While there is clearly a need for financial institutions to approach vendor agreements armed with tactical knowledge and supporting analytics, there is no substitute for employing methodical action throughout the entire contract negotiation process. In the end, when it comes down to dollars and cents, a little common sense and a lot of shrewd intuition will go a long way.
Simply put, a vendor agreement is a business contract between two parties covering the exchange of goods or services in return for compensation. Vendor agreements establish the business relationship conditions between banks and their technology solutions providers and include details on each party’s obligations under the contract. These agreements allow involved parties to understand what is expected and the consequences if those expectations are not met.
The first step on the path to a successful contract negotiation is to make the unknown known. One way to accomplish this is to create short lists in the early stages that can collectively serve as a roadmap to guide the process and identify any gaps in information needed to make educated decisions along the way. Here are a few examples of lists that can help support this initiative:
Anyone who has been involved in a contract negotiation knows the process can get contentious. The best FI negotiators gain an understanding of the priorities and motivations of the vendor’s representative(s) prior to negotiations. This knowledge helps prepare the institution to build trust, project empathy, and create a positive environment to smooth over any rough patches that may arise. Obtaining advance answers to these questions will help keep the negotiations on an upbeat footing:
“Splitting the difference” is an approach used by many negotiators to accommodate differences of opinion that arise during negotiations. It’s basically an arms-length method of reaching a quick solution while avoiding conflict. After all, what could be fairer than showing a willingness to give up half if the other person will, too? But in reality, splitting the difference is sometimes considered a lazy negotiating strategy and can be the quickest path to a bad deal.
Answering five questions prior to accepting a compromise will help the bank decide if the stakes are worth it or if the institution might benefit more by expending the extra effort it would take to negotiate a contract that involves fewer sacrifices.
Effective negotiation requires methodical action throughout the entire process. Understanding any information gaps in the preparation, bringing adequate knowledge to the table to smooth over rough spots, and never settling for less than the targeted goal when closing a deal are all crucial drivers of a successful negotiation that ultimately results in a win-win deal.