water on my desire to work with the vendor.

4. Bashing competitors. Very common practice that is likely to give a vendor a single benefit – never talking with me again. Here are just a few examples from my recent past:

• a. From a talk with a Hungarian outsourcing firm: “Nick, are you really comfortable working with Russians? You know that all Russian outsourcing companies are owned by mob, don’t you?” Obviously these guys did not know that I spent first 30 years of my life in Russia…
• A discussion with a founder of an offshore company in Odessa, Ukraine: “Nick, are you serious about considering China? That’s just silly. I’ve worked with Chinese for years and can tell you they all dumb and lazy…” In response I told the guy that my wife was Chinese; while it is not true, that was so worth it – watching the tap dance that followed.
• From a discussion with VP of Sales for an outsourcing firm in China talking about another outsourcing firm in China: “I know them very well, and I have to tell you working with them will give you nothing but headaches – huge turnover, very low quality of resources, practically nobody with fluent English…”

5. Showing signs of dysfunctional company. Breakdown in communications, mixed messages, process breakdowns, “right hand doesn’t know what the left hand does”, not responding to my inquiries – these are just some of the common signs of a dysfunctional company. Those signs surfacing during presales / sales process or contract negotiation stage are sure deal killer in my book.

6. Displaying signs of bodyshop. Bodyshops or/and software sweatshops are not the organizations I would partner with for many reasons: low quality of deliverables, incompetent staff, high rate of conflicts – just to name a few. The trick is to recognize it early. Fortunately, signs of bodyshop are often right on the surface. The most common is condescending attitude of sales team towards resources to be involved in delivery. Another one, a bit less obvious, is a very quick turn around on sales materials with no visible impact on sales team (bunch of worker bees in back office slogged through the night to get the drones ready for presentation).

7. Unreasonable pricing. Typically excessive pricing comes decorated with statements such as “we are not the cheapest but we are the best” or “these are just list prices and we can negotiate from here”. That approach turns a large portion of contract negotiations in a slapstick comedy which I do not enjoy. Unreasonably low pricing has a turn offs of a different nature, ranging from “these guys are desperate” to “what’s the catch”.

8. Going over my head or behind my back. Not sure whether that one needs an explanation. Doing something like that is known to be a “corporate culture crime” in any industry / environment. And yet I see it surprisingly often. The funny part is that the email sent to my boss is likely to end up in my inbox with “FYI” or even “Nick, why are thy contacting me?”

9. Applying overly aggressive sales techniques. Having been in the industry for a while I have seen a lot of them ranging from twisting arms and applying pressure or guilt to outright pathetic begging. Once a CEO of midsized Indian outsourcing company literally cried in my office begging my to give his company just one chance, he showed me the pictures of his kids and wept talking about so many of his employees to go hungry – you might think it was a scene from Bollywood tearjerker.

10. Picking a wrong tone for the discussions. That’s a tricky one as everyone has their personal preferences and pet peeves. I think you can’t go wrong by just being consummate professional in all aspects of your communication. For example, I believe that you are better off being cold rather than getting too casual too quick – “Nick, buddy, take a foot of the breaks! When are you goona sign the doc I sent you?” But maybe that’s just me…

Many of the items are not necessary related to integral components or cultural fabric of specific vendor organization. Many of these items are mainly related to sales person who represent the company and you might ask why I would stop working with a vendor just because their sales person is not the sharpest cheese on a platter? Well, there are at least few reasons –

• Most of the time what you see during sales process is enhanced version of what will appear during the delivery stage.
• A company that hires and uses sales staff that could be defined by one of terms is probably not worth working with.
• There are plenty of alternatives to spending time with people who annoy you.

April 8, 2009 Posted by Nick Krym | Contract Negotiations | Offshore Tips | Leave a Comment

Basics of Win-win Negotiating

If you heard anything about negotiations you probably heard about win-win negotiations (WWN) as well. As a matter of fact you might have heard the term even if you never dealt with negotiations at all. It’s a very popular buzzword in business, politics, etc. But doesn’t it sound like an oxymoron? Negotiations term in our minds typically translates to two sides with conflicting objectives trying to find a compromise, what can win-win term to do with it?

