LogicaCMG and Dovetail

Posted on March 24, 2008 | Filed Under Value | Leave a Comment

A recent agreement between these two companies yields a simple of example of the different values often seen by the two “sides” in a negotiation.

LogicaCMG is a European IT and business services company.  Dovetail is a provider of payments systems.  They recently announced that LogicaCMG has acquired a “master license” to Dovetail’s payment systems technology.  The details are not important to us, except that they provide a window on motivations, and how the motivations of two sides to a negotiation are almost always different.

At the core, most sellers get their business value from money.  Most buyers are using the purchased technology or service to solve a business problem, which in turn leads to value.  The accomplishment that the technology enables provides the value -  the technology itself does not.  In that way, the connection between business value is shorter and clearer for sellers than for buyers.  But most negotiations in IT end up with the seller describing the buyer’s future value.  It can be a difficult connection to make, but it is the most effective persuasive approach to convincing a buyer that what you offer drives value to them.  In fact, many sellers stop short of making this linkage of their offering to business value for the buyer.  For those sellers, they can expect a longer sell cycle, and a more difficult time sustaining price and terms in the agreement.

The press release from LogicaCMG makes a short value statement for each side.

First: Sarah Loveday, Director, Global Products of LogicaCMG, said, “We will develop our own variations to the core system that help us enhance our market-leading packaged solutions in response to the challenges facing our clients.”  This statement of value is indirect.  The implied value is that being responsive to clients will provide a return in market share, revenue, or customer satisfaction - something that is valuable in turn to LogicaCMG.  Valuable, but the purchase of the technology only enables the value - it does not provide the value.

Second: Martin Coen, Dovetail CEO, comments, “This validation of what we offer is the result of several years of intensive review by LogicaCMG, and confirms our belief that we have taken a significant step ahead of our competitors in delivering next generation payment systems.”  There are two values here.  (The following are not actual quotations, but things that might be said - in quotation marks for emphasis.)  One is not stated. “We got paid for this technology”.  (Although, in fact, depending on the value of the second type, even that may not be true.)  The second is a value of a different sort.  It translates to something like this, “My technology is validated by a key and credible client.  That makes my solutions more credible and attractive in the market, and raises the odds that others will also see my technology favorably.”  Which, of course leads to more chances to say, “we got paid for this technology.”

When you negotiate, as a buyer or a seller, remember this lesson.  Value drives decisions, and the value to you is not the same as the value to “them”.  You have to understand both. (TD)

Amazon & the Service Level Agreement

Posted on March 6, 2008 | Filed Under Questions & Answers | Leave a Comment

There is a fundamental principle you should remember when negotiating. Ask yourself, “What problem am I trying to solve?” before you settle on terms and/or prices.

Recently, Amazon experienced outages in their Amazon Simple Storage Service (S3), which provides scalable storage and retrieval to Amazon marketplace vendors.  The Service Level Agreement (SLA) says that Amazon “will use commercially reasonable efforts to make Amazon S3 available with a Monthly Uptime Percentage (defined below) of at least 99.9% during any monthly billing cycle (the “Service Commitment”).  In the event Amazon S3 does not meet the Service Commitment, you will be eligible to receive a Service Credit as described below”…  Great.  The SLA was not met this month. Now what? Or in this case, What problem are we trying to solve?

First things first.  If you are negotiating a contract that is important to your business, make sure you have adequate legal advice.  Terms like “commercially reasonable efforts” have specific meaning.  Remedies, cure periods, limits of liability, definition of terms, side letters, the “four corners” and more will impact your legal position if trouble arises.  Make sure your negotiating team includes the right skills, including legal skills.

Now - why have an SLA?  From the seller’s perspective, it can enhance credibility (”Here is proof of how I stand behind my product/service/solution.”), which can raise the odds of signing a deal.  It can also provide a specific statement of liability for failure to meet the SLA.  Affordability is a key part of the statement of liability.  So above, failure to meet the SLA results in an obligation on the part of the provider to supply a credit (essentially, some free service). A buyer may see this obligation as a penalty.  The seller, while acknowledging the “penalty” component of the SLA, also sees it as a limitation of liability.  When things go wrong, this can be important.

From a buyer’s perspective, an SLA provides some assurance that a necessary business condition will be met (as above, “availability of 99.9 %”).  The SLA provides a remedy/penalty if it isn’t.  After all, the buyer has a business to run.

Sounds simple, right?  An agreement on performance and an agreement to a remedy.  A side comment: for those of you who have read some of our other articles, K&R teaches the concept of the Negotiation Success Range™ (NSR™).  However, even a simple SLA like the one at the top of the page involves more than one NSR.  The ranges 99.9% to 99% and size of the credit are two examples.  Each of these terms has a magnitude, interacts with the other terms, and is in fact a negotiated result.  The NSR can help you understand the tradeoffs.  See our NSR articles for some thoughts on the use of that tool.

Back to the “problem”.  The full question is this: What problem are we trying to solve?  It’s a critical question in negotiations.  In the SLA above, if 99.9% availability of the service is important to your business, and you don’t get it, what remedy does a credit provide for you?  The answer comes from answering the question “What problem are we trying to solve?”  If the lack of availability causes you to lose revenue, and your company is publically traded, and the revenue loss will affect the stock price (and your personal options grants), then this remedy is probably the wrong one.  If the lack of availability causes your work to shift from completion on Monday to completion on Tuesday, and you only use the data once a month, the remedy may be perfectly suitable.  The negotiation principle is to understand the problem resolution as an end first, and address the means of resolution second.

Ask yourself, “What problem am I trying to solve?” before you settle on terms and/or prices.  Then make sure the terms and prices reflect a true solution to the problem.  The SLA example above provides a simple lesson in matching your solutions to the problem.  If you do it consistently, you’ll be a better negotiator. (TD)

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