Why negotiations with IT service providers are becoming increasingly important

Anyone who thinks about negotiations in everyday professional life often thinks of their sales colleagues in. But there are many other departments where negotiations are also important. Especially in IT, negotiating skills are becoming increasingly important. In this article we will take a closer look at this development and how negotiation consulting can help you to successfully master negotiations on IT services.

Why negotiations with IT-providers are becoming increasingly important

Why negotiations of IT services are gaining importance

Two thirds of all outsourced services are nowadays IT services. Gartner predicts spending on Software-as-a-Service (SaaS) services to be $150 billion this year. Infrastructure-as-a-Service (IaaS) investments are expected to grow at a similar rate. This development underlines the increasing importance of negotiations between companies and their IT service providers.

These negotiations are no longer just about saving IT costs. Rather, the outsourcing of IT services has become a central topic for CIOs and often serves to develop competitive advantages.

5 good reasons to outsource IT services

There are many strategic goals that speak for the outsourcing of IT processes. CIOs and IT managers often decide to purchase IT services externally for one or more of the following reasons:

  1. make new technologies and strategic IT skills accessible
  2. relieve bottleneck resources
  3. enable the scaling of your own IT organisation
  4. increase flexibility of resources
  5. improve the ability of the IT organisation to support innovation

Who has not experienced it? Almost every project today requires support from IT staff, who are often bottleneck resources in the company. Such resource shortage frequently hinder innovative projects or product launches massively. Therefore, a modern and scalable IT organisation is essential from a business perspective as well.

What makes negotiations about IT services special

Even though more and more companies have been outsourcing large parts of their IT processes in recent years, this topic has barely been addressed by both researchers and practitioners. However, the professors of the renowned Harvard University agree that technology negotiations have special characteristics. These include in particular

  1. the technological complexity of IT services
  2. Egos and personal interests of IT experts
  3. the power of the big tech players
  4. organisational changes

Technological complexity

Negotiations on new technologies require in-depth knowledge of hardware or software, which often goes beyond the IT know-how of most managers. In 2020, trends include network function virtualization (NFV), dirty data in the field of artificial intelligence (AI) and digital twinning. If individual participants have in-depth IT knowledge of these trends and assume that others at the table speak their language, this can lead to serious misunderstandings. As an non expert, it is often impossible to negotiate on an equal footing. At the same time, technical experts often lack important communication skills.

Egos and personal interests

Those who develop or advocate a new technology often become additional actors, if they have a personal interest in the negotiation outcome. Technology proponents and their egos can block originally uncomplicated discussions. Often IT experts insist on the best technical solution, however they forget to consider their customers’ perspective and solve the actual customer problem.

The power of the big tech players

The concentration in the cloud market is increasing further. AWS, Google and Microsoft are continuing to expand their competitive position. Such development makes it difficult for customers to avoid those providers. This weakens the customer’s negotiating position against these cloud giants. But it is not only the cloud market that is developing into a seller’s market in which providers have a more favourable negotiating position. The Federal Association of IT Users, Voice in short, has been calling for a while already the digital policy of the Federal Government to prevent further market concentration, particularly in the area of provider platforms and enterprise software (ERP). It can be assumed that customers will also be in a weaker negotiating position in the medium term. It is therefore all the more important for IT service buyers to have excellent negotiating skills.

Organisational changes

Another special factor in the outsourcing of IT services is the degree of change they trigger in companies. The introduction of new IT systems is often accompanied by an extensive IT transformation. This does not only affect individual teams or areas of the IT organization, but usually the entire company with all its users. It is not uncommon that the level of change triggered is underestimated. This can lead to the fact that the human factor is insufficiently considered in change management and that the IT transformation may even fail in the end.

How successful negotiations on IT services should be performed

In response to these characteristics, it is therefore particularly important when negotiating IT services

  • to deliberately staff the negotiating team in an interdisciplinary manner to ensure IT and negotiating competence
  • to avoid misunderstandings in communication that may arise due to technological complexity
  • closely coordinate the internal negotiation strategy
  • ensure, by means of regular preliminary and follow-up meetings, that all parties involved adhere to the agreed strategy and that solo attempts are avoided
  • involve all affected organizational units in order to create acceptance for the IT transformation

How we support you in the negotiation of IT services

We support you in conducting negotiations on IT services with lasting success. PACTUM is at your side to advise you and support you throughout the entire negotiation process. In most cases, our consulting services consist of the following 3 steps:

3 level plan for negotiation consulting

Are you planning to outsource IT services? Would you like to exchange views on possible strategies for negotiations on IT services? Or you want to learn more about our services? You are welcome to contact us! Either by phone at +49 69 200 98 97 8 or by e-mail at hello@pactum-advisory.com.

Lisa Kohlrusch
Negotiation expert, change-consultant, mediator

Lisa loves businesses that are changing to be sustainable. As founder of PACTUM, she sees her mission in encouraging people to negotiate to help them make things positive.

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