Well, the first and the most important step in reaching win-win outcomes, is getting away from the cliché above. You need to put yourself in a different state of mind, and that is not that at all complex. If you approach negotiations as “two parties with conflicting objectives trying to find a compromise” that what your negotiation process would be. Negotiations in this case is very much like a sport game or a bitter divorce – there is a fixed amount of assets that could be divided between two parties. In reality most of the businesses negotiations deal with substantially more assets that meets the eye and the assets do not need to be “divided” but distributed / redistributed in some manner, more so in many negotiations new value is created increasing the negotiations asset pool dramatically. Understanding of it allows you to focus on maximizing overall value as well as the value gained by each party, and that leads you to win-win negotiations.

Going forward in this post let’s consider negotiating an initial offshore contract as the main example. Getting to a final contract signature could be a very complex and lengthy process with legal, ops and execs involved, with emotions flying high, many things going wrong, and some seriously bruised egos; that feels in matrimonial terms as a dressed rehearsal for a bitter divorce. Negotiation initial contract could be also a well organized process akin to planning session for long and complex journey.

The first scenario besides being hard on you is also almost a certain recipe for engagement failure. Let’s discuss some of the main techniques and tools that help change typical carpet trading style bargaining into professional win-win process negotiations that are easy on our nerves and establish solid foundation for the engagement success:

Put yourself in WWN state of mind:

• First thing you need to do is to realize that there is a variable amount of resources to be divided / redistributed and both sides can “win”. Take for example an MSA, I’ve seen some that were just one page long and some over 20 pages long. They serve the same purpose and in large degree touch on the same topics. The breadth and more so depth of them is quite different with longer versions offering many more elements to discuss / negotiate.
• Starting from early steps of the negotiations your dominant concern should become to maximize joint outcomes. Think about the process of WWN as a process of creating value. In particular search for options of providing additional value for your negotiating partner. For example if you are on a buyer side that might include references, leads, sharing development expertise, helping with building the process maturity, etc.
• You need to get to a realization that there are many tangible and intangible benefits both parties can offer each other in addition to hard-core contract ingredients. Take for example references or leads a customer the parties can exchange.
• Understand that the opponent’s interests are not necessarily the way you perceive them, so take the most positive view. Put yourself in your negotiating partner shoes and take the most optimistic outlook at what they may be trying to accomplish. For example, if you are on a buyer side think in terms “if I were the vendor what value I could provide to the buyer? What can I do to exceed their expectations”
• Focus on interests, not positions, including your own. That is very important point, it is all too often we forget the goals we are trying to accomplish and get our horns locked in fighting on positions, pursuing fleeting often irrelevant objectives. Many times I’ve seen people forgetting the topic of negotiation and only striving to look good, win, prove the point, etc. Well I’ve done it myself…

You can start establishing the foundations of the WWN right after and only after you put yourself in WWN state of mind. One of the most important steps in establishing the foundations is making sure that WWN is indeed a possibility:

• Always initially ask for more than you expect. That serves to multiple purposes, one of the most important being establishing negotiation space, which in turn helps your opponent to avoid “losing face”.
• Look for points to negotiate and by all means avoid single-threaded negotiations. When you get to a single-threaded negotiation, or negotiating upon a single point (most common would be “the rate”) the chances of “building additional value” disappear as negotiation turns to dividing a limited amount of resources between two parties. Keep as many points open as possible till you are ready to get to the closure.
• Get you opponent to act in WWN manner as well. Make sure that your negotiating partner understands that your position is “win-win or no deal”. Get your opponent to take same position as well. That could be not trivial and require substantial effort if your opponent doesn’t have experience in WWN or doesn’t believe in WWN.

The process of WWN is not overly complex; it’s just different from what many people consider “the right thing to do” when it comes to negotiations. In “typical” negotiations one person’s interests oppose the other’s. The dominant concern in this type of bargaining is usually maximizing one’s own interests. Dominant strategies in this mode include manipulation, forcing, and withholding information. In WWN dominant concern is to maximize joint outcomes and dominant strategies include cooperation, sharing information, and mutual problem solving.

