In my last article we summarized that there are two initial steps necessary to successfully renegotiate a new or renewal service agreement with any Core or IT vendor. Step One: Admit that you’re a banker and not a CIO. The deck is stacked against you. These multi-billion dollar corporations have forgotten more about writing a obnoxiously favorable vendor-leaning agreement than you might ever know in your entire career as a banker. That’s nothing to be embarrassed about – it’s reality. Begin with the humility of “knowing you don’t know what they know.” Step Two: Don’t believe for a second that beating up your vendor will get you anything that might not be gained with a more partnering approach. Using an RFP process or overtly entertaining other vendor pricing (when you genuinely have no real intention of ever leaving your current provider) is a crime and a shame. Speaking as a former vendor…there exists a silent code amongst vendors for treatment of bankers that use this water boarding tactic to extract improved pricing, terms and conditions. That is, you may get the pricing you want – but the partnership is over. Forget ever calling in a favor or receiving anything that resembles a “deal” in the future. Unlike terrorists, you can get you want out of Core & IT vendors without the torture of an RFP or public hearing with their competitors.
So then, if you are ready to be humble and show your vendors respect, then you have a chance of executing the next steps successfully.
Step Three: Begin with the end in mind. Without a doubt this is the first biggest mistake we see repeated time and time again in the hundreds of contract we review annually. Recently, two banks came to us for help. Both failed in their attempt to sell the franchise because nobody had ever thought about the exit hurdles when the contract was signed. Ironically, most bankers are always thinking about their “exit” but for some inexplicable reason these areas of the vendor agreement are routinely left untouched. Both of these banks learned after signing definitive agreements with their suitors that they had separation expense ranging between $700,000 and $800,000 each [different bank, different vendors]. There are 100 ways a vendor can modify their termination clauses but you’ve got to be prepared to give if you want to get. These methods vary from vendor to vendor and depend a lot on your size, volumes, annual spend and the suite of products and services installed. Unfortunately, vendors are not going to publish how to get this done or what button you will have to push to compel their favor.
Step Four: Align the Contract with Your Strategy before Pricing. The first 1/3 of your negotiating time spent with the vendor should be focused on strategy, product and services that the bank needs to be successful. Set price negotiations aside until the final third of the process. Any Core & IT agreement is largely comprised of three parts: a Service Level Agreement, Business Terms & Conditions and Pricing Schedule. Each bank is different and the standard SLA rarely fits. So talk to the vendor about your specific needs and areas where conformance of your employees to their process may be uncomfortable or inefficient to you. Most all vendors will do anything they can to make you happy. I lost count of how many banks were not happy with their vendor support process only to learn they had never set an expectation, let alone wrote it down and got agreement. Understand that it is much easier for a vendor to add a service level or special request than it is to modify an existing term. Fact is, these contracts are standard and have been vetted for years across thousands of institutions so it’s hard and many times unreasonable for a vendor to change these contract pillars. Once you have modified the SLA, move onto the business conditions and then finally to pricing. If you put the pricing discussion at the end you may learn that every time the vendor said ‘no’ to you in the first two-thirds of the process convert quite easily to pricing concessions later on.
More Insights to come . . . over the next two articles in this series I will outline some additional strategies and tactics to use when in the trenches with these vendors. In the meantime you are welcome to visit our blog, contact me at 877-746-4859 x704 or email@example.com.