After the parties established WWN mindset and environment the process moves towards building a partnership dealing with elements that parties have opposite interest in becomes non-confrontational collaboration rather than face to face combat so common for haggling. When you encounter a topic of that divides / pulls parties apart consider the following techniques:

• Seek out (brain storm) mutual gain opportunities through out your negotiation process. Every turn in the negotiation offers additional opportunity for discovery and broadening the negotiation landscape. Generate a variety of possibilities before deciding what to do / how to proceed.
• Seek objective or legitimate standard to base an outcome on, to evaluate the solution. For example Net 30 is the most common (standard) payment term in SMB environment for outsourcing contracts. Working with large organization such as government or pharma you likely have to consider Net 60, when dealing with contractors you may want to consider Net 15 or due upon receipt.
• Build on commonalities rather than address the differences, consider “we are in this together” as the main metaphor. Sometimes to bring you and your opponent (negotiating partner) on the same side it helps to find a “mutual enemy”. For example when building a initial outsourcing contract instead of fighting around common problems such as “what if you will not deliver on time and my resources are spinning wheels waiting for you…” consider “loss of productivity” as a “mutual enemy”. That set of mind promotes by far more productive discussion and typically results in better contractual framework.

OK, the title of this post is “Basics of Win-win Negotiating”, “basics” not “insights” or “advanced techniques” and I think I am way deep in the weeds now. So, I guess I should stop now… And thank you so much if you still reading. I am afraid I lost most of my readers by now, including myself…

April 2, 2009 Posted by Nick Krym | Contract Negotiations | Offshore Tips | Leave a Comment

Main Forces of Negotiation

A little while ago I started a thread covering general negotiation tips, tricks, and techniques. Just for the sake of consistency let me repeat the caveat I mentioned before: negotiation is a complex skill if not art. If negotiations are not particular your cup of tea you may consider involving professionals, in particular those who have experience negotiating offshore contracts. At least you owe it to yourself to go through some serious reading on the topic prior to diving into the deal making. Many of these books cover the main forces of negotiation (Time, Information and Power) in great details so I will take a very superficial approach in covering them. In addition I touch upon two more forces which are at least as important yet are not typically covered – Skills & Experience.

The topic of negotiations is complex and comprehensive; each of the bullets below probably deserves at least a few page long post by itself. So by any means do not expect that reading this post will make you a professional negotiator. I do hope that it would be a good check list to keep handy for your next opportunity to negotiate.

Let start with Time:

The main rule of Time is very simple: The party under the greatest time pressure is the one at disadvantage / the one to lose the ground. Here are a few main tips on dealing with Time in consideration of the rule:

• Do your best not to put yourself under the time pressure; for example committing to your management that you will have offshore contract done by end of month would not be a good idea.
• Learn to recognize time pressures your opponent is under.
• Never reveal that you are under time pressure; that shows your weakness and gives your opponents more armor.
• Try to put your opponent under time pressure.
• Recognized when your opponent uses time pressure against you (it’s often artificial / manipulation that could be easily deflected).
• As the time flies away and the finish line approaches the time pressure grows and the party under the highest pressure start losing the ground. Typically 80% of concessions are made during last 20% of the negotiation time span, so do not leave too much to the end.
• Be aware of special timing, e.g. end of year / quarter bargaining, but do not be swayed by it, it could be nothing but artificial – just another “time pressure building” technique.

The next major force of negotiations is Information:

You can consider Information as the currency in the world of negotiations. The side that has more information pertaining to the topic of negotiations has the upper hand. Offshore negotiations offer a great illustration of that rule. Consider an example of negotiations around a blended rate. The vendor knows the rates to be paid to the team members, anticipated turnover rate, cost of overhead and all the other components that define exact/true cost of the team. The vendor also has other factors that affect the minimum number the vendor is prepared to agree upon. If the customer has access to the same information they can as easily define minimum rate and take hard stance on negotiation driving to get the bottom line price.

Another illustration is access to specific information such as pressures that would make your opponent to be more flexible. For example if you learn that the sales person who is working with you had not met his quote and could lose his job if this deal is not closed. Knowing that allows you to time negotiations close to say quarter end and let the time pressure itself drive the rates down.

Same goes in the opposite direction – for example a vendor just learned that a couple of competitors bailed out from the negotiations with you. The vendor could easily use this knowledge to get more concessions out of you.

Manipulation of information is a strategy game that requires in-depth understanding of goals and objectives of the process. Here are some of the guidelines for getting better at this game:

• Gather as much as you can information prior to entering the negotiation and continue collecting it through out the negotiation process.
• Be very careful in disclosing and distributing information, some supposedly innocuous facts can turned out to be critical ingredients in the information repository. Consider following a good old “Need to Know” principle.
• Consider disclosing information as trading of goods. For example if I disclose some information to you I would expect a similar act or a concession of different nature in return.
• At the same time you should understand that information sharing is a mandatory component of negotiations in particular when searching for a win-win solution.
• Never assume that you know all the facts or that your information is correct.

The 3rd major force of negotiations is typically called Power. At a very high level, Power is ability to influence people, make them do things that otherwise they would not do. Power by itself is just ability, application of power that what makes the difference in the behavior of people.

There are several main ingredients of Power as it pertains to the negotiations:

• Situation power, e.g. buyer vs. seller in offshore contract negotiations.
• Reward power, ability to provide rewards.
• Coercive power, ability to punish, intimidate.
• Title / position power; note high importance of it in offshore negotiations.
• Expertise power.
• Power of flexibility, often undermined yet exceptionally potent ingredient.
• Character power, charisma, consistency, integrity, command of respect.

Interestingly enough the most important is not the Power itself but its perception. You can say that Power in some sense is similar to beauty: power lies in the eye of the beholder. Another way to put it is if you are perceived in the position of Power you are.

Consider “title” power – if your opponent perceives you as a high ranking official they would interpret your statements in that way even if in reality you are not. For another example of perception of power consider asking your boss for a raise (I assume that you are top notch contributor). Things that could be going through your mind would assign your boss the coercive power – “what if as a result I get fired!?” while the boss might not have this power (firing you could be disastrous for the organization) and the only thoughts in your boss mind would be “how cheap can I get out of it” assigning you the coercive power (ability to punish by quitting).

Negotiations is a game of skill, and as a matter of fact many skills, so I prefer to include the Skill in the list of the main forces of negotiations. The list that covers skills required for running successful negotiations would be very long and complex, so I take a high road suggesting only the main areas. And even though it is greatly simplified the list might seem intimidating, yet you should consider it in its comparison to the task. Offshore negotiations are not necessary as complex or stressful as Union or hostage negotiations, so you do not have to have all the skills at top level. More so the skills may be distributed among the team members and that would make achieving the success much more realistic task.

Foundational skills or ability to –

• Learn and improve.
• Control your own emotional state.
• Maintain your own integrity.

Specific skills pertaining to negotiation process –

• Setting goals, objectives, outcomes.
• Defining and staying within boundaries, limits, constraints, conditions.
• Using negotiating techniques – recognizing, using and countering negotiating gambits.
• Finding and driving for a Win-Win outcome whenever is possible.
• Obtaining and maintaining required authority

Analytical abilities are particular important for defining game plan and assessment of opponent’s position / game plan –

• Negotiation limits / negotiation space.
• Best Alternative to Negotiated Agreement (BATNA).
• Final Exit Point (FEP) and a Reservation Point (RP).
• Offers, propositions, tactics, techniques.

Behavioral skills and abilities –

• Focus
• Observation skills
• Planning and organizational skills
• Rapport building skills
• Flexibility
• Creativity
• Tenacity

Command of communication techniques –

• Presentation skills
• Active listening
• Art of silence
• Read opponent’s non-verbal language
• Communicate non-verbally
• Information recovery

And the last in the list of the main forces of negotiation is Experience. The only way most of us can become good negotiators is by consistent learning and using multiple aspects of the art in real life. As in many areas of our activities it comes down to mileage, the more you sail the better you get at controlling your boat…

February 24, 2009 Posted by Nick Krym | Contract Negotiations | Offshore Tips | 2 Comments